I
1¡ . t r'1,1
GLOBAL FINA¡ICEILOCAL CRISIS
Tm Ror,n or Fnv.l¡tcrAL Dnnpcu¡,.tuoN IN rm GnocRApErcAL
RnsrnucruRrNc or Ausrn¡,r.lx F¡,nn,mrc AI\D F,mu cnpurr: Tm c¿.sn
or Ke¡vclRoo Isr,,lxo
by Neil Argent
BA Hons
The University of Adelaide
A Thesis submitted for the degree of
Doctor of Philosophy
at The University of Adelaide
June 1997 tt
TABLE OF CONTENTS Page
Title Page I Table of Contents ü List of Tables vi List ofFigures vll Abstract )o Deolaration )(lr Aoknowledgements )qu
CIIAPTER ONE: INTRODUCTION I l.l Introduction I 1.2 Research Aims and Objectives and Author's Motives J 1.3 Thesis Outline 6 1.4 Conclusion I
PART ONE CHAPTER TWO: GLOBALISATION, REGI]LATION AND TTIE RI,RAL: TOWARDS A TIIEORETICAL A}IALYSIS OF CONTEMPORARY RI.'RAL AI.ID AGRICI ]LTTJRAL CITANGE 9 2.1 Introduction 9 2.2 Scalng Change: The Rural in the Global and the Global in the Rural? l0 2.3 Rural and Agrarian Restruoturing: Evohing Scales and Dimensions of Change t4 2.3.1 Introduction t4 2.3.2Peasant, Proletariat and the Fin de Siécle: l9th and 20th Century Perqpectives l5 2.3.3 Structure and Contingency, Stability and Crisis: Regulationist Approaches to Agrarian Change 26 2.3.4 T\e Political Eoonomy of Farm Credit 38 2.3.5T\e Man on the Land and the Invisible Farmer: psmini politioal st Critiques of the Eoonomy of Agrioultrue 42 2.3.6T\e Cubist State: Towards a Non-Esse,lrtialist Account ofthe Capitalist State 45 2.4 Conclusion 49
CHAPTER THREE: THE AGRICTJLTIJRE.FINA}ICE RELATION: A REALIST APPROACH 52 3.1 Introduction 52 3.2 Critical Realism: A Philosophical and Theoretical Exploration 52 3.2.1To Be Is Not To Be Perceived: A Realist Philosophy for the Social Soiences 52 3.2.2T\e Critical Realist Mode of Conceptualisation 62 3. 3 The Agriculture-Finance Relation 66 3.4 Conclusion 72 ltl
CI{APTER FOUR: AUSTRALIA'S PI-ACE IN GLOBAL SPACE: THE POLHCAL ECONOMY OFAUSTRALIATI AGRICI,'LTTJRE A}.ID RIJRAL SOCIETY AFTER 1945 73 4.1 Introduction 73 4.2 Coloual Sooialism: Exploring the Roots ofthe Political Economy of Australian Agricultrue 73 4.3 ANation Rebuilds and Proqpers: 1945 - 1972 77 4.41972 to 1983 88 4.5 1983 to the Present 94 4.6 Conclusion 99
CIIAPTER FTVE: "TIGIIT MONEY, LOOSE REGI.'I-ATIONS AI.ID A WARM PI-ACE TO COIJNT THE PROFITS',: THE DEREGULATION OF TTTE AUSTRALIAN FINAI..ICIAL SYSTEM l0l 5.1 Introduction l0l 5.2 Involution and Revolution: The Liberation of Intemational Finance and the Australian Eoonomy 101 5.3 The Rise and Fall of Organised Finance: The Deregulation of the Australian Financial System 106 5.4 Agriculnral Finance in Pre- and De-Regulated Environme,lrts ll5 5.5 Conclusion 122
CITAPTER SD(: CIIANGING PLACES AND SCALES: AGRICULTI]RAL AI.ID RI.JRAL RESTRUCTURING IN NEW ZEALAI.ID t28 6.I Introduction t28 6.2T\e "Processed Grass" Economy Goes Global 130 6.3 Analysing tle New ZealandFarm and Rural Crisis 139 ó.3.I Changng the Rules ofthe Game 139 ó.3.2 Responding to/Resisting the New Rules t4t 6.3.3 State Reqponses to Farm Financial Stress 147 6.3.4 Rural Commr¡nities Under the New Regime t49 6.4 Conclusion 153
PART TWO CHAPTER SEVEN: TI{E AUSTRAI-ASIAN AGRICULTURE.FINANCE RELATION - Al.I AI.IALYTICAL FRAMEWORK t57 7.1 Introduction 157 7. 2 Reconceptualising the Agriculnue-Finance Relation 158 7.2.1Intoduction 158 7 .2.2 T\e Highly Regulated Australasian Agriculture-Finance Relation 160 7 .2.3 197 3- I 9 83 : The Regulated Australasian Agriculture-Finance Relation in Flux 167 7.2.4 1983-The Present: The Globalised Australian Agriculture- Finance Relation 7.2.5 T\e Globalised Agriculture-Finance Relation in New Zealand t7s 7. 3 Conclusion: Glob al-National-Regional-Lo cal: A Hyp othetical Argument Concerning 1þs Tmpact of Financial Deregulation w
on FarmFamiliss and R¡ral Communities 180
PART THREE CIIAPTER EIGHT: I(AÌIGAROO ISLAIID - AREGIONAL GEOGRAPHY 183 8.1 Introduction 183 8.2 The Physical Geography ofKangaroo Island 184 8.3 Uncertain Beginnings: A Cultural and Economic Geography ofKangaroo Island to 1900 188 8.3.1 prior Discovery and Unofficial Settleme,lrt to lg3ó 188 8.3.2 The Rise and Fall ofthe South Australian Coryany: 1836-1838 t92 8.3.3 Island Settlement to 1900 193 8.4 The "Opelring-Up" ofKangaroo Island: Settlement, Agricultual and Economic Developme,lrt: 1900 - The hesent 198 8.5 Conclusion 2t5
CHAPTER NINE: 'OTHER pEOpLE S MONEy: SOUTTI AUSTRALIAN FARM FINAI.ICING IN A DEREGULATED EI.I\TIROM\,IENT 2t8 9.1 Introduction 2t8 9.2 T\e Globalised South Australian Agriculture-Finance Relation: A Broad Outline 218 9.3 Linking the Globa[ the Regional and the Local: South Australian Financial Institutions in the Global Economy 234 9.3.1 The Emergence, Rise and Fall of the State Bank of South Australia 234 9.3.21\e Rise and Fall ofthe State Bank: The Demise of a Global Strategy 238 9.3.3 Business and Regulatory Infrastructure Changes 243 9.3.4 Lending Policies 246 9.3.5 Financial Products and Marketing Strategies 249 9.3.6 Public Farm Financing in the Wake ofFinancial Deregulation: The Commonwealth Development B ank (CDB) and the Rural Finance and Development Division (RJ.&DD) 252 9.4 Conclusion 255
CI{APTER TEN: TFIE LOCAL AGRICITLTIJRE- FINANCE RELATION: INTERPRETING TIIE POST-DEREGI.]LATION DECISION.IVIAKING EI.IVIRONI\4ENT 258 10.1 Introduction 258 10.2 The Higbly-Regutated and Globalised Local Agriculture-Finance Relations, Kangaroo Island 258 10.3 Anatomy of a Rural Boom and Stump 266 10.3.1 The Boom 266 10.3.2 Moving Towards the Vortex: The Developme,lrt of a Debt Crisis 270 I0.4 The Globalised Local Agriculture-Finance Relation: v
A Banke/s Perqpective 277 10.5 Island Debt - A Brief Outline 280 10.6 Conclusion 283
CHAPTER ELEVEN: TTIE LOCAL AGRICIJLTT,,RE. FINA}ICE REIATION AI.ID THE FARM FA]\4ILYI BA}IKER INTERFACE: INTERPRETING AI.ID RESOLVING TTIE ISI-AI.ID'S DEBT CRISIS 286 1l.l Introduotion 286 11.2 Family, Far4 Firm: Exploring the Globalised Looal Agriculnue-FinanceRelation Through Lived Erperience 286 ll.2.l The Kangaroo Island 1994 Farm Family Saryle 286 lI.2.2Island Farm Families Interpret the Crisis 305 I1.3 Getting It Baok: Resotving/Contesting the Island's Debt Crisis 316 I1.3.1 Island Farm Debt: A Brief Outline and Recapitulation 316 .Work-Out': 1I.3.2 The Farm Debt and Reoovery and Mediation 319 I1.3.3 Around the Kitchen Table: The Farm Family/Banker Interface 328 I1.4 Conclusion 338
CITAPTER TWELVE: THE COMMI.]N]TY STRIKES BACK: FARMING WOMEN, MEN AI.ID COMMIJNTTY INSTITUTIONS CONTESTINGNEGOTIATING/ MANAGING CHANGE 339 12.l Introduction 339 I2.2Fatm Survival Strategies: Conoeptual and Empirical Perqp ectives 339 12.3 Tearing at the Fabric: Rural Action and the Island's Debt Crisis 368 l2.4Heanng, Helping, Holding: Island Institutions and Organisations Resisting Cultural and Economic Change 376 12.4.1The Role of the Churches 376 12.5 Conclusion 385
CHAPTER THIRTEEN: CONCLUSION 389 Bibliography 400 vi
LIST OT'TABLES Page
Table 2.1 Phases of regulation and accumulation in the 20th Century 32 Table 2.ZFoodRegimes - Princþal Tendencies and Hstorical Features 34 Table 2.3 conceptual Dimensions of tle Internationalisation of Capital 38 Table 3.1 Intensive and Extensive Research Methodologies: A Summary 5l Table 6.1 New ZealmdAgriculnual Policy Çþanges, 1984-85 139 Table 6.2 Assistance to PastoralAgrioulnre ($NZ millisn), 1980-1990 139 Table 6.3 Sheep and Beef Farm Income Expenditure, 1982183 to l990l9l (nomin¿l $NZ) t43 Table 6.4 Debt-to-Equity Ratios for Sheep/Beef and Dairy Farms 143 Table 6.5 Nominal Interest Rates for Major New Zealand Financial Institutions, 1980 - 1986 (o/o) 149 Table 7.1 The 20th Century New Zealand Agricultrue. Finance Relation t76 Table 7.2 Credttor Tactics and Farm Responses 184 Table 8.1 Soil-Environments of Kangaroo Island 194 Table 9.1 Average Prices of Selected South Australian Brc¡daols Fam Co;cnodities, ',g32 - 1994 ($ ¡¡¡,,,i,,¿¡l) 228 Table 9. 2 Australian Post-Financial Deregulation Economic Trends Affecting B an k Decision-Making, 19 84- lg g I 244 Table 9.3 Total Exposures for Major Australian Banks and the State Bank and Total Non-Accrual Exposures for the State Bank, June-July, l99l (o/o) 246 Table 9.4 State Bank Loan Portfolio and proportion of Non-Performing Loans, December 31,1990 (o/o) 246 Table l0.l Prominent Kangaroo Island Pastoralists, 1938 264 Table 10.2 Kangaroo Island Farm Property Listings and Sales, 1987 - 1989 272 Table I l.l Kangaroo Island 1994 Farm Family Sample: PropertyPurchases (ha) 1985 - 1992 298 Table 11.2 Ordinal Scale of Degree of Subsurytion of Farm Production Relations 306 Table 12.l Family Farm Survival Strategies: A Schema 342 vll
LIST OF FIGT]RES Page
Figrue 2.1. Whatmore, et al.'s Subsrmption T¡pology Matrfu Showing the Position of 'Ideal Tlpes' 24 Figure 3.1 Three Models ofthe Society/Person Relationship 57 Figure 3.2T\e Transformational Model of SocialActivity 57 Figure 3.3 The Struchues of Causal Explanation 65 Figure 3.4 The Agriculture-Finance Relation 68 Figrre 4.1 Australian Farm Emplo¡ment 84 Figure 6.1 Locations and Populations ofNew Zealand r29 Figure 6.2 Chmges in Livestock Farm Investment and Production, 1982-1989 145 Figure 6.3 New ZealandPost Ofrce Rationalisations, 1983-1990 t52 Figrue 7.I The Highly Regulated Australasian Agricultue- Finance Relation 1952-1983 161 Fignre 7 .2 T\e Globalised Australian Agriculture-Finance Relation I 983-The Present 173 Figure 8.1 Kangaroo Island 186 Figrue 8.2196l Cadastral Map ofKangaroo Island 187 Figure 8.3 Soil Map of Kangaroo Island 190 Figure 8.4 Kangaroo Island, Total Population, 1838 - l99l 195 Figure 8.5 Kangaroo Island, Sheep Numbers, 1860 - 1992 ('000s) 203 Figrue 8.ó Kangaroo Island, Total Wool Chp, 1925 - 1992 ('000 greasy kgs) 203 Figure 8.7 1956 Map ofthe Kangaroo Island War Servioe Land Settlement Scheme 204 Figure 8.8 Sheep Numbers by Hundred, Kangaroo Island, t945 - t975 207 Figure 8.9 Kangaroo Island Farm Holdings and Average Size: 1945 - l99ll92 213 Figure 8.10 Average South Australian Greasy Wool Prices (ê/kg,1990 values) 213 Figure 9.1 Fixed Loan Facilities, All Lenders, Selected Industries, South Australia, 1985-1994 ($mill., $1990) 220 Figure 9.2 Revolving Credit Facilities, All Lenders, Selected Industries, South Australia, 1985 - 1994 ($mill., $1990) 220 Figure 9.3 Bank Lending as a Proportion ofAll Fixed Lending, Selected Industries, South Australia, 1985 - 1994 (o/o) 222 Figure 9.4 Aggtegate Cash Operating Surplus and Gross Indebtedness of South Australian Farms, l97ll72 - t9e2le3 ($leeo) 222 Figrue 9.5 Terms of Trade for Austratan Agricultrue, 1952153 - t994195 (1987-88:100) 224 Figure 9.6 Profit Margins for All South Australian Farm Industries, 1977178 - 1992193 (%) 225 vltl
Figure 9.7 Profit Margins for South Australian Farm Industries: Sheep, 1977/75 - 1992193 (o/o) 225 Figure 9.8 Profit Margins for South Australian Farm Industries: Sheep/Beef Cattle, 1977/78 - l9g2lg3 (%) 226 Figrre 9.9 hofit Margins for South Australian Farm Industries: Beef Cattle, 1977178 - l992lg3 (o/o) 226 Figure 9.10 Profit Margins for South Australian Farm Industries: Sheep/Cereal Grain, 1977l7B - lgg}lgj (%) 227 Figure 9.1I hofit Margins for South Australian Farm Industries: Cereal Grain/Oilseeds,1977/7t - lg92/g3 (%) 227 Figrue 9.12 Interest Rate Trends (l98l-1993) 228 Figrue 9.13 Interest Coverage Ratios for All South Australian Farm Businesses,lgTl/72 - l992lg3 228 Figure 9.14 Ratio of Business Tumover to Debt for All South Australian Farm Industies, 1977/78 - lgg}lg3 230 Figure 9.15 Aggregate Equity Levels for South Australian Farms, 1974175 - 1992/93 (o/o') 232 Figure 9.16 Debt to Asset Ratios for South Australian Farms, 1974/75 - 1992193 (o/o) 232 Figure l0.l State Benk of South Australia Fixed Le,nding, Kingscote Branch,lg5 t/52 - t973/74 ($1990 and No. of Borrowers) 263 Figure 10.2 South Australian Average Greasy Wool prices, 1973/74 - 1993/94 (lke, t990 values) 267 Figure 10.3 Annual Rural Property Sales (No. and Average Value), Kingscote D.C., 1984 -lgg4 (1990 dollars) 267 Figure 10.4 Farm Debt and Farm Size of Kangaroo Island Farmers Being Counselled by Kangaroo Island Rural Counsellor, Sept. 30, l99l ($ nomin¿l) ¡1=72 281 Figure 10.5 Farm Equity and Farm Size of Kangaroo Island Farmers Being Counselled by Kangaroo Island Rural Counsellor, Sept. 30, 1991, n:72 281 Figure 10.6 Sources ofDebt for Kangaroo Island Rural Counselling Service Clients, 30 Jr¡ne 1992,1993 and le95 (No. of Clients (%)) 282 Figure I l.l Kangaroo Island 1994 Farm Family Saryle: Household Size 288 Figure ll.2 Kangaroo Island 1994 FarmFamily Sample: Male Household Head In-migration" 1950,1988 290 Figure 11.3 Kangaroo Island lgg4FatmFamily Sample: Farm Organisational Structure 292 Figure I1.4 Kangaroo Island 1994 Farm Family Sample: Farm Size (Ha) 292 Figure ll.5 Kangaroo Island 1994 FarmFamily Sample: Gross and Net Farm Income and Gross Indebtedness, le84l85 - teezte3 ($1ee0) 294 Figrue I1.6 Kangaroo Island 1994 Farm Family Sample: Farm Size Change, 1984 - l99a (Ha) 294 Figure I1.7 Kangaroo Island 1994 Farm Family Sample: Interest Coverage Ratio, l984lS5 - 1992193 298 D(
Figrue I1.8 Kangaroo Island 1994 Farm Family Saryle: Average Equity (%) and Debt to Asset Ratio, 1984/85 - t992/93 298 Figure I1.9 Cook and Ronan's (1994) Farm Business Position and Adjustment Framework 300 Figure 11.10 Kangaroo Island 1994 Farm Family Sanryle: Farm Equity and Household Head Age: a) 1984185; b) 1988/89;c) le92l93 301 Figure ll.ll Whatmore, et al.'s (1987a,1987b) Subsurytion Matrbç showing position of ideal tSpes' 304 Figure ll.l2 Kangaroo Island 1994 Farm Family Sample: Relative Degrees of Subzumption: a) l9S4/85; b) 1988/89; c) ree2l93 304 Figure I l.13 Farm Sample No. 2: Clive and Pamela Myers: Farm Financial Performance, 1988/89 - 1992193 307 Figrre I l.14 Farm Sample No. 3: Garry and Anne Nash: Farm Financial Performance, 1988/89 - 1992/93 307 Figure I l.15 Farm Saryle No. l0: Keith and Rhonda Priestley: Farm Financial Performance, 1984/85 - 1992193 309 Figure I1.16 Farm Samlle No. 40: Andrew and Carol Pike: Farm Financial Performance, 1984185 - l9g2/93 309 Figure ll.l7 Farm Sample No. 44: Greg and Sonja White: Farm Financial Performance, 1984/85 - l99àlg3 313 Figure I l.l8 Farm Sample No. 59: Mark and Virginia paull: Farm Financial Performance, 1984/85 - 1992/93 313 Figure I l.l9 Kangaroo Island 1994 Family Farm Sample: Aggregate Farm Debt by Financial Institution,lgg4/95 - reezle3 ($leeo) 3t7 Figure 12.1 Kangaroo Island 1994 Farm Family Saryle: Annual Average Horus Worked On-Farm per Weeþ 1984/85 - t992193 343 Figure lZ.2(Qngaroo Island 1994 FarmFamily Saryle: Average Annual Paid Farm Labour Usage, 1984/85 - 1992193 348 Figure 12.3 Íkngtroo Island 1994 Farm Family Sample: Average Fertiliser Expendinre and Gross Farm Income, t984185 - te92te3 (S1990) 348 Figure 12.4 Island Seaway Superphoqphate Cargo Volumes, Adelaide to Kingscote, 1988 - 1993 (cubic metres) 351 Figure 12.5[{angaroo Island 1994 Farm Family gamrle: Average Key Farm Input Expenditure and Gross Farm Income, 1984/85 - 1992193 ($1990) 351 Figure l2.6l{angaroo Island 1994 FarmFamily Sample: Average Farm Debt by Financial Institution, 1984185 - tee2le3 ($leeo) 356 Figrrre I2.7 lkngaroo Island 1994 Farm Family Sample: Total Household OÊFarm Income, 1984185 and 1992193 ($leeo) 356 Figure 12.8 Kangaroo Island 1994FatmFamily Sample: Male OËFarm Income, 1984185 - 1992193 ($1990) 360 x
Iig*. l2.glktgaroo Island 1994 FarmFamily Saryle: Female OËFarm Inoome, 1984/85 - 1992/93 ($1990) 360 Figrue 12.10 The Globalised Local Agriculture-Finanoe Relation in Crisis 387 xi ABSTRACT
Of all the restructuring pressures brought to bear on Australia's farm sector and n¡ral sooiety in rece,lrt years, ttre deregulation of the national financial system in 1984 has bee,n \ilidely regarded as one of the 6es1 important. Yet, for many proponents of financial deregulation, a liberalised banking sector and floating exchange rate were to deliver considerable benefits to the farm sector. This thesis examines fts impact ofthe deregulation ofthe Australian finanoial systemupon farm families and nral commr¡nities by firstly, exploring the relative economic and social imFortance of agriculnue (and'rural society) to the economic and social proqperity ofAustralia since 1945. The consequent intertwining of public policy and farm and nral policy during this period is also explored, Secondly, the research attempts to reveal the social and economic effects ofthe deregulation on tle economio vulnerability of farm families and rural oommr¡nitiesvia a case study of Kangaroo Island's farm debt crisis. Drawing on aû extensive rwiew ofthe agrarian restructuring literatrue and the philosophy of critical realism, the abstract conoept ofthe agriculture-finance relation is dweloped to inform the temporally- and scalar-se,nsitive and causal analysis of the role of financial deregulation in the contemporary economio restruoturing of rural Australia and New Zeúand. A questionnaire and extended interview survey of randomly selected Kangaroo Island farm f¿milies was conducted in 1994. Extended interviews were also conducted with a number of relwant finanoial institution staffto ascertain how these institutions had interpreted the competitive environme,nt aft er deregulation. The research finds that finanoial deregulation has, via the removal of interest rate controls and the privatisation, commercialisation or abolition of the public farm finanoe prograûlmes and agencies established during the post-Second World War period, fundamentally realigned the agriculture-finance relation in the banking sector's favour. Empirically, the researoh demonstrates how, and with what effect, the aggtessive lending and marketing strategies ofthe State Bank of South Australia were transmitted to the regional and household scales on Kangaroo Island. The reflexive character ofthis restructuring process is revealed by the strategies of resistance and assistanoe eryloyed by farm families, local community organis¿lislrs and institutions in support oflocal families and the broader community. In the case ofthe sampled farm families, tle gendered character of these survival strategies was observed, as is the imlortance ofthese strategies to the survival of the farm- The thesis concludes that, deqpite the hegemony of economic rationalism in contemporary public policy circles, public financial institutions, oharged with the support of agricultural and other small business dwelopment at the regional level, are a necessary intervention to heþ maintain the family farm production base. Given 1þs imFortaûce of debt finance to present-day capitalist agriculture, the research also emphasises tle need for a higher degree of financial expertise among farm families to manage the growing complexity of financial products and the increased scrutiny of the farm business by creditors.
xüi ACKNO}VLEDGEMENTS
A number of individuals and orgenis¿1iqns are owed thanks for their help over the time of this research, on Kangaroo Island and the Australian mainland. I gratefully actnowledge tle co-operation of those Kangaroo Island farm families who agreed to partioipate in the research for this thesis. Eqpecial thanks are due to Mike Linscott for his patient and timely advice and the benefits ofhis 'looal knowledge'. The Kangaroo Island Economic Dwelopment Board provided financial support for a component ofmy fieldwork on the Island.
On the mainland, I thank the Commonwealth Dwelopment Bnnlq Rural Finance and Dwelopment Division, Elders, Dalgetys and ex-State Bank officers who agreed to take part in this research. At the Universþ ofAdelaide, Greg McCarthy from the Department of Politics acted as a thoughtfirl sounding board for the financial institution compone,lrt ofmy research.
Iain Hay kiodly read and comme,lrted on a draft version of Chapter Swe,n.
The Departme,nt of Geography, in a time of shrinking university funding and increased stress, provided financial and invaluable critical support during all phases ofmy research. Thanks to Margaret Wallace and Je,nnifer Bonham for the stimutating 'round chair' discussion and debate. Thanþou also to Chris Crothers and Sue Murray for their help in the mappiag and desþ work for the thesis. Peter Smailes has bee,n an assiduousþ criticaf patient and supportive zupemisor and mentor and is owed much 1foanks. Bunga Hum, Iain Lillecrapp, Eileen Arge,nt and Malcolm Johnston willingly piloted the Island farm family questionnaire and gave helpfrrl advice. ftanks are due also to my new colleagues in the Departme,lrt of Geography and planning at the University of New England for their patience and r¡nderstanding during my final montls of frantic rnniting. Thanþou to Mike Roaoh for preparing a number of maps for Chapter Eight.
To the two people who have bee¡r with me all ttre way over tle past four years (in Caitlin's case, most of the way!), thanþou, Jane and Caitlin for your unwavering support, tolerance and r¡nderstanding. None ofthe following would have been possible, endwable or meeningfül without your love.
CHAPTER OIIIE:
INÏRODUCTION
1.1 Introduction
Australian farm families in the mid-1990s face a difficult and r¡noertain fr¡true.
Althot'gh family-orlmed farms provided 93.5 per cent of the gross value of farm production
m 1994195 and or¡med 73.7 per cent of the total farm area (Paterson, 1996, 4), other
statistics indicate this integral unit's relative decline. Two decades ofworse,lring terms of
farm trade, accomPanied by steadily growing farm debt, r¡ndersoore thefinancial plight of
the farm sector. The increasing average age offarm operators; the growing reoognition that
large numbers of farm f¿milies are only part-time farmers, with oËfarm income ensuring
their sr¡n¡ival; and the gradual uncovering ofwideqpread poverty amongst 1¡¡¡1f¿milies in
particular crisis-prone regions (Social Dwelopment Committee, 1995) all depict a sector
and a social and economic unit under extreme pressure.
The institutional environment which historically fostered and supported family-based production has also tumed. The Rural Adjustment Scheme (RAS) has increasingly become À \ a tool for farm amalgamationr. The suite ofpublio and quasi-public finanoial institutions and
agencies tlat once offered concessional and long-term finance to the farm sector have all,
over the last decade, been privatised, abolished or corporatised.
In large part, the institutional environment (and the intemational trading
e'lrvironment, for that matter) which the Australian farm sector confronts today is the same for virtually all sectors of the Australian economy and society. A deregulated financial and banking systeq the repudiation and gradual retraction of all forms ofprotection
þarticularþ severe in the manufacturing sector), policies ofprivatisation and general
'shrinkback' in govenrment activity all mark what hrsey (1991) terms the decline of the nation-building state.
I The RAS is a central component in three 'regional adjustment' strategies currently being developed. The Eyre Peninsula Stratery @yre Peninsula Strategic Task Force), WEST 2000 and the South-West Strategy (Stapleton, 1996,35) all aim to reduce each respective region's number of farms via an amalgamation of existing holdings to create more viable sized farms. 2
There is now widespread (indeed, almost ¡¡¡¡animo¡s) acceptance that these changes, also wident in many other dweloped countries, have been drive,n by global economic ohange. Popularþ knoum under ttre now largely dwalued title of 'globalisation,, this restructuring process is assumed to be of a global character. It is also common to read of tle ne>nrs between the .long ending ofthe post-second world war boom, and the protracted crises of many national agriculnral sectors. This is no less tle case for analyses ofAustralian farming.
Many of the Australian farm sector's problems are indeed the product of structr¡ral 'difficulties' in global trade, and particularþ the trade policies of the major blocs of the u.s, and the EEC. with the recent zuccessful conclusion ofthe Uruguay Round ofthe General Agreement on Tariffs and Trade (GATT), however, Australian farmers and agribusiness are expected to benefit significantly from the anticipated $4316.4 billion growth in the world economy by the year 2002 (The Weekend Australian, 1993). Elsewhere on the global tradin8 agenda, the advent of the Asia-Pacific Economic Co-operation has been hailed by many as a harbinger ofbetter times to come. The achiwement of a so-called ,free, global trading environment'is seen to be its or¡m reward. Whether a truly liberalised global market for all facets of economic activity, and the exposure ofvirtually all sectors of society to such market, a can be achieved, let alone provide the necessary impetus for the reinvigoration of Australia's embattled agricultural and rural sectors remains to be seen. Sadly, for many regions where diversification into new income elastic commsfiliss with niche markets is difficult, the continued production of conventional bulk farm commodities (which are enduring declining terms oftrade) is only expected to pay oftowards the end ofthe prese,nt
century as the GATT process reduces the effects of the trade subsidy war.3
2 The adjective "ffee' is used ironically here given that recent findings showAfrica will be $us2.6 billion per year poorer under the newly-liberalised global trading rules negotiated through the GATT process. Small Caribbean nations are also expected to be net losers. Under this new regi.e, European preferential ta¡iffs for goods produced in African, Caribbean and Pacific (ACP) nations will en4 wn¡ìe the removal of subsidies on grain exports will double the ACP bloc's disadvantage , as 34 of the 69 ACp countries a¡e net food importers (Weekend Australian, t 1993). One farmer at a recent rural crisis meeting in the Murray Mallee of South Australia caustically remarked, keeps "Everyone talking about the gains that GATT will bring around the year 2000. We're talking about getting to the year 2000!". 3
There is also occasional passing reference to the impact of the deregulation of
Australia's financial system in 1984, and hence, economic globalisation on family farming
(e.g. Lawrence, 1989,1990;Neales, 1990; Cronin, 1993; Social Dwelopme,lrt Committee,
1995)4. Globalisation is, however, as Buttel (1996, 23) notes, "a deceptiveþ elemelrtary
ooncqlt". Frequently assumed to form the hegemonic half of a hierarchical 'global-local'
binary globalisation's elevation to paradiqrn status in the social scie,nces has not been
checked by the necessary rigour to make its obvious appeal and putative power match
eryirical reality. Fagan (1990, 647-648), in his dissection of the hydra-headed Elders-D(L,
notes that deqpite the increasing salience of the global context in social science research,
'fts links between global change and restructuring within nation-states need a great deal
more theoretical and empirical analysis".
This thesis is an examination ofthe impact ofAustralia's financial deregulation upon
farm families and rural communities. Dealing as it does with notions of scale relations 'from the global to the local', it attempts to take Fagan's (1990) above point seriously. This thesis' conceptual emphasis is upon charting the forces for the social and economic
restructuring of the family farm sector within and through the scales they occur, from the
global to the national to the regional to the local, and wentually to the individual household.
I do not conceive ofthese forces as autonomous and disembodied, but as socially- constituted and reproduced. The lines oftransmission of economic power often defy preconceived notions of hierarchical relations and act, after Giddens (1985), in a reflexive fashion.
1.2 Research Aims and Objectives and Author's Motives
This research has rwo broad and interrelated aims. First, it aims to investigate how, and with what effects, the rapidly-evolving unregulated global economy has been transmitted through and within scales to farm f¿miliss, and to the local communities of which they are a part. In this thesis, attention is focussed on the changes to national financial and banking systems wrought by ttre removal of national modes of regulation, a global trend evident over the last two decades. As discussed above, most ofttre deregulation's ls¿rling o These claims are especially interesting as financial deregulation r¡¿s sold to the farm sector as a wholly beneficial change for the farm credit market. 4
advocates claimed that the reform of the Australian financial systemwould confer many
be'nefits upon the farm sector. This thesis attempts to establish the veracity or otherwise of these claims.
Second, the research aims 1s develop a metatheoretical and conceptual framework
for better understanding and analysing the social and economic conseq¡e,nces of financial
deregulation upon local communities and farm families. Kangaroo Island, South Australia, was chosen as t.he location for the case study that informs the dwelopmsnl ef this framework.
These broad aims are served and supported by a number of more qpecific objeotives. These are outlined below.
First, this research seeks to understand how farmers' aocess to and use of finance and financial services has been affected by financial deregulation. Following dereg'lation of the Australian financial system in 1983; the manipulation ofinterest rates became the main instrument of monetary policy and the public financiers of farm and rural dwelopment were gradually privatised. This dramatic change posed significant challenges to a farm sector that had for most ofthe post-war period received considerable assistance from a rafr ofpublic finance mechenisms and measures. In this context, a valid research question is: Has the withdrawal of publicly-directed concessionary financing for farmers allowed the development of finance packages more zuitable to farmers'needs?
Second, the research seeks to examine the social and economic impacts ofthe deregulation of the Australian financial qystem on Kangaroo Island f¿¡¡ f¿milies. It also aims to analyse the various strategies used by these families to reduce or overcome any resulting economic vulnerability.
Third, the thesis aims to e:iplore and assess ttre roles of the various relevant sectoral and community organisations in attempting to mediate the social and eoonomic consequences (if any) of any rezulting structural change in the agriculnral base ofKangaroo
Island. 5
Fourth, the research attempts to establish how the removal ofpublic controls over
the financial systemwas interpreted by relwant financial intermediaries (e.g. þenks, stock
forms) at the State, regional and local bank branch twel. This aqpect ofthe research is
obviousþ necessary to provide the ftll pictrue of farmer/creditor relations in the regulated
and post-deregulation period.
Fifth and finally, the thesis endeavours to provide a comparative intemational perqpective on the role of financial deregulation in the restructruing ofnational farm sectors.
It seeks to do this by reviewing the New Zealand agriculnual sector's and nual society's
experience of rapid and radical macro-and micro-economic reform after 1984.
My motivation for uaflsrt¿king this research stems from two main concems. Give,lr my farming and rural origins, the protracted Australian nrral crisis, and its impacts on individual farming families and rural toums and commr¡nities, has bee,n of profound personal concem. My second, but related concem is with the general economic and social consequences ofthe last decade ofprivatisation, deregulation and 'government shrinkback' and, particularþ, financial deregulation. My interest in and r¡nderstanding ofthese topics has been influenced significantly by ttre argume,nts of Hugh Stretton (e.g. 1976;1987).
My approach to this research has also been influenced by the broader societal context in which it began. My research started in the wake ofthe g1¿1s þank of South
Australia's announcement of its losses, and the more spectacular collapses of the State Bank ofViotoria and the P¡namid Building Society. All maj6¡ trading and savings banks wsls carrying substantial bad and doubtful debt portfolios at this time, primarily from le,nding to once-prominent entrepreneurs who had since been made bankrupt or were in various stages of insolvency. This research also began in the midst of punitively hieh interest rates, considerable antipatþ towards the banking sector by ahnost all sections of society, including the farm sector, and some reconsideration of the costs and be,nefits of deregulation. A number of farm foreclosures on Kangaroo Island and other areas of the
State gained substantial publicity through 1993. My acquaintance with a Kangaroo Island farm family after holidaying on the Island n 1992 helped me to choose the Island as tle looation for the case study at the centre of this thesis. 6
The reason for the choice of the Island as the case study, or more accurately, the looal scale ofthis research, derives not only from oonvenience (as noted above), but from a nr¡mber of other more purely methodological factors. As already mentioned, the Island was one of a few hot spots' offarmer militancy directed against fhs þenking sector ùrring the earþ 1990s. As an island, Kangaroo Island also posed none ofthe problems of regional definition and delineation that would have perhaps, howwer slightly, confronted a study of a mainland region. Taken together, these factors suggested the Island as an ideal site for -tis study.
An outline ofthe remaiaflsr ofthis thesis follows.
1.3 Thesis Outline
The following chapter outlines the theoretical orientation ofthis thesis. This it does by developing a conceptual understanding of the relationships betwee,n (and within) the farm family, extemal capitals and the nation-state in the context ofglobal economic change. The
construction of this framework is informed by the relatively recent scale literature, the political economy of farm oredit literature, feministr critiques ofthe broad agrarian
restructuring geffe and some recent attempts to conceptualise the regulatory role ofthe
nation-state in a global financial milieu. Chapter Th¡ee exte,nds tris conceptualisation process. Using the philosophy of critical realism, this chapter atteryts to dwelop a heuristic
framework for analysing the interrelationships between the farm family, finanoial institutions and the state. This philosophy also informs the fieldwork methodology for tle case study at
the centre ofthe thesis.
Chapter Four contains a brief examin¿1is¡ ofthe efuenging interrelationships between
the Austratan farm sector and rural commr¡nities and the nation-state from 1945 to the present' This discussion focuses on the decline of "colonial socialism" (Butlin, Bamard and
Pincus, 1982), the decline in agriculture's contribution to the national economy and its loss ofpolitical influence and state assistance. This chapter seeks to provide tle necessary political and historical context for the remainder of the first theoretical half of the thesis.
Chapter Five charts the process ofAustralia's financial deregulation from the global to the national scale. This analysis also focuses on Federal Govenrme,nt attempts to manage 7
the transition from a highly-regulated and nationally-bounded system to an open and targeþ
unregulated conduit ofintemational capital. Consideration is also given to the iryact sfthis
radical transformation on macro-economic management, national eoonomic health, the
institutional organisation of finance and, finally, the farm sectot's experie,nces ofthe new
conditions.
Chapter Six provides a comparative analysis of the effects of a deregulatory state
age'nda on the agrictrltural and rural sectors by rwiewing the New Zeúand, experienoe of
oveÍ a decade privatisation and deregulation. This literature rwiew provides a pote,lrtial
porte'lrt of farm- and community-lwel changes and responses in Australia. Part Two oftle
thesis draws together some of the central themes dweloped in Part One, including the
impofant perspective offered by the New Zealand post-1984 experie,nce of agricultrual
restructuring, to form a hlpothetical argument concenring the effect of globat economic
ohange on national agricultural sectors, farm families and nual regions and commr¡nities.
This Part consists ofjust one chapter (Chapter Swen).
The analysis and discussion ofthe Kangaroo Island case study is contained in Part
Thtee, beginning with a bdef "potted" history and geography ofKangaroo Island (Chapter
Eight). Chapter Nine is an investigation ofhow financial deregulation was translated to, and interpreted by, the major institutional providers of farm finance at State and Island lwels.
This chapter essentially examines the zupply-side ofthe equation: did changes in bank ¿¡1d
other relevant financial institution lending policy at the State and local lwel unnecessarily
expose Kangaroo Island farmers to economic vulnerability?
Chapter Ten recaptures the local decision-making environment in which Island farm families and bankers operated in the post-financial deregulation period, covering the boom period ofthe mid- to late-1980s and the post wool market collapse-related shrmp ofthe earþ to mid-1990s. The competitive strategies employed by banks and stock frms to attract farm business in this context are also explored and discussed. The sampled Island f¿milies' financial vulnerability or strengtl is assessed in Chapter Elwen in the context of the preceding discussion. Obviousþ, any identified farm financialvulnerability is likeþ to be the product of a diverse range of factors and prooesses and not the sole product of financial 8
liberalisation. A qualitative analysis ofthe actual reasons underlying these families, financial status is undertaken. The debt reduction strategies employed by financial institutions and the strategies of resistance or compliance employed by indebted farm families - the farm
family/banker interface - are also examined in this chapter.
Chapter Twelve reviews the strategies used by these f¿mitiss to alleviate their exposure to the Island's debt crisis and the gendered character ofthose strategies. It also examines the roles, aims ¿ad effectiveness ofvarious relwant sectoral and community groups in their attempts to address the localised impacts ofthe orisis. The findings ofthe whole study are summarised in Chapter Thirteen.
1.4 Conclusion
Any research project, large or small, is a joumey ofleaming. At the end ofthe joumey, ttre researcher will hopefrrlly know much more about their chosen research field, methods and tlemselves than when she/he began. With a modicum of skill, and a great deal more luck, the resultant study may even enlighten the researchet's peers and non_academic audie'lrce. When I began this research, there had been, as far as I was aware, no detailed study into the impacts financial of deregulation on the Australian fa-ily farm sector. A small intemational literature concemed with the effects of rapid and radical economic restructuing on rural societies and farm sectors existed. I began my phD study without an economics background, and with a very poor understanding of the Australian financial systenr The approach that I have taken through6¡1 this research, then, has been strongly influe'nced by these ignorances, my olvtr inherent biases' as well as, of more significance, my f¡¿ining in geography. Gven the complexity ofthe task set, then, it is iryerative that the best tleoretical tools are selected and honed for the joumey ahead. The following two chapters perform this task. 9
2.1 Introduction
Given the open and complex nature of social and economic systems, how are we to
conceive ofthe immanent and appare,ntly diqparate processes and phe,nome,lra at the oore of
global restructuringf Tmportantly for the subject of this thesis, what is the extent and nature
of the relationship between these processes and the curre,nt and ongoing social and
economic reorganisation of national farm sectors and nual societies? In other words, what
would a theoretical and conoeptual framework that seeks to understand and explain the role
of financial deregulation in the Australian rural and farm crisis of the late 1980s and earþ
1990s - in neither structuralist/fi¡nctionalist nor voluntarist terms - look like?
The purpose of this chapter and the next is to dwelop such a framework. The
present chapter conceptualises the central elements in this research. The farm family, the
family farm and their interrelationships with extemal oapitals and the nation-state across
scale and space are discussed via a critical review of the broad political economy of
agriculture literature. Chapter Three exte,nds this concqrtualisation by establishing a broad philosophical framework for the causal analysis ofthe interrelationships between the farm family, financial institutions and the state. This framework also informs the fieldwork methodology of this research.
As discussed in Chapter One, one ofthe central defects in some ofthe more popular adaptations ofthe 'globalisation'thesis is their orie,lrtation aror¡nd ¿¡ imllicit and poorþ defined notion of scale. Not only have the empirical traces of restructu¡ing ofte,n been trimmed to fit a range of arbitrary dualisms (e.g. capitalvs. labour; capitalvs. the regions; capital vs. the nation-state), but its spatial menifestations have equally bee,lr assumed to take the form of a simple dialectic between the 'local' and the 'global' (Fagan, 1995a,1995b). l0
Given the importance of scale processes to this thesis, the following section reviews some
recent attempts to insert the critical power of scale into social inquirv.
2.2 scaling change: The Rural in the Globat and the Global in the Rural?
The ascendancy of the globalisation perqpective in the social soie,nces has brought
space and scale to the forefront of social analysis. However, the way in which this
reassertion has been accomplished has caused some ambivalence (Massey, 1992). T\e reoognition that 'geography matters' to critical theory has provided geographers with an
ave,nue into wider social science debates. Yet the rather glib way in whioh geography,s oore concepts have been applied to a qpatialised critical theory and much global restructgring research has hampered the development ofboth projects. As Smith (1993), Jonas (lgg4), Fagan (1995b) and Howitt (1997) state, the central problem here is the various and changeable as¿nings ascribed to both space and scale by geographers and non-geographers alike.
In the contemporary humanities and social sciences, a plethora of qpatial metaphors .decentred' has bee,lr used to describe the plight ofhuman subjects and discourses: they are or 'diqplaced', they can be mapped and we can talk of their positionality and grounrting
(Smith, 1993). The number and type of such new 'qpaces' defies enumeration. The trouble with this literary reinterpretation is, however, the lip service paid to the material qpatial referents by these terms'various users. Too often, qpace is conceptualised as a featureless plain upon which history's grand march proceeds (Smith, lgg3, gg).
Scale, too, has suffered from its popularisation as trope. As Jonas (1994) stresses,
'scale' has been employed variousþ to ascribe difference in material landscapes, as a set of abstractions that help conceptualise social and landscape change (where particular theories are paired to a particular scale, e.g., mesoscale analysis and middle-lweltheorising) and as a metaphor; where the 'urban', 'regional', 'local' and 'global' are invested with mythical powers and differences that do not always accord with material reality. The overuse of scale as metaphor has been particularþ influential in the 'global restructuring'perqpective, where 1l
reiñed notions ofthe 'local' and the 'global' have bee,n used as explanatory ends in
themselves. The conceptual feeble,ness of such binary imagery dwalues scale to a
"' oontentless abstraction "' (Jonas, 199 4, 257).
Given the overwhslming complexity of contemporary social, cultr¡ral and economic
efinnge, ús impoftance of charting and understanding 'the various linkages between the
local and other geographical scales" (Howitt, 1993, 33) could hardty be a more irnportant
research agenda. Geographers have been in the vanguard of his project, but have also
drar¡rm on developments within the broader social scienoes.
For example, feminist and poststructuralist theories have exposed all paradiems,
metatheories and their constituent abstract concepts, categories, identities and dualisms as
socially-constructed and the expression of a power relationship. $imil¿¡ty, feminist and
poststructuralist challenges to the globalisation paradigm have rwealed that its explanatory
force is often exclusionary: that is, it relies on a metanarrative which (necessarily) excludes
other discourses. For example, the restrucfuring thesis ofte,lr assumes an economistic view
of society that, through zuch ossified dichotomies as work/home, publicþrivate, paid/unpaid, productive/unproductive and flexible/inflexible, reconstn¡ots and reinforces the
marginalisation of gendered, racial class, age and national 'others' (Herod, 1991; Smith,
1993;Fagan, 1995b). Massey (1992), smith (1993), Howitt (1993) and Fagan (1995a,,
1995b) have used this critical perspective to assert that scale, too, is socially-constructed.
Increasingly, scale forms the origin 'for narratives about social change" (Fagan, 1995a, 3).
These authors have sought to reclaim space and scale from a pervasive vapidness through an intelligent incorporation of their own critical geographical perqpectives and the deconstructionist tendencies of feminist/poststructuralist thought. Howitt (1993) and Smith
(1993) provide two of the more original and insightful contributions to this field.
Smith's (1984) ear'þ typology used the relative balance between the conflicting forces of economic and political competition and co-operation to resolve the categorical division of scale. In this hierarchical oonceptualisation, the increasing scale of capital accumulation contained the potential to override the sienificance oflower scales. For example, he asserts that with the increased global integration of national financial slstems t2
and firms, national boundaries have been superseded by such supra-national bodies as the European community (EC), the Asia-Pacific Economic co-operation (ApEC), the North
American Free Trade Agreement (NAFTA) and the like (smith, l9g4).
Smith's (1993) more recent reformulation of scale, howwer, bears the fulI @rint
ofthe critical revolution in social scientific thought wrought by feminism an¿ poststructuralism- Rather than stress the role of economio co-operation and coryetition in
erecting and delineating scale boundaries, Smith (lgg3,l0l) accentuates the ..social constructions of scale" and the need for a language that better captgres this notion of a more fluid, politicised scale. He erplores these ideas through a nested gpology of metaphorical and material scales: body, home, community, urban, region, nation and global (Smith, 1993, 102-ll3).
For present pu{poses, the practical coherence of Smith's (1993) schema is less imlrortant than an understanrling of its conceptual underpinnings. For instance, the micro- scale of the body is essentially socially-constructed around notions of ge,nder, primarily, but also race, age and ability. Culture is also important, not least beoause i1 tinks the body to a ..social wider economic dimsas¡or via modes of dress. The body's connectedness" (Smith, 1993, l0l) with all other scales hinges on tlese factors. For example, ttre material and psychological apportionment of and control over E)aces within the home reflect processes of contestation and conflict rooted, at times, within dime,nsions of gender, racia! olass and age difference. The kitchen is conventionally regarded as a feminine space, childrens, bedrooms and 'granny flats' are distinctly aged qpaces, while recent research has unveiled the masculinist qpace ofthe shed.
Howitt (1993) similarþ seeks the reinvigoration of scale as a theoretical concept.
For Howitt (1993,39, emphasis added), like Smith (1993), this task involves the e>çlicit articulation of scales with their constitutive social and economic e,ntities and processes:
To see things as articulated, rather than geologically layered and embedded ... e'nables us to recoenise the dialectical continuity ofprwious class formations, cultural factors, gender relations, qpatial structures, politioal issues, and fu¡ue l3
outcomes and other elements, as well as prwious modes and sub-modes of production, in shaping contemporary dyramics and fun¡¡e outcomes.
Howitt (1993) is less interested in what reqpective scales contain than with the
permeability of their boundaries. Scale categories (and their labels) should be seen as social
constnrctions that are interpenetrated by important processes from other scales. '"That is,
they are co-elements in the single structure ofinter-related places" (Howitt, 1993, 38).
Equally, scale should be thought of as essentially non-hierarchicat with no particular lwel
(e.g., the global) necessarily taking primacy over otherst. M-y inTortant politioal and
eoonomic issues are not simply'globalvs. local'problems, but are far more oomplex in
orign and effect, and hence, interpretation.
The selection of the appropriate scale of analysis is, the,n, vital. Howitt (1993,37)
provides an excellent example ofthe dangers in adhering to simplistic hierarchical tSpologies of scale and scale effects in his discussion of land rights conflicts betweer ce,lrtral
Australian Ab origin al group s and non-Ab original p astoral lea seholders:
In many cases, long-running diqputes between local Aboriginal groups and pastoralists over anangements for excisions of small but viable living areas for these people (the Aboriginal groups) have allowed the 'problem' to be constructed at a local scale, as essentially a local problem" Yet the various local diqputes refleot a problem which is simultaneousþ constituted at various other geographical scales. It reflects a broader regional diqpute over land rights between Aboriginal interests and pastoralists through their regional associations. It also represents a yet wider dispute between Aboriginal groups and the Northem Tenitory government over the role of Aborigines in the political economy ofthe NT. And it also reflects a major diqpute between the Commonwealth and Northem Tenitory govenrme,nts over states' rights, Aboriginal land rights and political responsibilities.
Howitt's (1993) and Smith's (1993) reinvigoration of scale has not only enhanced its applicability as a filter thlough which processes of societal change can be better apprehended and understood, but has also emphasised the reflexive relationship between political and economiç processes across and through spaoe and place. A politicised concept t The Atr{¡"liør fedøal s-vstem of governmeat provides æ exaryle ofhiercåical scale reldicns, thorgþ The Fedsal Govmnat holds the fmmcial ¿od legal 'whip hard' over Ll¡e States æ.d local government óre nainly Higb Court interprúdims oflho Cmlihú.io. l4
of scale provides a critical entry point into the understanding of looal change and its link¿gss
to broader social and economic d¡mamics and is adopted for the purposes sf this thesis.
The next section seeks to dwelop a theoretical r¡nderstanding ofthe social and economic reconfguration ofnational and regional farm sectors and rural societies in an
inoreasingly global financial context via a review ofthe relwant agrarian restructgring literature.
2.3 Rural and Agrarian Restructuring: Evolving Scales and Dimensions of Change
2.3.l.Introduction
This section is divided into four main parts. The first part deals with the evolution of critical theory þarticularþ political economy) approaches to agrarian and nual change and their relation to an earlier, primarily sociòlogical ge,nre ooncemed with the theorisation of agriculture's transition from peasant to capitalist modes of production and its impact on fu-ily farming' It is fi'om this comerstone literatwe that suçþ important theoretical concepts as simple commodity production (SCP) and subzumption first emerged. The discussion the,n considers the rural restructuring and intemational farm crisis literatrue, which emerged out of these relatively earþ attempts to theorise pattems and processes of structural social and economic change in national farm sectors in the late 20th ceNrtury. The regulationist tenor of ttre more recent agrarian restructurin glfarmcrisis literature is critically assessed, as is the theory itself
The second part considers t,he meagre, but for this research vital literanue on the political economy of farm credit. As an extension ofthe subsumption geme, this literature charts the rapidly changing relationships between agriculture and institutional credit, particularþ over the last two decades, from an intemational perqpective.
The thild paft reviews the relevant femini5X/peststructuralist critiques ofthe mainstream agrarian restructuring literature, shifting the analysis of zubsumption to the conceptual and material scale ofthe family farm household. This is the most fundamental lwel at which the contestation of and/or compliance with subsurytion processes can be t5
viewed and, hence, is vital to understanding the relative resilie,nce or zusceptibility ofthe
family farm household to extemally-derived and mediated economic change.
The focus of the fouÍI part expands to the scale ofthe nation-state and considers its
roles in the rural restructuring process. This it does by retuming to the globalisation thesis
and Howitt's (1993) and Smith's (1993) notion of a socially-constructed sç¿ls. Via rhis route, the theoretical stance taken in this thesis is outlined.
2.3.2. Peasant, holetariat and the Fin de Siécle: 19th and 20th Century
Perspectives
As in other branches of human geography, Manrist theory has had by far the most dominant in-fluence on the recent theoretical developme,lrt of rural and agriculnual geography. The "new" rural and agricultural sociology that emerged in the 1970s in similar vein to the "radical school of geography" of the late 1960s and earþ 1970s was the source ofthis influence. This "new" branch of sociology became strongly orie,nted towards neo-
Manrian, neo-Weberian and ecological critiques of agrioulnral dwelopme,lrt in both dweloped and developing nations (Buttel Larson and Gillespie Jnr., 1990).
As Goodman and Redolifr (1985, 231) note, "Marx and Engels wrote very little about agriculture". Nevertheless, what little Marx and Engels had to say about agrioulture hded form the foundations of more recent attempts to dweþ a oritical theory of agrarian change under advanced capitalism- The earþ classical theorists' (Mar¿ Engels, Lenin,
Kautsþ, Chayanov and Weber) concentration on the contemporary and likely status of peasant and petty (or simple) commodity production in the face of the spread of capitalism through Europe in the final decades of the lgth century was tranqported th¡ough an entire oentury and brought to bear on the debate over whether petty commodity producers (i.e. family farmers) could endure as a class, or whether agriculnual production would be domin ated by la lger-than-fa mily corp orat e farms.
As Marsden (1991, 14) points out, both positions have political and sociological validity in the present era. The current predominance of family farming in the UK (Marsde,n, l6
l99l), the US and Canada (Buttel and La Ramee, l99l), Australia (Paterson, 1996) and
New Zealand (Fairweather, L992) has been maintained deqpite the increased conce,lrtration
ofproduction amongst larger, more capital intensive farms2 . This debate over the present
and likeþ füture status of the family farm under capitalism became polarised around two
main theoretical positions: the transitional and survival schools. Not surprisingly, both
standpoints were heavily influenced by the classical agrarian tleorists.
The transitional school's arguments drew substantially upon Mards writings during
the late lgth century concerning the position of the peasantry in the face ofthe qpread of
capitalism- According to Mary the small peasant was doomed under capitalism (Marx and
Engels, 1975, 623'640). The position of the larger peasants, particularþ in Britain (more
appropriately termed "simple commodity producers"), was rather more problematic, howwer, as they were able to extract zurplus value from their workers (marginalised small peasants) to help them meet thei¡ commitments to their landlords. This more esmplex class structure formed a partial obstacle to the establishme,lrt of full capitalist relations of production in farming (Lawrence, 1987, 103-104). Nwertheless, these ',middle-range,' siryle commodity producers - neither peasants nor prre capitalists - were expected to eve'lrtually yield to the inexorable progress of capitalist coryetition. Evidence for this standpoint was available in the depressive effect on the peasant economy ofirrTorted com from the new settler states (Marx and Engels, 1975,638). For Marx and Engels, as well as
Kautsþ, Lenin and Weber, the inevitable outcoms sf rhis prooess was tle elimination of selÊsufficient fatmers and simple commodity producers as a class. The creation of a rural economy and class structure based on true capitalis social relations of production (i.e. rural proletariat and bourgeoisie) would thus erode the baniers betwee,n the city and the countryside (Marsden, 199 I ).
Against this rather unilinear and dogmatic thesis, Chayanov - while acknowledging the effects ofthe transformative power of capitalism on European rural societies and economies - recoenised that peasant and simple commodity forms ofproduction were not
2 A perçedive which hrs recently gainetl i¡lisqpecing curracy is the misleatlingly æct sinq¡liÉically tiÍed middlen hyldh*is @rüel md L¿ Rmee, 1991). This hrpothes'is is based t¡r ctrrylex æd bynomeæs mifømt¡eadsto¡,adsthepolarisdio ofthese largefum.s (uÀiå oq¡riseadiTroportiuutelylargeúareofaggregatefarmprodud.icn)adoall fmilyfa'ns(uåiåareoçerio.cinggrolthinscmo Weúm oormtries). .nrtl üre simultrmcous attriticn ofúe socalled "middle" þutdively foily) rage of frms(see F.ir*eath.r, 1992; Brftel md I-e Ramee, 1991) t7
disappearing in accordance with the above theorists'predictions. This persiste,nce, Chayanov
held, derived fiom the unique features of the peasant household. As a kin-based form of
social and economic organisation, the peasant farm household was economically constrained
at any one time by its relative balance ofproduoers and consumers (workers and
dependants). These demographic factors were a vital influence upon the form of the farm,s
orgenisation, as they served "to define the "upper and lower limits ofthe volume of (the
peasant family's) economic a ctivity" " (Mann and Dickin son, 1987, 27 7).
Essentially a theory of the reproduction ofnoncapitalist forms within a capitalist milie¡, Chayanov's arguments helped to explain why family labour enterprises þeasant or otherwise) were more resilient to capitalist competition than pure capitalist firms. Adopting
a life-cycle view of the peasant or simple commodity producer (SCP) farm household,
Chayanov attributed their relative immunity to prolonged and inte,nse economic competition to the fact that, in these households, "the conditions under which production decisions are made are themselves intemally and zubjectively motivated, not extemally or objectively determined by the market's hidden hand" (Mann and Dickinson, 1987, 278). Onthis view, tle peasant or SCP household's relative exposure to capitalist markets for labour and non- wage commodities is dependent upon demographic factors. The physical needs oftle peasant or SCP household (food, slslhing, shelter, eto.), and the ability ofthis family form of enterprise to provide for all these needs, is reliant upon the temporally-specifio ratio of workers to dependants through the household's lifecou¡se.
These were the main arguments extracted from the classical literature of the late
19th and earþ 20th centuries and projected on to the theoretical landscape oftle 1980s.
The transitional school, as the 1i1ls implies, viewed contemporary trends in farm structure - the continued dominance of family farming simultaneous with an increasing conce,lrtration of agricultural production and capital in many developed countries - as proofthat while SCP forms were not being zubsumed by the capitalist mode of dwelopment at the same pace and degree predicted by Marx, et aI., the family farm base of agricultrue was nwertleless dissobving under the conosive pressure of advanced capitalism (see, for example, Goodman and Redclift, 1985). t8
Underpinning these arguments is the ooncept of zubsumption; broke,n dor¡m into its
two main forms, real and formal by Whatmore, Munton, Little and Marsden (l9g7a,2g). Briefly stated, real subzumption invohes the direct oumership and control ofthe means of production by corporate capital forms in place offamily farm (or SCp) forms. Real subsurytion effectively involves ttre transformation of the farm labour process througû its
firll commoditisation. That is, there is no part of the agriculnral production and
reproduction cycle that is not conducted outside ofthe market. In its most extreme form,
real subsumption involves the elimination of the farm family from the production process
and its replacement with corporate capital. Formal zubsumption, on the other hand, involves
the appropriation of surplus value by extemal capitals from the farm labow process without
necessarily transforming this labour process or directþ controlling the means ofproduction
(as in real subsumption) (Wratmore, et al,, l9g7a,2g).
Goodman and Redclift (1985, 242) emphasise that the tende,lrtial operation of capital in the agricultural production process has not led to a uniform nor a r¡niversal pattem of subsumption. Only those sectors most amenable to industrial applications (i.e. those sectors
where tle reliance on land as a production factor can be diqposed o{, or at least minimissfl, e.g. poultry, pigs, feedlotting) are subject to zuch coryetitive pressure. Nwertheless, this
brings us back to the relationship between technology and capital. The survival oftle family farm in present conditions is, accorcling to Goodmen and Redclift (19g5), but an indication
of the current level of tech:rology and the inability of capital to profitably exceed these
limits. Related work on these themes has been produced by De Janvry (19g0), Friedland,
Barlon and Thomas (1981) and Goodman, sorj and wilkinson (19g7).
The survivalist school, while not denying the trends accentuated by ttre
transitionalists, sought to explain how family farming had persised and even proqpered
deqpite the continued development of capitalism and its revolutionising of agriculnue.
f'¡isdmann's conceptual development of family farming as "simple commodity production,,
(Frierlmann , 1978,71) is an exemplar of this approach. Influenced strongly by Chayanov's writings (yet avowedly Marxist), Friedmann analysed the reproduction process of
commercial family farming households in relation to thei¡ contradictory position within the l9
capitalist system- The commercial family farm can be conceived of as a ',contradictory unity
of property and labow. This is unique in a society whose central structural princþle is the
separation between capital on one side and free labow on the other, with production
orgenizsfl tlrough markets in labour power" (Friedmann, 1986a, 187, original eryhasis).
How, the,n, could household reproduction continue in this "appare,ntly anomalous
conjunction of full market relations among enterprises and kinshiF relations within
e,lrterprises" (Friedmann, 197 8, 7 3)?
Friedmann's (1978) analysis of family wheat farming in the plains of Cass County,
North Dakota in the US in 1920, showed that simfle commodity producer households passed through demographic stages which affected the availability of labow both on and off the farm, thus changing the exposure of the farm household to extemal wage labour markets. The SCP household experienced labour deficits and zurpluses as it progressed throush its phases of family formation and diqpersion, the retirement ofthe household heads and the accession of the son to control of the family enterprise.
Generalising her results to the present, Friedmann (197S) contends that this selÊ govenring farm labour market - comprised ofboth wage labourers and siryle commodity producers' sons - works in reciprocal motion with the family life oycle to ensure the near equilibrium of simple commsflity producers' farm labour needs. For Friedmenn, tlis circulation of labour distinguishes simple commodity production from firll capitalist production and peasant production systems. The existence of capitalist relations of production (a wage labour market based on tle extraction of surplus value) stands in ambþous relation to simple commsflity production. The capitalist wage labour market is both the point of zubsumption and rcstsÍ..ance for this group ofproduoers. The sale of surplus labour (i.e. when more sons ofworking age live in the household than the farm can profitably employ) to this market facilitates the expanded reproduction ofthe simpte commodity production household. The purchase of laboru during demographic phases of domestic labour deficit also allows the continued reproduction ofthe farm's means of production, which, under the competitive conditions of capitalist production must occur to ensure viability. 20
In summ¿ry, simple commsfi¡y production's persistence in conditions of advanced
capitalisnq according to Friedmann (1978), stems from its ability to engage in household
reproduction and, for some, expanded reproduction, via its dual relation to the capitalis labor¡r market. It is thus able to remain competitive with more oommoditised farms in the
production and circulation of agricultural commodities through its requirement of siryle reproduction rather than the average rate ofprofit.
This survivalist/transitionalist debate suffered from a number ofinterrelated problems, sftsmrning primarily from the domin¿ff application of a structuralist Manrian
approach to most of the arguments. The dSaramics of agriculnual change were made to fit tle procrustean bed of a reductionist Manrian teleology of capitalist development. Laid out in this fashisu the contingeüt nature ofthe uneven trajectory of agriculttual dwelopment under capitalism (discussed above) could be explained by one general theoretical þrimarily economic) law (Marsden, 1991). Further, f'¡isdmenn's (197g, l9g6a, l9gób) conoept of sinple commodþ production, although providing an important and durable perqpective on the intemal defence mechanisms of the farm family in capitalism, elides the increasingly significant role of capital in farm development and the zubsurytion process over tle last 50 years' . Given the increasing technology and expanding economies of scale of capitalist agriculture, oËfarm credit has become essential to the modern farm family. As the ongoing but qpatially uneven rural crisis in Australia shows, farm families' exposure to institutional debt can be a point of extreme financialvulnerability.
Emerging out of the general dissatisfaction with the unilinear and totalising focus of the survivalist/transitionalist literature, the commoditisation debate concentrated explicitly upon the "causes and consequences of the 'capital penetration process' in agrarian structures of advanced societies" rather than on the forms of agrioultural production (Marsden , lggl, l8). Seeking to actively reveal the complexity, contingency, and above a[ the age¡rcy- driven character of the adaptations and adjustments SCP households take in relation to extemal economic and social pressure, the commoditisation debate literatrue was concemed with "the ways in which capital and commodity relations adapt and transform social
' I m ind"lrtud tt¡ Pd.er Smailes ftr this obsgrvatim. 21
institutions, most notably farm 'families' and labow as well as social reproduction pfocesses
more ge,lrerally" (Marsden, 1991, l8).
The commoditisation debate effectiveþ widened and deepe,ned the analysis of farm
ohange contained in the survivalist/transitionalist debate by unpacking and oorylicating
some ofthe more ideological and teleological aqpects ofboth argrrme,lrts. Atthough
concemed with the increased penetration of the farmproduction prooess by technology and
exte,nsion seryices (via agribusiness), contributors to this debate also recognised that the
reproduction of the farm household had socio-cultrual (and non-m¿rket) faoets as well as
socio-economic (market-dependent) aqpects (Marsden, l99l,2l).In advanced oapitalist
societies, zubzumption is neither a revolutionary nor a r¡nilinear process, but occrus in waves in concert with new rounds of capital penetration and accr¡mulation in the farm
sector
Ploeg (1986, 52, original emphasis) hetd that "real subsumption of agricultural labour arises not so much where capital 'appropriates' certain activities, but where it starts to monopolise the control of the labour process on the farm zuch that this labour prooess cânnot be reproduced any more outside ofthe reach of capital". While the actual occrure,nce of real subsumption tends to be restricted to particular farm sectors and parts of the farm commodity chain (as discussed above), what is perhaps of greater conoem and research interest is the ways in which farm households are indirectly influe,nced by extemal capitals (Marsden, 1991,23).
Whatmore, Munton, Little and Marsden (1987a) analysed these themes explicitly in their attempt to operationalise both real and formal zubsrrytion as practical conce,pts by measuring their actual incidence in British agriculture. This they did by establishing a relational rypology of farm businesses vis-à-vis their internal and extemal relations of production as a means to establishing "the position of farm businesses, as points of production, within the wider relations of agricultural production under Bfitish capitalism"
(Whatmore, et al., 1987a,22). Concepfually, real and formal subsumption provided the bases for the choice of indicators to measure the changing relations of farm production in
British agriculture. 22
whatmore, et al.'s (r9B7a; l9g7b) tlpology, applied empirically, forms a matrix comprised oftwo axes: the intemal and extemal relations offarmproduotion. The farm's intemal relations ofproduction are seen to comprise four main elements: the degree to which l) the ownership ofbusiness capital; 2) the oramership ofland rights; 3) the control over business and operational management; and 4) labour relations are all diffirsed away ûomthe farm family household and towards the invoþement of or dominance by extemal
capitals (i.e. the degree ofreal zubsumption).
The degree offormal (indirect) subsumption is dependent upon the nature ofthe farm's external relations with non-farm capitals. These extemal relations take three main forms: l) technological dependence - where both farm production and profit are depe,ndelrt on extemally produced inputs, and in extreme conditions, upon extemal technical advice on
how to apply them; 2) credit relations - where the farm is dependent upon financial
institutions for all forms of finance (long-term mortgage finance and short-term ,,carr1r-on,, finance) to facilitate the ongoing operations of the farm and/or its expansion; and 3)
marketing linkages - conceming the degree to which the farm business is tied to particular market outlets "which in tum determines the level of output and rwenue, standards of production and, in the extreme, management ofproduction on the farm', (Whatmore, et al., 1987a,31).
Emphasising the non-linear and unpredictable character ofthe subsumption prooess,
Whatmore, et al. (1987b, I l0) hold that any relationship between direct (real) and indirect (formal) subsumption and the farm's intemal and extemal relations ofproduction "is clearþ dependent upon a range of contingencies which cânnot be theoretically predicted,,. Acoess
to this vital relationship can only be gained via the empirical exploration of the qpecific
conditions of each farm's relative divergence from or convergence to the ideal t5rpes included in the matrix. The degree of each farm's divergelrce from the ideal tlpes
þarticularþ those towards the top end ofthe diagonal axis) (see Fig.2.l) reflects "the variety of strategies farm families have adopted for coping with the treadmiil, and the influence of locality-specific conditions upon their possible options" (Whatmore, et al., 1987b, ll0). 23
This latter factor - the constitutive role of qpatiality in unwe,lr dwelopme,lrt - is important in influencing the process and pattem of farm subsumption as "qpatialvariations in tle initial endowments of land as an organic meaûs ofproduction in agriculnue...,, aûd the "differential and inherited relations between agriculture and other produotion prooesses over space, in terms ofland use, emplo5ment and socio-economic structure" mediate the
"articulation between the general processes of subsumption and the productive and reproductive relations on individual farms " (whatmore, et al., 1987t, I I l).
The actual results ofWhatmore, et al.'s (1987a; 1987b) research are, for cu¡re,lrt pu{poses, less important than the theoretical and methodological irylications oftheir tSpology. A number of factors are relevant. First, consistent with a critical realist philosophy of social science, Whatmore, g!-41..'s (1987b, 120, original emphasis) researoh is concemed more with "identifying sets of relations thanwith being tied to specrfrcforms ofbusiness structure and production relations in particular places". However, one deficie,lrcy in their research is the near-total reliance on a quantitative methodology in the measurement and proximate explanation of the subsumption process. The need for qualitative farm-ler¡el information is, to be fair, explicitly acknowledged by Whatmore, et al. (1987b, l}0-l2l).
To a substantial extent, these methodological problems stem from the concept of zubsumption itself
In the way it has been traditionally conceived, zubzumption only really makes sense at a relatively high degree of abstraction; that is, it relies on tle aggtegatetendency offarm f¿milies towards more intensive relations with extemal capitals and tleir gradual substitution by corporate capitak)A truly causal (and realis) analysis of this process would require a qualitative analysis of the strategies of resistance and/or sempliance employed by individual farm households: a project that would greatly oomplicate and perhaps overturn v tlis concept.
Second, as a process, subzumption must, by definition, be qpatially and teryorally d¡mamic, whether this dynamic is unilinear (as many of the classical theorists conceived of it) or specific and uneven (as Whatmore, et al. (1987a;1987b) conceived of it). However,
Whatmore, et al.'s (1987a;1987b) own t¡pology is temporally qpecific. We have no idea 24
Fig. 2.1.'lvhatu orer g!$'s Subsunption Mafrix, showing the position of tideal þpology Qryest.
r
Subsumcd D Unt c o o ES vn lntcol¡t¿d .gR Unil 6t På t¡, -6É Fõ f¡¡n¡itional õ.9 Þ D¿pcnd¿nt úoo Unr E J octl ! Marginrl A Clos!d Un¡t
sor! 0 A BCD côt!gori!s lnternal Relations: degree of direct subsumption
Source: Whatmore, g]!3l., 1987a, 108. 25 what the prior trends in this phenomenon have been. Levels of zubsumption will change
over time for a number of reasons, relating to lifecycle or endogenous factors, for example.
Moran, Blunden and Greenwood (1993, 24-25) are oritical ofWhatmore, et al.'s (l9S7a;
1987b) choice of credit relations as an indicator (and their entire tpology) for ^his Íeason.
Moran (1988) in his investigation ofthe relationship between farm debt and farm
operator age in the New Zealand daþ industry showed that debt levels can fluctuate in
aooordance with the farm family's stage in the life cycle. Debt levels te,nd to þe higùer in the
earþ estabüshment phase ofthe family farm as the amortisation of mortgages and other
debts is at an equally earþ stage. Basing their contentions primarily on Moran's (1983) research, Moran, et al. (1993 ,24-25) state that "... it would be quite wrong to assume that farms with a high lwel of debt are tlose that have progressed to a stage where zubzurytion is imminent. Undoubtedly, some farms that are subsr¡med have high levels of debt but it is quite misleading to suggest that any measure ofindebterlness ... is a good predictor of likelihood of subsumption". However, there also problems with Moran, et al.'s (1993) r¡nderstanding of this concept.
Two main points need to be made here. First, while Moran (1988) produces widence which broadly supports his concept ofthe equity cycle, he appears to almost totally ignore the role of exogenous factors in this process. For example, although farm equity does iucrease with age in Moran's (1988) farm sample, he does not consider the irnpact ofhighlevels of state subsidisation and protection prwailing at the time ofhis research on these trends. The equity figures of Moran's (1988, 86) North Island dairy farmers could just as easily be explained by the movement out of the industry by a large number of smaller dairies into general graang (also encouraged by stabilisation schemes for wool beef arrd lamb production first introduced in the 1970s (Le Heron, 1989a, 1989b)) or out of farmfurg altogether, and the expansion of already established dairy farms. Land prices were held artificially high during this period by high lwels ofproteotion. Younger farmers would have been more likely to expand their holdings (or take up farming) in these conditions than older persons, as they did during the land boom ofthe earþ 1980s, only to find themseh,es greatly exposed to the debt crisis that developed immsdiately after 1984 26
(see Benedittsson, Manning, Moran and Anderson, 1990; Wilson, 1996). The mechanism is more comple4 though, than a simple linear life-cycle processo .
A second, more basic problem with Moran, et al.'s (1993) analysis is their confüsion and conflation ofthe processes of real and formal subzumption. They also appear to
misunderstand the interrelationships between the intemal and extemal relations offarm
production. High lwels of farm indebtedness and/or poor equity do not, ofthemselves,
reflect a propensþ to real subzumption. What this indicator does reveal is the level of e)iPosure to exte¡ral finance capitals (where this debt is institutionally-sourced) and hence, formal zubsumption. It is only in combination with other intemal and extemal factors that
the "credit relations" factor can indicate any degree of real subzumption.
Nwertheless, Whatmore, et al.'s (1987a;1987b) sensitive application ofthese imf ortant concepts to advanced capitalist cond"itions represents an advance in both
assessing the useflrlness of the intellectual legacy ofthe earlier classical literature and
theorising contemporary agrarian ohange. Their attempt to operationalise this conceptually
rioh but empirically diffioult concept has also led to more encompassing investigations ofthe
modem fa-ily farm's economic linkages with extemal capitals (e.g. the agto-commsfi¡y
chain). It is to these theoretically-e,nriched investigations that we now tum.
2.3.3. Structure and Contingency, Stability and Crisis: Regulationist
Approaches to Agrarian Change.
The development ofthe intemational farm crisis/agrarian restructuring literature marked important an break from the cul-de-sac of the zurvivalist/transitionalist debate and
its fixation with zubsumption processes. The central tendency in this farm crisis/agrarian
restructuring literature is the attempt to bracket, or articulate, trajectories of national
agricultural development with broader national and intemational trends in economic growth
and industrial development and political manageme,nt (e.g. Friedmann and McMchael
a t Researú into the prclracte.d rural crisis cn the Eyre Peainsula of Sorfh Au.l¡alia - acoqrassing rmfavourable ctimatic cm6itims ( 1989; Ke,nney, Lobao, Curry and Goe, 1989; Goodman and Redclift,l99l;!'¡isrtmann, 1991, 1993, 1994). This literature attempted to provide a non-functionalist theoretical understanding of the imflioations for national farm sectors of each nation's insertion into the global economy and trade system; and the ramifications for farming of agriculture's links to other economic sectors. These attempts to suture together the agrarian and industrial restruoturing literatures have proved influential in zubsequent agrarian politicat economy aocounts for their dissemination of a particular interpretation of regulation and post-Fordist theories. The growing dissatisfaction among social scientists with Manrist/structuralist modes of representation and explanation, led those who stillvalued the broad Marxian approach ' towards regulation theory. A substantial part of regulation tleory's seductiveness for such analysts came from its ostensible ability to "account for structural stability and shift yet also speak of contingency and action" (Murdoch, 1995,733). In this way, regulation theory offered a seemingly plausible means of bridging the gulf between structure and agency as & we[ as articulating the 'global shift'with the epiphenomena of the local. However, before moving on to a more detailsd s¡¿min¿fion of the application of regulation theory to analyses of agrarian restructuring, and a critique of these attempts, it is necessary to e>iplore the main arguments of regulation theory. ' Regulation theorys , at a broad leve! is concemed with the analysis and theorisation ofthe uneven d¡mamics ofnational capitalist economies (Boyer, 1990). Drawing heavily on Marx's intellectual legacy, it seeks to explain how capitalist economies - deqpite their inherently contradictory and crisis-prone nature - have achieved expanded reproduction over time and resisted total collapse (as predicted by Marx) (Boyer, 1990; Jessop, 1990). Regulationists are "particularþ concemed with the changing forms and mechanisms (institutions, networks, procedures, modes of calculation, and norms)" in and through which this expanded reproduction takes place (Jessop, 1990, 154). t R"gulatimtheory ùouldbelhouglt ofmøe as "ar¡mbrellatermfø ar orgoingresearóprogrmmewithin ccntsr,Tøary Man At the heart ofthe regulationist approach is the notion that national (and intemational) trajectories of economic growth, and interregnuns of crisis, form particular pattemed historical phases. These phases are seen to emerge ûom a "contingent, historically constituted, and societally reproduced correqpondence betwee,n pattems ofproduction and consumption" matched coincidentallyto a "complex ofnorms which can secr',e capitalist reproduction pro tempore deqpite the conflie¡¡al and antagonistic character of capitalist social relations" (Jessop, 1990, 17 4). Regulation theory seeks to broadly categorise the ftndamental mechanisms (and blends ofmechanisms) at the core ofthese phases and crises. Summarised briefly, the main concepts6 of regulation theory are: * regime of accumulation: "the set of regularities that ensure the general and relatively coherent progress of capital accumulation ... that allow for the resolution or postponement ofthe distortions and disequilibria to which the process continually gives rise" (Boyer, 1990, 35-36); * mode of re8ulation: the mode ofregulation acts to stabilise the operation ofthe regime of accumulation (Tickell and peck, lggz,lgz-193). It effectively establishes the "rules ofthe game" (Dunford, 1990, 306). Boyer (lggo,43, original emphasis) describes the mode of regulation as "any set of procedures and individual and collective behaviors that serye to: ' reproduce findamental social relations through the combination of historically determined institutional forms; . *poo.t *d "rt..t" th. pt..t uiliog t.gi-. of r.r*olutioo; *d ' en$ue the compatibility overtime of a set of decentralized decisions, without the economic actors themselves having to intemalize the adjustment princþles govenring the overall system- * institutional (or structural) forms: as codifications of firndamental social relations, these serve to display how the reproduction process operates over time. There are 6 Duaford l9o, 305-309) 11 idreûtifies fou¡ msin cmoqls in regulatio thecry: regimes of acormulatim, modes of regulatio, indgs,rial tajeaories mdhegmcoic srudures.,The lattqtwo ocncqrts æenot giver my oovøagehce asthey arerareþrrseiiarhepcputar regulaicnis literature. The cmcepts discr¡ssedhere ae drar¡m frmthi morepçular Fienú súool ôf regulatior theory (.." Ã4ictu, tezr; Boyer, 1990). 29 three main institutions in oapitalism: l) money;2)thewage relation; and 3) competition. Two other institutional forms are also crucial: theform ofthe state and t.he nature of the state's insertion into an intemational regime of accumulation (Boyer, 1990,37-40). * crises: the crises to which capitalism is always susceptible (deqpite the operation of the mode of regulation) take tlree main forms: l) microcrises - impacting at the level ofthe individual firn, where these capitals do not reqpond to consumption changes and/or production process transformations and go out ofbusiness; 2) conjunctural (or cyclical) crises - impact at a wider sectoral level and require some lwelof amelioration (e.g. changes in the spatial division of labour) to prwent this tlpe of crisis precipitating a more serious crisis (¡); 3) structural crisis - this invotves the breakdown of an established regime of accumulation - mode of regulation ooupling. For instance, the exhausting of the post-war regime of accumulation by the mode of regulation resulted in the putative crisis of Fordism (Tickell and Peck, t992, t93). The successful articulation of a mode of regulation with a regime of accumulation so that structural crises are avoided is central to stable capitalist development (Tickell and Peck, t992, L93). Abstracted in this way, tle historical geography (although it is primarily a historical geography of developed Northem capitalist nations) of 19th and 20th century capitalism can be broken down into a succession ofphases, "...each distinguished by certain historically developed, socio-institutionally defined structural forms that give rise, so long as they are maintained, to distinctive economic trends and pattems" (Brenner and Glick, 199I,46). These phases are summarised in Table 2.1. 30 Table 2.1. Phases of and accumulation in the 20th To l9l4 19l8 - 1939 1945 - 1973 1974 - Present Regime of Extensive Emerging Intensive Emerging Accumulation Intensive (Fordist regime) Flexible? Protracted crisis? Mode of Social Competitive Crisis of Monopolistic Crisis of Regulation Competitive (Fordist- Monopolistic. Kelmesian mode) Emerging: neo-competitive? neoconservative? neo-corporatist? Source: Tickell and Peck, 1992,194. The oollapse ofthe Fordist regime of accumulation and the Fordist-Kelmesian mode ofregulation and the lack of a clear successor regime and mode has led some to attempt to theorise the emergence of a new regime of flexible accumulation, the architecture ofwhich is at present only dimly perceivable. This project is outside of the regulationist research programme proper and is the point of some debate (see Tickell and Peck, lgg}). Adopting these arguments and conoepts, selected strains ofthe agrarian restructuring and farm crisis literature have emphasised the interdependence ofnational agricultural sectors with wider trends in intemational and national capitalism The current troubled condition of many national farm sectors was seen as no mere extemality arising out ofthe present reconfiguration ofnational economies and industrial sectors, but as inherent to this process. The trajectory of 20th century agriculture \¡/as seen by many analysts in this field as being locked into the general path of industrial capitalism and the growth of the nation-state. The central role ofthe US in guiding this trajectory is also *id"ly acknowledged. This literature can accordingly be oharaoterised by its historical geographies of the relationship between national dwelopment, intemational agricultural trade and broader pattems ofindustrial change. Friedmenn and McMichael's (1989) development of the concept of food regimes is an exemplar ofthis approach (Table 2.2). In their pioneering article, Friedmann and McMichael (1989) sought to deoonstruct and debunk the conventional view that eoonomic development (including agricultural development and trade) diffirsed from fully-economically matured developed nations to 3l dweloping nations. This traditional approach implied that all sectors of dweloped nation economies (including agriculture) were firlly articulated with eaoh other but contained within the hermetic seal ofnational boundaries. This account, according to Friedmenn and McMchael (1989), overemphasises the earþ development of autarkical nation-states (and national agricultures) and downplays the importance of international relations of power, trade and investment in setting the foundations for the present global agri-food system- The conventional view relies on the generalisation sf ¿ single major nation-state's - the US - earþ pattem of economio development. Table2.Z Food al Tendencies and Eistorical Features Food Regime Principal Tendencies Main Historical Features Centred on European imports ofwheat and meat Ftust (1870-ler4) Culmination of colonialism from settler states between 1910 and 1914 and imports by settler states ofEuropean manufactured goods, labour and capital. Extension of state system to Based on strong state former colonies. protection and organisation Second (1950s - 1970s) Transnational restructuring ofworld food economy of agricultural sectors by under US hegemony after agro-food capitals. 1945. Source: Friedmenn and McMichae[ 1989; Le Heron, 1993a,73 Friedmann and McMichaels (1989) accor¡nt ofthe rise and fall ofnational (and nationally-regulated) agricultures has formed the foundation for subsequent analyses of the intemational farm crisis of the 1970s and 1980s and the reputed collapse of the seoond food regime and emergence of a third, post-Fordist food regime. Gooclman and Redclift (1989, 5) summarise the core argument ofthis literature unequivocally and zuccinctly: the "farm crisis is an interdependent, world-wide phenomenon arising from the development of the modern global food system... tit] has its origins in the collapse ofthe long post-war boom of industrial capitalism and the erosion of United States' hegemony in world agricultural trade". The farm crisis is, then, no mere "system aberration" but "fundamentally a structural crisis arising as a direct consequence ofthe global dissemination of an agro-industrial model 32 and the inability of governments to subordinate their own national interests to a wider historical compromise" (Goortmen and Redclift, 1989, 5). Widening the scale of analysis, Tubiana (1989) also lays the blame for the crisis firmly at the feet ofthe US, for the culturally- and economically-insensitive export of American production techniques and consumption pattems to Third World nations. Ironically, some of these developing nations have taken market share from the US in some commodity markets, Yet remain dependent on crucial food staple imports. For Tubiana (1989, 42),the crisis is "one ofAmerican hegemony, and therefore ofthe movement toward integration and intemationalisation". Goodman, et al. (1987), Berlan (1991) and Goodman (1991), while not holding the US directly reqponsible for the social and economic upheavals of the intemational farm crisis, corcur in recognising t,he central role the US Administration played over the last 50 years in actively encouraging the dwelopment of an oligopolistic agribusiness sector at the elpense of farm families and rural communities. While technological progress in agriculture is largely inevitable and often beneficial the inability (or refirsal) of successive US adminis¡¡¿1ions to constrain the direction of tle agricultural research agenda or to regulate the domestic and offshore activities of agribusiness firms has left the future development of agriculture largely beyond the control of most farmer, consumer and like-minded organisations and the nation-state. It is on these iszues of regulation that both nation-states and farmer representative organisations face a potential threat to their political legitimacy. These a latent problems stem not from the broader geopolitical issues of global agricultural trade (e.g. US-EEC trade wars, Caims Group lobbying for free agricultural trade), but from thefarm cnsisper se (Goodman and Redclift, 1990, 30). Deqpite the strong regulationist flavour ofmuch ofthis food regimes/ farm crisis/ rural restructuring literature, it would be incorrect to label the entire geffe thus. As Le Heron (1993a,75-76)notes, most regulationist accounts are, more accurately, accumulationist analyses. In these accounts, little consideration is given to the decision- making prooess of the various entities oompeting for spaoe in the intemational agri- co--odity trade environment (i.e. the TNCs, farm lobbies, consumer and envi¡onmental JJ groups, marketing boards, individual farmers, looal processors, etc.), or the complex and contingent way in whioh these individual decisions are somehow brought to some point of confluence so that any partioular accumulation stratery rnay succeed (although Friedmenn (1993) does mention these). Goodman and Watts (1994,20-24), in their damning critique of the increasingly popular trend towards regulationist and post-Fordist approaches to agri-food restructuring, question the validity of periodising more than a century of agricultural dwelopment into two-and-a-bit regimes punctuated by largely unqpecified transitionary periods. They ask rhetoricaþ: "to what extent is the concept (food regimes) vulnerable to the charge of hlper-structuralism, of reification, and not least ofpapering over any sense of agency?" (Goodman and Watts, 1994,20). The problem with this tlpe of approach is that, deqpite Friedmann's (1993) emphasis on contingency (particularþ political contingency), it tends to essentialise specifio political and economic actions and strategies and actually remove continge'ncy from the picture. The "first food regime" and the "second food regime" become code for a particular set of political" social and economic trends on the intemational stage. As Goodman and Watts (1994) show, though, the danger is that such a totalising concept can actually zubsume as much important detail as it reveals. Long (1995,4) similarþ questions the validity oftle assumption underlying the food regimes concept that an emergent intemational system of linkages was built up around the production, processing and marketing of a small range ofproducts with given values. For Long (1995, 4), this implies a great deal more coherence and integration than really existed in zuch a complex and diverse system of intemational trade and regulation. What is more, its predomin¿¡ trans-Atlantic orientation tends to gloss over tle nuny and varied experiences of the so-called settler states (e.g. Australia and New Zealand). Lawrence (1987; 1989; 1990) and Lawrence and Vanclay (1992;1994) provide zuch a perspective, but tleir analyses of rural Australia's restructuring are based on a simplistic and reified notion of scale and scale relations. Their assessment of rural Australia's future proqpects reþ on a pervasive core-periphery view of the world, itself drawn from dependency theory (Goodman and Watts, 1994, 25). Lawrence (1957;1989; 34 1990) and Lawrence and Vanclay (1992;1994)portray Australia and its farming sector as doomed to follow the dictates of the institutions of gtobal accumulation, known r¡nder the collective title of the "New World Economic Order". Does zuoh an entþ really control and direct national economic and agricultural policy and the decision-making processes of the family farm like some marionette play? In Lawrence's writing, this structuralist concept takes the place ofthe regulationists'mode ofregulation, but without any ofthe contingency or reflexivity oftle latter. Goodman and Watts (1994) are particularþ critical ofthe increasingly popular attempts to categorise the second food regime and the ostensibly emergent third food regime as Fordist and post-Fordist respectively. However, their more general message relates to the attempts (considered above) to oreate a new political economy of agriculture by relating contemporary processes of agrarian change to wider processes of industrial restructuring. They "seek to situate agrarian political economy on the larger canvas of social theory and tum ofthe century capitalisq in short to locate agrioultural and rural systems in terms of 'the inner contradictions of capitalism ... expressed tlrough the restless formation and re-formation of geographical landscapes"' (Goorlman and Watts, lgg4,3g). However, they: argue that regulation tleory and Fordism/post-Fordism debates provide an inadequate conoeptual architecture for analyses ofthe late twentieth-century agro- food system ... In our view, the parallels between agriculture and industry aie radically overdrar¡m, forcing the analysis into a theoretical straitjacket that leaves little room for diversity and differentiation within and between agrarian transformations (Goodman and Watts, 1994,5). To a fair degtee, these problems stem from more frmdamental problems with the way regulation theory has been developed. For example, Brenner and Glick (1991), in their comprehensive critique of the founding principles and claims of regulation theory question the very bases for the regulationist demarcation of qpecific modes of development (i.e. regime of accumulation plus mode of regulation). Reviewing all the evidence that Aglietta 35 (1979) and his followers produce for these periodisations, Brenner and Glick (1991) oonte'lrd that the regulation school fundamentally misconceptualises and misrepresents the nature ofthe relationships between the so-called institutional forms for each putative regulatory phase. For instance, against the characterisation of the US economy as an exemplary case of exte¡esiv¿ accumulation from the 1850s to 19147 , Brenner and Glick (1991, 74-75) find that: in most ofthe main indices of economic developme,nt - rate of growth of GDP per capita, proportion of GDP devoted to fixed (non-residential) investment, rate of growth of investment in fxed capital per m¡n-[eur, and the like - the dSaramism of the US economy between 1870 and 1914 was quite comparable to what it would be during the great boom of 1950 to 1973. Brenner and Glick (1991) similarþ find no evidence to support the regulationist contention that intensive accumulation was fi¡ndamentally incompatible with a competitive mode of regulation from l9l4 to 1945. Real wages in the US increased steadily from l9l4 to the late 1920s, facilitated by increasing labour productivity. This period was in fact m¿rked by one ofthe highest lwels of conzumption (relative to total income) ofthis century. The share ofprofits in national income, however, declined rapidly from 1918 to the late 1920s (Brenner and Glick, 1991, 84). Conzumption as a proportion of US GNP during this phase was actually above that ofthe great Fordist mode of regulation and regime of accumulation, calling into question the whole notion of sharp breaks, transitions and zustained epochs (Brenner and Glick, 1991, 95). In summary Brenner and Glick (1991, l13) find that: the whole notion of Fordisnq in both its supply-side and demand-side aqpects, is both theoretically incoherent and empirically irrelwant, and provides misleading perspectives on tle nature of capitalist crises, past and present, on the historical role I Charad,erised by a predominoce of absohf e swplus value, low labour produaivity, low levels of teónical in.ovatior, ecoo-ic gror¡vth based m extading (geogr4hically)1he meas ofprodudicn md int€nsifyiûghì¡¡rø labour @reaner æd Glick, 1991,50-54). 36 of class power and politics in preoipitating and resolving capitalist crises, and on contemporary policy options. These criticisms seem ironic given regulation theory's emphasis on qpecificity, contingency and the overdetermined quality of real events and processes and the attempt to incorporate these into tle formulation oftheory. As Hirst andZeitln (1991) assert, howwer, regulation theory's overt concem to introduce contingency into the analysis of capitalist development only makes sense from a structuralist and totalising metatheoretical perqpective. Regulation theory's foundations in structuralist Manrism - where analysis is füed upon capitalism as a generality - requires that concessions to the fluidity and indeterminate nature of the concrete expressions of capitalist development are introduced through the front door, but not as real players. Because the "capitalist mode of dwelopment" is still posed as the underlying determinant for a panoply of interrelated economic, political and social phenomena, "levels of abstraction are needed because this totality is simply not present in the concrete ... so it must withdraw to a higher level of abstraotion" (Murdoch, 1995,737).In its bids to move beyond these presuppositions, regulation theory loses much ofits a priori e4planatory force, as it is forced to rely on the desoription of real events to provide the to- and fro- oftle realist method. This should not be a problem (although Murdoch, 1995,737-733 thinks it is), except that, as Brenner and Gliok (1991) show, the tendenoy in regulationist analysis is to force concrete information into arbitrary and ossified categories and historical phases of development. An acknowledged shortcoming ofthe regulation approach, along with its general lack of a fully-developed theory ofthe state, is its equivocation over the relation between macro- and micro-levels of regulation (Boyer, 1990, x; Jessop, 1990, 19l). As Jessop (1990, l9l-194)notes,therehavebeenanumberofdifferentapproachestothespatialand societal rlimensions of this iszue. These have generally polarised around those adopting bottom-up and top-down perspectives. Howwer, from the preceding discussion it should be obvious that the concepts and presuppositions at the core of the regulationist framework draw their explanatory force from observations of economy-wide (i.e. macro-economic) phenomena (Murdoch, 1995,737-738). Extolling its benefits, Boyer (1990, 14) asserts that 37 regulation theory offers the fundamentals of a theory of macro-economics, and acknowledges that Fordism, as an ideal t5pe, "only makes sense at the level of the whole economy" (Boyer, 1990, x). It is not particularþ amenable, then, to analyses that seek, in a non-hierarchical fashion, to chart the forces of economic power through an articulated range of scales. These criticisms are easily overstated. Regulation theory re,presents a major advance on the more functionalist Manrist strands ofthought in the conceptualisation ofthe relationships between social political and economic institutions and practices and broader pattems of capitalist dwelopment. The emphasis on the contingent and overdetermined nature of capitalist production and reproduction is particularþ instructive (Murdoch, 1995, 738; Jessop, 1990). Regulation theory, in all its ssmplex forms, is a particularþ nuanced form of enquiry, and is by no means a complete and unified thesis. Its reliance on a cluster ofbroad but intemally complex concepts, though, leads easily to reified and functionalist accountss . For these reasons, and deqpite its seemingly obvious usefulness to this research, this thesis is not a regulationist nor a post-Fordist accourt ofthe fortunes of a local community and its farming sector in the context of rapid global economic change. Regulation ttreory offers a potentially usefirl framework for analysing zuch topics, but its explanatory abilities are hamstrung by its somewhat essentialist perqpective on capitalism and its associated inability 1s link, in a non-hierarohical way, rnacro-, meso- and micro-level processes. This is not a blanket rejeotion ofthe regulationist approach. It provides mâny convincing and useful conceptual and heuristic points of entry into understaniling capitalist development, and is, in 8 Some receat 4plicatims of regulaticnlheuytolhe malysis of nual social æd ecmomic åargehavelld. aided its ¡åabilitatio. Endeavouringto c¡eate a niåe fo citicallhecry qproaåestothelhecrisatica of omtqorry UK n¡ral social æd eoocnrio åmge, Cloke md Goodwin (1992) md Goodwin, Cloke od Milboume (1995) ad4ttparticularprts oflheregulaticniS såøa þrimarilylhe mode of regulatica)to accesslhen¡ral "t¡æsitim" (Gooórin, d. aI.,1995,7241). Deçfeihe arfhms' cos(æt re¿ssr¡¡æcesthatlhey arenct looking "to ryecifylhe ways in whi& hual' areas in geaeral are irylicatedin æylræsitiotowardspod'-Fu¡lim, cr away from t'66¡limi, but are i.se¿d seekingto "allow fø a mucho.øe coqllex situation (Gooó¡/in, 4 al., 1995, 1249),1he anicle is blarkd.ed with m cpaçe Itlm of regulaticnirÆordist -posf-Fcrdil. binaries. Fo o reality, an ongoing research prograrnme rather tlan a unitary thesis (Jessop, 1990). Howwer, regulation theory requires oonsiderable reformulation so that the contingency, qpecificity and partiality that are putatively integral to it are given a stronger presence. I do not take this reformulation to be the task of this thesis. The remainder ofthis chapter reviews two relatively separate strands ofthe rural restructuring geffe: the political economy offarm credit literature and the growing literatue on farming women and their roles; and selected recent contributions to the ,role of ttre state' literature. In ttris way, I hope to 'build up' a theoretically-informed and scale- sensitive interpretative framework for this thesis. 2.3.4. The Political Economy of Farm Credit. The agrarian restructurin{farmcrisis literature's explicit focus on the farm (family and./or corporate) as embedded within, and penetrated by, a network of relations with other capitalist firms has proved usefirl in broadening the scope of analysis of farm and rural change. Yet deqpite its concern for the changing social relations ofintemational and national food and fibre production and consumption, and the part played by global financial markets and capital in driving these changes, the role of credit relations in this restructuring process has received only limited attention. Much ofwhat has been written on institutionally-sourced farm credit from a critical political economy perqpective has tended to gravitate towards survivalist or transitionalist standpoints, whereþ the changing nature of farm credit (in concert with other dlmamics), has been seen to increase the formal subsumption of farm familiss. Like much of tle agraian restructurin{farm crisis literature ofwhich it forms apart,this writing tends to draw heavily on Man Mooney (1986), for example, emphasised the "structural contradictions,' inherent in contemporary US farm policy attempts to allow tenant farmers to become independent operators on their own holdings via debt. True to the Manrian aphorism, Mooney (19g6, 451) stated that the introduction of credit relations into this farming class transforms the established social relations ofproduction by effectively cutting these producers up into n¡¡o 39 pelsons: nominal owrlers of their businesses on one hand (members of the petite bourgeoisie), but proletarianised labourers on the other. The attempt to aid the conversion of tenant farmers into independent farmers, while officially driven by the desire to end the exploitation ofthis class of farmers, was, according to Mooney (1936), simply swapping one form of economic exploitation for anotler. Reviewing the boom-bust cycle of US agriculture over the previous 150 years, Mooney (1986, 459-460) traced the continual re- emergence ofthe structural contradictions of credit-based farming to the present day: The use of credit toward the capital-intensification ofproduction engenders increased productivity, which is, except during particular conditions (uzually war), the precondition for declines in prices received by producers. Such declines bring with them declines in the value of lands mortgaged; debt rises in proportion to assets, and foreclosures follow. Running alongside this wave pattem ofboom and slump, according to Mooney (1986) is the long-run trajeotory of the growth of larger-than-family and corporate-type farms and the concentration of farm production in this sector at the expense of smalt family farms. Finance capital plays a vital role in this zubsumption process through its discretionary allocation of loans to credit-worthy farmers. Marsden, Whatmore and Munton (1990) and Marsden (1991) provide similar perqpectives on the role of financial capitals in the contemporary agrarian restructuring process in the UI( Marsden (1991, 28) highlighted three recent significant trends in the linkages between fu-ily farms and finance capitals. First, increased interest costs and declining farm incomes have resulted in the rapid expansion of UK farm debt. Simultaneous with this increased debt, bank lending has targeted the most profit-oriented clients. Secondly, because farm input purchases have declined in the wake of this expansion of farm debt, farm input zuppliers and financial institutions have co-operated to offer the farm seotor special low interest credit packages for the purchase of farm inputs at conoessional interest rates. Thirdly, via this process, farmers have become zubject to a wider variety of farm production and financial management advice. In many cases, the farmer's ability to access 40 these input-credit packages is dependent on his/her use ofthis advice. While these points relate to UK conditions, together with Mooney's (1986) research, they potentially indicate the tighter integration and penetration ofthe family farmwith and by financial institutions. $imil¿¡þ emphasising the'structural contradictions' of UK credit-based agriculture, Marsden, et al. (1990) analysed how the recent restructuring of UKbank lenrling has influenced farm debt and the general reorganisation of the sector. British farm lending was restructured in the 1980s, with more traditional forms oflending criteria, based on the applicant's equity in the land he/she was purchasing, being replaced by greater stress on the farm business' profitability and cash flow. This trend emerged as a direct response to the increased debt loads ¿1d f¿lling land values (and hence, declining equity levels) in the British farm sector in the 1980s (Marsden, et al., 1990). Together with the trends noted by Marsden (1991) above, Marsden, et al. (1990, 52) note that the British banking sector's adjustment of its credit allocation process is likeþ to force "the farm family more specifically towards technical methods ofproduction and formal lwels of rationality',. Echoing Mooney's (1986) sentiments, Marsden, et al. (1990) accentuated the vital but deeply ambþous role of lending institutions and financial credit in both enabling and constraining the capital accumulation process. Credit acts as a "lubricant" for the accumulation process (Marsden, et al., 1990,44),while the discretionary allocation and rationing of finance allows credit providers to guide the direction of this process. The establishment of credit relations between farmers and financial institutioas links farmers into a productionist treadmill, which in the UK context, leads to increased dependence on input suppliers. This process increased the farm sector's structural reliance upon industrial and finance capital (Marsden, et al., 1990,46). As Marsden, et al. (1990, 53) have noted, the increased production and productivity (and market instability) tlat could emanate from these new relationshipr may actually contravene EC state and agricultural policy. The recent trend towards global economic and financial integration has therefore amplified the ability offinancial institutions to segment national farm sectors on the basis of profitability. "Under these circumstances it is likely that banks will increase the degree of selectivity in borrowing, viewing the farming population in a more e>ipticitly graded way 4l within an intemational rather than national context" (Marsden, et al., 1990, 53). Marsden and Whatmore (1994) update this analysis by noting the tighter integration occurring between financial and industrial capitals on an intemational and global scale, and the impact of this strategy upon the LIK food seotor. The burden of Marsde,n and Whatmore's (1994) argume,lrt is that the increasing strategic strength of global corporations is very much at the e)iPense of the nation-state and particular vulnerable economic sectors, tle latter necessarily bound within regional and local economies and societies: With regard to ... broader processes of restructuring ... land-based agriculture becomes increasingly one other sector to which the exploitive (sic) qmergies of industrial and finance capital are directed. In this regard we oan see resonance of D. S. Glasberg's analysis (1988) ofbank hegemony, which stresses the domination of banking in regulating firms, cities, and the nation-state ... It is the degree of competitive collaboration that banking capital dwelops with industrial sectors over time and space that seems to be crucial in maintaining its level ofhegemony. Moreover it is the particular combination ofrelationships and transactions between them that now allows for firther pe,netration into the agricultural qphere at a time of general retrenohment. The question is thus not whether banking capital is now directing capital accumulation at global and regional lwels, but, more appropriately, how the interactions of banking and industrial capital help to shape particular sectors of production and consumption (Marsden and Whatm ore, l99 4, 124- 125, original emphasis). The evolution of the agrarian political economy literature to a more explicit consideration of the active roles of extemal capitals in the farm subsumption process is indicative ofthe wider (and deeper) perqpective being adopted in recent analyses of rural restructuring. As noted in the previous zub-section, the survivalist/subzumption literature's fascination with the capital production-realisation-accumulation circuit elided the siSnificance ofhousehold consumption and reproduction (Redclift and Whatmore, 1990; Little, 1994) and the vital roles played by the nation-state þarticularþ in the EC and US context). The following sub-sections seek to broaden the theoretical orientation of this thesis by selectiveþ reviewing, respectively, the feminist critique ofthe agrarian political economy literature and the broad literature on the role ofthe capitalist state. 42 2.3.5. The Man on the Land and the Invisible Farmer: Feminist Critiques of the Political Economy of Agriculture. These analyses have tended to coalesce around two main points: l) the inadequate conception provided by most classical and modem political economy approaches ofthe family farm household; and 2) the one-sided perqpective on the restructuring process that analyses based on l) above provide. In short, these counter-analyses undermine conventional perceptions ofthe family farm (or SCp) household as a "black box", emphasising that the d¡mamics ofthe intemal relations ofthe household (concenring the contestation or acquiescence of roles in the domestic, farm and non-farm labour process) are more important in directing the zubsumption process than some mysterious and essentialist logic of capital. Recent feminis¡ analyses concerned with this theme have concentrated, then, on deconstructing the family farm household, examining the nature of its interral relations and revealing the ideological nature of its constructed identity. In this way, these critiques have demonstrated the limitations of Marxian and neo-classical standpoints in rural research (Whatmore, l99la,l99lb;Alston, lgg4). In her feminist reconstruction ofthe simple commodity production (SCP) literature, Whatmore (l99la) revealed the logical incompatibility ofthe Marxian concept of SCp with the analysis of family farming. Simple oommodity production relies upon a conceptual separation ofpolitical and domestic eoonomies; a division which Friedmann (the architect of SCP's more recent reformulation) acknowledges. The analysis of generalised commodity circulation objectifies people as "'bearers of labour power ... [while] it shapes others as property owners. Therefore the unity of property and labour refers logically to individuals',' (Friedmann ( 1986b, 50), cited in Whatmorc, l99la,32-33). Deqpite Frierlmann's close scrutiny of the reproduction of the simple commodiry production household, the gendered nature of that reproduction process remains obscured by the farm and wage labour system. Indeed, in seeking to distance the simple commodity production household from the social relations of the capitalist labour market, Friedmann ( 1986a, 187) contends that the intemal relations ofthe household are all "non-commodified". 43 Whatmore (1991b, 7l) hightighted three main deficiencies in the concept of SCp. First, from its narrow definition of labour, only work related to valorised production is considered as worthy of inclusion in its analyses. Thus, a substantial part of the farm family's labour - related to production, which m¿y or may not be valorised - are hidden fromview. Second, the farm family is itselfpoorþ theorised, with the norm of the nuclear family used as a template in which to locate the corylex and differentiated relations of the household. Treating the farm family as an organic or natural entity obscures the unequa! often conflistu¿l and sometimes contested character of these relations and marginalises the experiences of differe,lrt family t5pes. Thirdly, sim¡rle commodity production, as a concept, fails to incorporate any theory of gender relations into the examination of farm structural change or how the farm labour process is sustained. Conventional explanations of the SCp labour process and division of labour tend to naturalise farm family gender relations and inequalities by their reductionist reference to farm family life cycles. Emploþg a femini5tr/poststructuralist approach to the feinterpretation ofthe farm family household, Whatmore (l99la,199lb) sought to broaden the Marxian focus on farm production to wider but no less important issues of reproduction, consumption and lived e>iperience. In this way, issues ofproperty rights, domestic, on- and oflfarm divisions of labour and the ways in which family labour roles are grveo social and/or economic value are either brought to light or given a fresh interpretation. The farm labour process - enooApassing production and reproduction - is seen to rest upor a set of ideologically constructed and actively maintained gender identities. It is in this way that farm-lwel patriarchal relations are knitted into wider regimes of female oppression and inequality. Farm women - as wives, mothers or daughters - are defined in relation to the men in the family, or as "other" (Alston, 1994,1995; Poiner, l9g4). Their identities within the farm fumily are bound up with "ideologies of 'wifehood' and 'motherhood' which naturalise gender inequalities" (Whatmore, 1991a,92). T\e ideological aspect of this construction receives concrete expression in the gendered division of labour, i.e. who takes prime responsibility for domestic/child care tasks?'Who takes prime 44 responsibility for farm work? Who decides on the apportionment of domestic and farm tasks? To what extent are these decisions contested, negotiated or accepted? For Whatmore (l99la, l99lb) tle task, then, was to deconstruct these ideologies by disrupting their s[¿ims to represent a fixed identity of "woman',e . Against the Chayanovian life cycle concept, Whatmore (l99la, l99lb) asserted that tlere is nothing nafural about the way roles, rights and values are allocated within the farm family: the family labour process ... (is) organised around a gender division of labour structured by the patriarchal institution of the conjugal household and a gender division ofproperty rights structured by patrilineal kinship practices. Through these relations control over capital the technological means of production, and income fromvalorised labour processes is concentrated in the hands of men. The family labour process can thus be defined more accurately as a patriarchal labour ptorr., (Whatmore, 199 la, l4l). As Whatmore (l99la) displayed through her case study materia! these constructed identities - and the material practices they justify - are not fixed, but zubject to uneven processes of contestation, conflict and complianoe. It is inaccurate to generalise patriarcþ as a universal feature of all farm familial relations. These identities are reflexively interpreted, reproduced and occasionally transformed by farm women and men in tleir everyday activities. From this perqpective, the farm family in advanced capitalism can be sited within oomplex, overlapping and politicised matrices and scales of kinship relations, the regulatory and market oonditions of qpecific oommodity sectors and necessary farm inputs and the physical environment of the farm itself (Synes, l99l). Spliced inextricably into the thread of these kinship relations is the gender ideologies which give them their patriarchal character. It is in this way that farm-level patriarohal relations are knitted into wider regimes and o Weedm 11eS7,25) Iates "(tþemeæing oflhe signfier \r,omm'va¡ies frmidealto vidimto objec of socual desire, accodingto fu c.elext "' a ¡liq mul pay imal ccnteK oftextuality in orderto address thepower relatims of meaings are p pradices in whió. tAirri-Ar¡", are shqed by these ",to instih¡ticns, , rather thæ its may either serve hegemoic intere$s o, ú"iag" exi,*.iu jpo*ä relatimsn. 45 geographical scales offemale oppression and inequality. According to Whatmore (l99lb, 72), the family farm household is a gender regime, located within a wider "gender order": 'þelrder regimes of family farming can be examined as particular points in a wider matrix of patriarchal gender relations". The significance ofthese points is not limited to the conceptualisation ofthe farm family household but has mâjor implications for how the zubsumption/restructuring process is conceptuatsed and interpreted. Rather than stress, in accordance with the binary view, that the farm family is being relentlessþ transformed by the capital penetration process, or that it contains unique features which btock this process, a less essentialist view based on this feminist/poststructuralist critique might emphasise that subsumption, like patriarchy, is a temporally- and spatially-uneven and actively interpreted and contested process, not only at the lwel of the farm firm, but also within the farm family itself This process is mediated then by "a range of actual regimes in which kinship, household and enterprise intersect in different ways at different lwels of commoditisation in specific local contexts" (Whatmore, 199la, 140). The vital role t,hat nation- and regional-states have played in helping shape national agricultural sectors and the d¡aramic form of intemational farm trade and regulation requires that the state - not only in relation to its role in agricultural policy - be conceptualised as part ofthe wider theoretical analysis of agricultural and rural change. Given the nature of this thesis' research, tlis conceptualisation takes on a qpecial importance. 2.3.6. The Cubist State: Towards a Non-Essentialist Account of the Capitalist State The global integration ofhitherto national financial systems and the consequent transformation ofnational economies over the last two decades has inspired a renewed interest in theorising and empirioally testing tle authority ofthe nation-state. For some (e.g. Friedmann, 1991), the globalisation of economio management and finance has all but spelt the end of the autarkical nation-state. Deregulationist policies are perceived to have been 46 forced upon the state by externol capital forces, and are thus regarded as exemplifying the enfeeblement ofthe nation-state (ONeill, 1995, 4). A plethora of metaphors from recent uriting on this topic capture this perqpective: "the phantom state" (Thrift and Leyshon, ß9\;while the gutting ofthe Ke;mesian welfare state after 1973 is see,n to have produced a "Janus-faced state ... bifrrrcated betwee,n a dominant 'e,lrtrepreneurial state', dweloping an active programme of deregulation, privatization and decentraltzation, and a subordinate 'soup kitchen state' catering for the unemployed and those on the margins of the post- Fordist economy" (Tickell and Peck, 1992,204). As ONeill (1995) notes, these notions create the impression that the state, the economy and clasVpolitical processes are separate and independe,lrt of eaoh other. From this voluntarist perqpective, capitalism is seen to operate more effioiently outside of state interference - instead of being interdependelrt with it - and that the state's proper domain is outside of capitalism (ONeil[ 1995). According to ONeill (lgg5,5-7), thisview greatly neglects and mystifies the ways in which the state intervenes, interacts and negotiates with and selectiveþ resists ottrer economic and social agents and institutions to maintain its legitimacy. Although nation-states and regional states (in the Federal sense)r0may have become somewhat zubservient to finance capital or matters of economio management (Thrift, l99Z; Fagan and Le Heron, 1994; Thrn and Leyshon,1994\,these political and arlministrative hierarchies still retain nuny important fi¡nctions and features. The globalisation thesis emphasises the spatial boundlessness of oapital and the laok of significance ttrat now adheres to the nationality offirms in the present era, but it simultaneousþ recoÊnises the important fact that production always occurs within national territories. It also acknowledges that nation- and regional states - in collaboration or competition - determine the form ofthe regulatory framework which limits competition between firms in terms of the national interest (Le Heron, 1993a,18; Fagan and Le Heron, 1994). States, therefore, need to be identified as real entities with causal powers and liabilities, and not as merely tranqparent conduits of global capital or political struggle or action. t nregimal nnaticnd.d,en I u"elheterm saten intadø wilh becsus€ ofthe irrTctantpolitical eccnmicrolesthat States mdprovinoes ad the like psess to a greater cr lesser ctegree in Federal sysøs. A Empirically, the explicit character and functions ofthe nation- and regional state need to be recognised in each situation, as these crucial features will vary across time and qpace. One of the reasons why tle global financial system currently diqplays zuch a high degree of complexity and diversþ is the fact that individual nation-states have, albeit in a mainly piecemeal fashion, been able to maintain previous and/or impose new constraints on their particular finanoial sectors. Thdft and Leyshon (1994,306) make the point that "(s)tate monetary policy still makes a difference, as the effects of German monetary policy on other European cor¡ntries makes clear". Nevertheless, they recognise that it is also the case that nation-states have approached the regulation ofthe growing power offinance capital in an increasingly reflexive manneÍ, because of the power of this sector to punish national adminis¡1¿1ions for r¡nfavourable regulation (Thrifr and Leyshon, 1994,304). Advo cating a reinterpretation of most current conceptualisations of the intemational geography of accumulation, Fagan and Le Heron (1994,265) criticise the domin¿g globaVnational dichotomy inhs¡sa1in most restructuring accounts as a mystification "in both theoretical and empirical analys(e)s of restructuring". This oriticism relates to two main points: a) that the nationality of firms is today essentially inelevant; and b) that understanding the d¡mamics and effects of capital accumulation requires a widened research focus beyond production per se and more rigorous conception of scale. Fagan and Le Heron (1994,266) "argae that the notion of 'the geography of production' must be replaced with a conception of the geography of capital accumulation at a global scale. This includes, by definition, consideration of markets and intemational trade (realisation) and global financial flows (reproduction), as well as production". Consistent with this theme, Fagan and Le Heron (1994,210-271, original emphasis) adapt Bryan's (1987) circuits of capital framework to develop and assist the theoretical position "that it is not 'nationality', ovunership, or sector which identify these fraotions of total capital but the ways in which produotion, sales, and investments are linked to the global accumulation prooess". Fractions of oapital refer, in this sense, not to individual firms, but rather 1s "flomin¿nt tendencies identified in relation to the intemationalisation of circuits" (Fagan and Le Heron, 1994,270). This adapted framework is reproduced below. 48 According to this framework, a national fraction of capital is defined where capital circulation takes place primarily within national borders. Production is targeted for domestic consumption, via local markets (the circuit ofrealisation), while finance for reproduction is sourced locally. Investnent-constrained fractions of capital are identified where capital realisation (trade) takes place on a global level, but finance for production and reproduction is sought locally. Market-constrained fractions of oapital are defined where finance is available from intemational markets, but where production and realisation take place locally. Finally, global fractions of capital represent the full intemationalisation of capital movement in each of the three circuits of capital (Fagan and Le Heron, lgg4,27O-Z7l). Table 2.3. conceptual Dimensions ofthe Intemationalisation of capital Fraction Intemational ci¡cuit of \¡vith production reproduction realisation National N N N Direct: imported means of productioq licences ; offshore finance Indirect: local competition with firms in market-constrained and global fractions Investment- N N I Direct: expofs; imported means constrained of production; offshore fi nance Indirect competition from TNCs for expof markets; export Market- N (G) G N Direct: TNC branch plants constrained status; imported means of production; offshore finance Indirect: competition with firms in global fraction Global N (G) G G Direct: part of TNC networls; global competition with other TNCs; imported means of production; offshore finance Key: G: global circuit (intracoryorate) TNC = transrational corporation I = intemational circuit N = nationally bound circuit Source: Fagan and Le Heron (1994,270). Using tlis framework, it is possible to identify broad, historically-specific national regulatory approaches. For instance, post-WWII industrial restructuring in Australia was focused on the growth of national fractions of capitaf facilitated by high levels of protection 49 and a corporatist alliance between capital organised labour and the nation-state. These arrangeme,nts, howwer, also provided an ideal beachhead for TNCs to locate branch plants in the consumer goods industries, thus stimulating the growth ofthe market-constrained fraction during the post-war long boom (Fagan and Le Heron, 1994,277). This was merely one ofthe first steps in an ongoing process ofthe globalisation of economic activity, formerþ co-ordinated within the nation-state. As a heuristic dwice, this framework also helps to explain how changes in state regulation can induce pressures for restructuring in other sectors of the economy by forcing new modes ofperformance and productivity upon other capitals. These changes have had important ramifications for the Australian financial sector, as will be discussed in greater detail in Chapter Five. The global perqpective forms, then, a necessary contextual background against which to examine the reflexive negotiation of economic and political change by nation- and regional states and local communities (Browett and Leaver, 1989). 2.4. Conclusion To retum to an earlier, firndamental research question, what would a theoretical and conceptual framework that seeks to understand and explain the role ofthe deregulation of the financial system in the rural and farm crisis ofthe late 1980s and earþ 1990s - in neither structuralist/frrnctionalist nor voluntarist terms - look like? As noted in the Introduction to this Chapter, the full philosophioal and theoretical orientation ofthis thesis will be completed with the next chapter. My ooncern in this Chapter, however, has been to develop, via a critical review ofthe relevant literature, a provisional scalar framework that qpecificaþ recognises the reflexive and recursive character ofthe politica! cultural and economic relationships between and within the farm fa-ily, the regional- and nation-state and non-farm businesses in the context of a truly global capitalism- I have adopted this approaoh for two main reasons. First, as the above review ofthe broad subzumption/survivalist and political economy of farm credit literature showed, the economic and social links between farm families and non-farm businesses are continually expanding and strengthening in complex \¡/ays. There is no indication that this trend will halt t\ in the near future. A scale-sensitive perspective, in the ways that Howitt (1993), Smith 50 (1993) and Fagan (1995a, 1995b) have conceived of it, is necessary to adequately grasp the gfowing complexity of the link¿gss between farm families, non-farm businesses (from global TNCs to local fims), the regional- and nation-state and markets (from the global to the local). The empirical foous ofthis researoh is trained primarily on the local manifestations (at the farm family and local community level) of global economic change, mediated and interpreted by the nation- and regional state and financial institutions. However, it is equally vital, in recognising the articulated character of scale, to trace back through the network of relations between each level and entity to properþ comprehen d the causal processes bound up within this change. The regulationist approach is rejected for its inability to do both of these conceptual and real manoeuwes satisfactorily. As the review ofthe femini56 rural restructuring literature showed, however, this scalar analysis needs to move in both directions from the farm famity scale to gain a firll picture of the uneven subsumption/survival process. Whatmore (l99la, 1991b) reveals that the gendered oharacter of the fu-ily farm household, as well as its stage in the life oyole, is at least as important as 'extental' factors in guiding the farm family's susceptibility or resistance to capitalist penetration. This emphasises Smith's (1993) notion of a politicised scale and its social connectedness with other scales. Second, a reinvigorated concept of scale not only seryes as a critical heuristic tool for better comprehending the increasing complexity ofthe oontemporary rural restructuring dlm.amic, but it also plays a fundamental role in ttre theory-building process. Coming to grips with the multiplicity of social and economic change entails a commitment to theoretically-informed empirical analyses that move within and across scales, developing an increasingly complex i-age of reality in the qpiral motion from the concrete to the abstract and back again (Jessop, 1990; Sayer, 1992). Given the complexity and open nature of the slstems under analysis in this tlesis, it is more important, in the research process, to be equipped with a rigorous philosophicaVmeta-theoretioal standpoint than endeavour to taokle this complexity with a rigid theoretioal template. As Ley (1988, 122)notes, ',while a philosophical underpinning provides logical coherence to a research programme, it should 51 be held loosely, for often the pruity ofphilosophioal disoourse has nrn aground upon the rock of geographic practice". In the following ohapter, the philosophical and methodological orientation ofthis research - consistent with the above theoretioal positions - will be established via the developme,lrt of a theoretical framework for analysing the relations between farm families, financial institutions and tle state. 52 CHAPTER THREE: Tffi AGRICT]LTURE-FINAI\CE REII\TION: A REALIST APPROACH 3.1 Inhoduction This chapter begins with a detailed discussion ofthe scie,lrtific philosophy of critical realism and the theoretical and methodological implications that flow from ttris stance. The critical realist mode of conceptualisation is then used to dwelop a heuristic framework - the agricultrue-finance relation (Le Heron, l99l). This framework will later be used to analyse farm famil¡ nation- and regional-state and community reactions to, and influences on, global economic change across time, qpace and scale. 3.2. critical Realism: A Philosophical and rheoretical Exploration 3.2.1 To Be Is Not To Be Perceived: A Realist Philosophy for the Social Sciences Critical realisml stands, in a progressive se,nse, in opposition to the long-standing paradiqm of positivism in both the natural and social sciences. Particularþ, it seeks to rweal how the positivist theory of knowledge - and its influential ideological presuppositions - are informed by and derived from its tacit ontolo W. Atthe core of this ontology is the Humean tleory of causal laws. This theory holds that general knowledge is discoverable only via the anaþsis ofthe pattems of constant conjunctions ofpartioular events across time and space; whtle particularl conceives of the natural and social worlds as a hierarchy of closed systems and atomistic events. Thus, in the social realnq "tle Humean theory presupposes a conception ofpeople as passive sensors of given facts and recorders oftheir given constant conjunotions, which has tle corollary that knowledge can always be analysed in a pweþ indivitlualistic way" (Bhaskar, 1993, 49-50). I The term "c¡itical realism" appe¿us to be a conflation of Bhaskar's general philosophy of science (transcendental realism) and his particular philosophy of the social sciences (critical nàturalism) that has occurred ,'realism" through popular interpretation @haskar, 1993, 190). In this thesis, the term is used interchangeably with "critical realism". 53 This notion of science efectivd marginalises human agelrcy as a transformative and reproduotive power, as the social and natural world are flattened out into a concatenation of we,nts bound together, not by the human activity necessary for them, but by their propinquity in qpace and time. From such an atomistic and individualistic position, eve,lrts and experiences lack any particular social context or causal relation with each other. The condition ofpositivism's reduction of causal laws to sequences of wents and evelrts to experiences is thus a denial of the social character of science, and more particularþ ofits character as worktnvofug the transformation of antecedent objects, both material and ideational. Thus the concept of an empirical world has its counterpart and condition, in positivism, in a reified aocor¡nt of science (Bhaskar, 1993, 52, original emphasis). Here Bhaskar is referring to positivisn¡'s reification offacts (wents minus the human activity necessary for them) and its fetishism of systems (conjunctions of events minus their social relations) as well as emphasising the intersubjective nature of scientific research. Against positivism and other empiricist philosophies, critical realism adopts an overtly selÊconscious and analytical stance vis-à-vis knowledge, insisting on the philosophical distinction betwee,n the two dimensions of science: the intransitive (ontological) and the transitive (sociological). The intransitive dimension contains natural (reat) laws and phenomena which exist and operate independently of our knowledge ofthem; the transitive dimension consists of "antecedently existing cognitive m¿terials" (Bhaskar, 1993, 68) - hypotheses, abstractions and the like - which are engaged in the attempt to represent and r¡nderstand the intransitive objects of knowledge. It is perhaps helpfrrl to clarify this distinction in relation to the social world by refening to the difference between "thought objects" and "real objects" (Sayer, 1992, 47-49). Real objects are the facts or states ofthe world that we encounter or discover empirically, while thought objects are the theoreticat empirical and observational statements and knowledge that we have ofttrese real objects. The dwelopme,nt ofthe agriculture- finanoe relation in seotion 3.3 below is an example ofhow a thought object (the concept of 54 the agriculture-finance relation) can be used to isolate and, hence, better r¡nderstand the operation of a real objeot (farnibanker credit relations). Critical realism holds that real objects can only be approached conceptually via a thought object. Problems emerge in tlis simple delineation, however, when we consider that thought objects can also be real objects in the social world: social structures and institutions, for example. Nevertheless, "(a)lthottgh social phenomena cannot exist independently of actors or subiects, they usually do exist independently of the particular individualwho is stuþing them" (sayer, rggz,49, original emphasis). From a realist standpoint, the positivist focus on regularity conflates three separate domains of reality. Realists insist upon the zubtle stratification ofreality into: "1. the real (made up of entities, mechanisms etc); 2. the actual (made up of events); 3. the empirical (made up of experiences)" (outhwaite , lggT, zl-zz). Each domain is separated from the other by a brief ontological pause. The movement from the real to the actuat and from the actual to tle empirica! is contingent, though. The si8nificance of this point is that, because of the concept-dependent nature of (social) knowledge and ow intemal position in that knowledge, \ile are nwer truly ',outside,' of tle world that we seek to describe and e>iplain, yet equally, we do not have direct access to it. Nor are we outside of the language that we use for these tasks. There is no Archimedean point of access to knowledge and no guarantee that we can appropriate all features of the real world as a concrete-in-thought (as Mam held). The real world exists outside and independently of our individual experiences of it. This is what is implied in the title to this section: to be is not (necessarily) to be perceived (outhwaite, l9g7). For Bhaskar's concept of a naturalist social science to be valid, it must be demonstrated that society oontains zufficiently generative causal powers and mechanisms to drive change, yet also enables the capacity of individual human agents to reflexively influence that change. Otherwise, his philosophy is little more than dressed-up structuralism orvoluntarism In developing the realist conoeption of social reality, Bhaskar (1993, 76-g0) 55 rwisits the structure-agenoy debate via an interrogation of the three dominant forms ofthe "society-person relationship" (Bhaska4 1993,74): theWeberian/voftrntarist; the Durlùeimian/reification; and the dialectical forms (Fig. 3.1). The first ¡ryo models represent the opposite poles ofthe structrue-agency debate. Model 1 implies that social objects (institutionalised sooial practices such as language, economic and social transactions, ethical and cultrual mores and the like) are the product of intentional human agents. Model 2, on the other hand, tums the direction of causality in the opposite direction, connoting that human agents are, in effect, puppets ofthe structural forces of embedded social practices. Model3, however, attempts to break this theoretical impasse by adopting an'add and stir' approach to these polar positions. By assuming a dialectical quality to society-individual interactions - so that social structure is explicable only in terms of: l) its dependence upon the human activity used in its production; and yet 2) its coercive and const¡¿ining power over individual action (Bhaskar, 1993,75) - this model appears to succeed in navigating a viable route between voluntarism and reification. Howwer, upon deeper reflection tlis model is zustained by an inconsistent and incompatible binaryview of society-person relationships. On the one hand, social facts, and society itse[ are objectified and extemalised from human action. On the other hand, however, people are "tle intemalization or reappropriation in consciousress of society', (Bhaskar, 1993,76). This model falters the,n on the incompatible marriage of a somewhat voh¡ntarist conoeption ofhuman action in "creating" social struotures, and a mechanistic view of society's delimitation ofthat human action. These are zubtle arguments, and perhaps the best way of illustrating ttrem is by contrast with the realist altemative. The transformational model of social activity (TMSA) (Fig. 3.2) begins with the Durkheimian notion that society pre-exists the individual2; but with the necessary qualification that people experience sooiety not as a given form, but as a presupposition 2 "When I perform my duties as a brother, a husband or a citizen and carry out the commitments I have ente¡ed into, I frrlfil obligations which are deñned in law and custom and which are external to myself and my actions. Even when they conform to my sentiments and when I feel their reality within me, that reality does not cease to be objective, for it is not I who have prescribed these duties; I have received them through education... Similarly, the believer has discovered from birth, ready fashioned, the beliefs and practices oi his religious life; if they existed before he did it follows that they exist outside him" @urkheim, 19g2, 50). 56 through experie,nce. In this way, sooiety (and social struoture) contextualises, enables and constrains human action, in both discursive and non-discursive realms. In much the same way as Giddens (19S5) conceived sfthis relationship, tle transform¿tional model of social activity imPlies that society "'is both the wer-present condition (mateial cause) and the continually reproduced outcome of humaû agency (outhwaite, 19g7, 5l). this From vieu¡point, it is neither the case that human agents create society nor that society totally govems and delimits human action, but that individuals transform and reproduce society and its constituent objects: The conception I am proposing is that people, in their conscious human activity, for the most part urconsciousþ reproduce (or occasionally transform) the structues that govem their substantive activities ofproduction. Thus people do not marry to reproduce the nuclear family, or work to re,produce the capitalist economy. gut it is nwertheless the unintended consequence (and inexorable iesult) o{ as it is also the necessary condition for their activity (Bhaskar, 1993, g0). Equally, farm families do not borrow money to reproduce capitalist agriculture, the agriculnue-finance relation, or to hasten the subsumption process, yet these may be the unforesee'n consequences of this action. The question over the existence of an intransitive dimension in tle social sciences then tums on the nature of society and its objects: how real are they, and are they susceptible to study and explanation? To answer these questions, we must retum to an earlier discussion ofthe ontology ofthe social world. Any adequate social science conception ofthe world it seeks to study, understand and explain must begin with the recognition that all social processes and phenomena occur in open slstems, i.e. these processes and phenomena are not amenable to experimental isolation and observation like most natural events. What is more, the essentially unperceivable character of society3 means that it "cannot be empirically identified independently of its effects" (Bhaskar, 1993,82). However, in this sense it is no different from many areas of natural science: magnetic or gravitational fields, for instance (Bhaskar, 1993, 69). 3 "It can only be known, not shown, to exist" @haskar, lgg3, gZ). 57 Fig. 3.1. Three Models of the SocietylPerson Relationship. Sociery Socierv Society St¡cierv t I Individual Individual lndi Modell The \\¡cberian Srereotvpe Ìvlodel Il The Durkheimian Modcl lll The'Dialec¡ical' Conception 'Volun¡¡rism' Stereory'pe'Reificarion' 'lllicit Idenrificarion' Fig. 3.2. The ÏÞansfornational Model of Social Activity. Sociery- t tl I rcproduction/ ¡l I transiormltir¡n ¡l I rl lndividu:rls Model IV The Transft¡rmational Modcl of Sr¡cial Activi¡v Sor¡¡ce: Bhaskar, 1993, 7 4-7 5. 58 This said, the continually projected nature of society - its pre-existence of individuals - establishes its relative autonomy as a possible object of knowledge (Outhwaite, 19g7, 5l). Bhaskar (1993, 78) emptoys the Aristotelian metaphor of a sculptor "fashioning a product out oftle material and with the tools available 1e him or her" to show how, according to the ontological perqpective central to the TMS{ human agents interpret and manip¡late pre-conceived social objects. For Bhaskar (1993, 78) this "lryork" is analogou sto events in the nahual world. However, to satisfy the critical realist ontology, similarþ analogous causally generative mechanisms need to be identified. Social structures provide zuch an analogue, but due to the recursive relationship between social soience and the world it interacts with, qualifications need to be placed on the possibility of naturalism- Because social structures are themselves social products, any conception of the social world must acknowledge that: (i) social structures, r¡nlike natural structures, do not exist independently of the aotivities they govem; (ü) social structures, r¡nlike natural structures, do not exist independently ofthe agents' conceptions ofwhat they are doing in their activity; (iü) social structures, unlike natural structures, may be only relativeþ enduring (so ' that the tendencies they ground -ay not be universal in the sense ofiim"-rpu". invariant) (Bhaskar, 1993, 79). The practical and philosophical significance ofthese qualifications is, however, relativeþ restricted. These caveats imply "that the criteria for the rational confirmation and rejection oftheories in social science cannot åø predictive, and so must be exclusively explanatory (Bhaskar, 1993, 83, original emphasis). To summarise then, critical realism attempts to transcend both the structure-agency impasse and the hold ofpositivism over tle social sciences by asserting the essential character of the social world and social scientifio knowledge. That is, social systems are inherently open, and not amenable to arbitrary closure; they are undiscoverable outside of their effects; and knowledge about them is necessarily concept-dependent and theory-laden. Society is, then, medium and consequence of the interactionbetween intentional human 59 agents and social objects. Social structure both enables and constrains human agency and is itselfreproduced and zubjeot to transformation. Society is then "...a complex and efficacious whole ' a totality, whose concept must be constructed in theory and which is being continuaþ transformed in practice. As an object of study, it cannot be read straight offthe empirical world. But neitler oan it be reconstructed from ow zubjective experiences" (Bhaskar, 1993, 87-88). Social scientific knowledge is, then, intertnl in relation to the social world it investigates. From this perqpective, the work of the social sciences is necessarily explanatory (and to a large extent descriptive), while tleir causal laws can only be expressed as te,ndencies, which rnay or may not find real expression (Bhaskar, lgg3, B7). A realist methodological strategy for the social sciences oiplicitly recognises and incorporates several crucial points in the actual practice of research: l) the interzubjective nature of the information collecting exercise. The acquiring, dwelopment and commr¡nication of knowledge is a social activity, with observation necessarily interactive, concept-dependent and linguistically saturated. This is encapsulated in the "double herme,neutic" of zubject-object relations; 2) truth, as aû unmediated and monolithic arbiter of social science judgements, collapses under the weight ofthe points above. However, against relativism and idealism, critical realism retains some notion ofthe practical adequaoy or usefulness of some forms ofknowledge over others; 3) in recognition ofthe open nature of society, critical realism employs a hierarcþ of conceptualisation and abstraction, building up an increasingly complex and realistic understanding of the social phenomenonla n question via the C-A-C cycle; discerning causal mechanisms and structures for the phenomenon/a via the process of retroduction, including the delimitation of intemally-related entities, objects, and praotices and the revealing of their causal powers and liabilities; and 4) that deqpite its stress on the importance of theoretical reflection and argument, critioal realism equally emphasises the need for empirical investigation to judge social theories (Outhwaite, 1987, 58-59). 60 The choice of research design and methodology, then, is of ',crucial political importance" if the research is to produce socially-useful information (Sayer and Morgan, 1985,167). As outlined in Chapter One, the broad research design ofthis thesis consists of an exte,nsive literature review ofttre role of farming in Austraüan society and economy, the development ofthe global economy and its transmission to Australia with financial deregulation, and a comparative analysis ofthe impacts ofNew zealt¡d,srecent economic restructuring upon its farm sector. This is followed by a 'case study' ofthe imfacts of Australia's financial deregulation upon Kangaroo Island's farm families and rural community' Consistent with the critical realist position, though, this 'case study' is included to heþ dwelop a causal analysis ofthe process, ¿ad impacts o{ gtobal economic change that this scale- and qpace-sensitive, as well as, in accordance with point 4 above, that heþs evaluate social tleory. Accordingl¡ then, the field research task at the centre of this thesis employs a quantitative methodology. The relative roles and utility of intensive and extensive research methods has been the subject of much recent debate in human geography circles (see Winchester,1996 for a useful summary). The relationship and differences between both broad approaches is summarised in Table 3.1. My oum field research task is composed of a number ofrelated, but separate components. First, a questionnaire survey of selected Kangaroo Island farm families.was used to gain important longitudinal demographic, financial and farm labour information. These same families participated in a extended, looseþ structured interview to ascertain the causes for the farm man¿gement decisions over the study period, and the role of credit relations over that time. Purposive sampling techniques (Burgess, lggl,75)were used to select key bank and stock firm staffto participate in extended interviews. In this way, both central parties in the agriculture-finance relation were involved in this research. Before proceeding further, I will briefly outline in the following sub-section the realist mode of conceptualisation and theory-building and define the concepts used in the abstraction process. 6l Table 3.1. rntensive and Extensive Research Methodologies: A summary INTENSIVE EXTENSIVE Research Question How does a process work in What are the regularities, a particular case or small common pattems, number of cases? What distinguishing features of a produces a certain change? population? How widely are What did the agents actually certain characteristics or do? processes distributed or represented? Relations Substantial relations of Formal relations of similarity connection Tlpe of groups studied Causal groups Taxonomic groups T¡pe of account produced Causal explanation of the Descriptive representative production of certain objects generalisations, lacking in or events, though not explanatory p enetration necessarily representative ones Typical methods Study of individual agents in Large-scale survey of their oausal oontexts, population or representative int eractive interviews, s¿mple, formal etlno graphy. Qualitative questionnaires, standardised analysis interviews. Statistical analysis Limitations Aotual concrete pattems and Although representative of a contingent relations are whole population, they are unlikeþ to be unlikely to be generalisable 'representative','average' or to other populations at generalisable. Necessary different times and places. relations discovered will Problem of ecological fallacy exist wherever their relata in making inferences about are present, e.g. oausal individuals. Limited powers of objects are explanatory power generalisable to other contexts as they are necessary features of these objects Appropriate tests Corroboration Replication Source: Sayer, 1992, 243 62 3.2.2. The cyiticar Rearist Mode of conceptuarisation Given the complexity and open nature of society, getting to the real nature of the things r¡nder study inwitably involves isolating the most important and relevant features of them Because we have no privileged access to tle world, we have to rely to a sienifioant degree upon orr prior experiences ofthe phe,nomenon/a under question to do this. The overdetermined character of real entities - the fact that people (as social beings), social structures and institutions are comprised of and draw on a diverse range of influences and properties and are more or less interrelated with each other - requires that we conceptually isolate the particular relevant features and ftnctions ofthe phenomenon/a under investigation so that we distingui5fi important features and relations from unimportant ones. Appropriating the real nature of society and its entities and objects involves a "double movement" (Sayer, 1992,ï7)between tle concrete and the abstract and the abstract and the concrete. This double movement does not invohe a simple dialectical to- and fro- action, but a more complex qpiral motion "as ttre introduction of lower order concepts entails modification in higher order concepts" (Jessop, 1990,164). Revolving simultaneousþ with the concrete-abstract-concrete (C-A-C) cycle then is the movement from simplicity to increased complexity. This also implies that the social research process is necessarily iterative, with the originally siqrle concepts continually transformed as researchers acquire more knowledge oftheir subject area. The dissection of social entities into their various elements is the first move in the abstraction process. From critical realism's relational ontology, it is important to categorise the nature of the relations between these isolated elements on the way to building up a more complex picture of the object under study. In the realist schema, a distinction is drawn between/ormal relations of similarity and dissimil¿¡i¡y and, substantial relations of connection and interaction. Farmers are formally related to each other in that they are all engaged to some extent in primary produotion. However, the relation between a farmer and a bank is a substantial one where there are established credit relations between the two. The 63 relation between indebted farmers is formal except where, for example, this group of farmers band together to stop the bank from foreclosing on one of the goup. The realist relational tSpology makes the firther distinction between extemal (or contingent) relations and. intenal (or necessary) relations of depende,nce or cause. The farmer is only contingently related to, for example, the El Niño effect, in that each operates independently ofthe other. The relation betwee,n farm borrowers and their creditors (e.g. banks) is an intemal or necessary one, in that one presupposes the other; one could not be what it is (i.e. borrower or creditor) without the other. The distinction between contingent and intemal relations also has nothing to do with their significance e¡ importance. Logically, the El Niño effect has nothing to do with the farmer, but its operation is quite significant to her when it causes drought in her region. The farmer is intemally-related to her sheep, but this is hardly of any social science interest! This process of abstraction and delineation ofrelations is crucial for the identification of structures. Structures - as sets of internally-related objects, entities and/or practices ' are r firrther step up the abstraction chain. Structures often include a diverse range ofpeople, entities, institutions, practices and concepts. Anumber of cautionarypoints need to be made about structures and their constituents. First, against a by now conventional beliel structures are not (necessarily) large, monolithic and totatsing. We are all members of a large number of structr¡res at any one time, e.g. employment structures, educational structures, health care structures, ma¡¡i¿ge/family structures, etc. Some ofthese structures are micro-social (e.g. the automotive repair structure), others are macro-social (e.g. the taxation structure); in both size (number and significance ofrelations) and social sienificance; with a seemingly infinite variety in-between. There are still smaller physiological structwes ofwhich we are all necessarily members, e.g. breathing, neurological processes, etc. (Sayer, 1992,92).It is possible to see, then, that these structures can, and ofte,n do, embrace a range of socially-connected scales (Howitt, 1993; Smith, 1993). 64 The relative cohere,nce of a structure is derived from its combination of intemally- related objects, etc. Therefore, ohanges to the features and attributes ofthevarious actors (e.g. sex, class, race) non-essential to the reproduction of the given struoture will not affect ,"invariant the operation of that structureper sø. Structures, then, can be seen as r¡nder certain transformations"' (Sayer, 1992, 94). They are also not reducible to the actors, objects, institutions and relations that comprise them- To affempt to explain the operation of any stnrctrue in such a way would be to commit the fallacy of composition, i.e. that what is possible for one entrty in the structure is equally possible for all other e,lrtities simultaneously. For example, farmers - as a sector - have been exhorted by þanks¡s, policy- makers and the like for some time to become more competitive and business-like to ensure their economic viability and survival. But not all fatmers can do this at the same time. One farmer's increased competitiveness is usually at the expense of another's. ft is impossible for all farmers to simultaneousþ win first place in the economic viability race (Sayer , lgg1, g4). Given the critical realist emphasis on explanation and causality in social analysis, this t¡pology calls for a fr¡rther qualitative distinction between the causal powers and,liabilities of the entities, objects, relations and/or structures under sh¡dy. The causal powers and Iiabilities of any objeot, etc. are a product ofthe nature ofthe constitution ofthat object (Sayer, 1992,97). Therefore, to talk of a farmer's causal powers and liabilities in tle context of the agriculture-finanoe relation is not to qpeak ofhis/her ability to sow wheat instead ofbarley, or to take on part-time emplo¡ment or go on a holiday, but to analyse the farmer's actions in reqpect of the other entities and processes in the relation: their (i.e. farmers') power to seek finance;their liability to interest pa;ments and foreclosure ifthey don't pay them; their power to change creditors (e.g. from a bank to a stock firm); their liability to interest rate rises; and the like. Therefore, although an entity's causal powers and liabilities necessarily inhere to it by virtge of its constitution, the actual realisation of these causal powers and liabilities is contingent. The process of abstraction and retroduction is set out schematically in Fig. 3.3. The realist mode of conceptualisation's focus on intemal and extemal relations, causal powers and liabilities, etc., does not imply atacit conception of social agents, 65 Fig.3.3. The Structures of Causal Explanation. Ob¡cct Ceu¡al porcru and Condiüon¡ (oü.robiccs Evcnl lietililies wilh ponrs rnd l¡abil¡tic!) Cr !r Pt, Pz, Pt x C2 e2 11, lz, l¡ C¡ Ca I s C¡ O¡ Otiect X, having tln¡dure S...... nccessarilypossossing liaulitics(t)""ceusel poûcß (p) end ffi:î ..... wir: (ct) nolbe ætivrld hoca@rciq nodrangtc - gt (cJ poducectwpe = n€cgssery f€lelion olùPoe¿ (c¡) prodtncñ¡ngo = conling€nl relalirn ol typc c¡. olc. Source: Sayer, 1992, 109 66 entities, institutions, structures and the like as solid and unitary identities possessing fixed esse'lrces. The isolation of entities and agents and their particular intemal relations, powers, etc. will tend to vary according to the nature ofthe research topic. This is what is implied in the above point that we are all members of a large ntrmber and wide variety of structures, with ditrering intemal relations and causal powers, etc. in each. Thus, although the agriculture-finance relation, dweloped in the next section, is at least characterised by the capitalis nature of those relations (i.e. the search for surplus value, by competitive finns, the search for high rates of return on investment, requirements to pay and receive interest on money invested, etc.), it would be incorrect to think that this relation was govemed or characterised solely by some essential capital logic. 3.3. The Agriculture-Finance Relation. The agriculture-finance relation (see Fig. 3.4), is a heuristic tool for developing a causal understanding and explanation of the impact of financial deregulation on local farm sectors and rural communities. Essentially, this abstract concept invofues the isolation of one facet of the entire complex of farm-extemal business relations (Whatmore , et al. l9g7a; 1987b)' The following is not an attempt to produoe an invariant model ofthe political economy of farm credit, but, consistent with the realist concrete-abstract-concrete cycle, a bid to lay out my owll relatively naive and sinple understandings of the financial system - combined with some imFortant tleoretical points gleaned from the literature reviews contained in Chapter Two. As such, the proceeding discussion forms one movement in the gradual'lpiralling' (see sub-section3.2.2. above) from a simple to complex and causal r¡nderstanding ofthe research topic. In this fairly abstract and simple form, the agrioulture-finance relation provides little detailed comprehension ofthe actual interrelationships between national financial systems and farm sectors, but it does create a critical point of entry to examining and understanding an extremeþ complex set of qpatially- and temporally-d¡mamic ¡'sl¿1i6nships. There is no universal agriculture-finance relation for all advanced capitalist 67 cor¡ntries, for farm credit relationships are extremely context-specific, and located within wider agro-coülmodity complexes (Whatmore, et al., 1987a; l9S7b; Le Heron, 1993a). As this thesis progtesses, I shall be concemed to dwelop increasingly complex and temporally- sensitive versions of the Australian agriculnue-finance relation (Chapter Swen) to show how these relations have changed over time, and in what important ways. The review ofthe political eoonomy offarm credit in Chapter Two emphasised that credit relations act as both an enabling and a const¡¿ining influence on the farm production process. For example, borrowing allows small producers with low capital reserves to upgrade their farming plant to increase their economies of scale or to bridge income gaps during the year. This extra capitalisation frequently replaces or diqplaces farm labour. However, as Mooney (1986) shows, this borrowing can also become the farm's point of vulnerability when farm commodity markets suddenly decline or broader maoÍo-economic indicators become trnf¿vourable, e.g. interest rates rise or a credit squeeze occrrrs. obviously, the repa¡ment commitments eûunating fromborrowing can become burdensome for a family through a range ofpersonal and/or household circumstances as well as these more structural reasons. Further, and from a long term perqpective, the discretionary allocation and rationing of credit does guide - albeit uzually in a piecemeal fashion - the capital accumulation process in the farm sector to the extent that this influences which farmers can expand their operations, which farmers can continue for another season, and which farmers will be forced to leave farming. However, there is nothing axiomatic about whichfarmers will expand and which will decline and/or exit the industry because ofthe effect of contingent, but extremeþ si8nificant, factors (e.g. droughts, floods, interest rate hikes, commodity price slumps, family breakdown, etc.) on farm finances. That is, although the credit allocation process may automatically favour larger, more finanoially-sound farmers, the success of these farmers, and the decline of otlers, is not guaranteed. What Marsde,n, et al.'s (1990) and Marsden and Whatmore's (1994) analyses of the LJK banking sector's restructuring rweals, however, is that the trend towards global economic and financial integration has 68 Fig. 3.4. The Agriculture'Finance Relation Farm Families Inlercst Creation of Surplus Central Financial ßank Institutions State Shareholders/ lnvestors Depositors Represents the bounds within which this relation operates - most commonly the regulatory filter of the nation-state 69 heightened the process whereþ financial oapitals seek to segment the farm sector on business and financial performance criteria. To clarify tle standpoint taken in the following, while i1 is important to reject any idea of farm credit relations being bound up with and linked into some inexorable path of capitalist domination, it is still possible to view, if only in a partial and fragmented way, a oore of relativeþ immutable tendencies or meohanisms that give the agriculture-finance relation, in its present guise, its fr¡ndamentally capitalist character. It is these ge,neral points that guide the dwelopment ofthe abstract conoept of the agriculture-finance relation. Adopting the critical realist mode of conceptualisation, the agriculture-fnance relation (Fig. 3.a) is a structure incorporating the oausal powers and liabilities ofthe commercial relations between farm borrovsers, lenders, investors and depositors, financial institution shareholders and the nation-state. The relation between farm borrowers and the lending institution is a commercial one, where each is drawn to the other by the necessþ of each's role in the farm commodity production-realisation-reproduction cycle. The nature ofthese relations is qpecific to this structrue. Where borrowing and lending is undertaken within or amongst families and/or friends,a the intemal relations between lender and bonower are likety to more comptcated, and rrlikely to be govemed purely by the need to meet particular profit goals and other so-called capitalist imperatives. This structure is more ssmplicated and profound than this simple articulation of farmers' and financial institutions' commercial relations. Money borrowed must be repaid with interest to the financial institution for its outlay. It is in this way that financial institutions extract surplus value from the production prooess. If the farm borrower fails to meet the lenders'repa¡ment requirements (including the pa¡ment of interest), the financial institution oan use its authority as mortgagee to reooup its outlay. The family farmer then, has to not only use these borrowed funds in zuch a way so as to increase income, but to also ensure that the increased production retums to the fnancial institution a profit on tle 4 Non-institutional debt (i.e. that debt sourced from family, f¡iends, solicitors' firnds, etc.) in the Australian farm sector is presently estimated at 15 per cent of all institutional debt @urham and Kidman, 1994). In their audit of farm debt in South Australia, Durham and Kidman (1994,13) estimated that approximately 26 per cent of South Australian farms had no, or no appreciable borrowing. 70 investment. The financial institution effectively invests in the farm production process, and in the ability of individual farmers to capably and profitably man¿gs that process. The creation of a farm surplus is contingentl¡ but nevertheless significantly related to the pa¡ment ofinterest, and therefore to the financial institution's continued support ofthe farm business. Needless to say, those farm businesses r¡nable to demonstrate their ability to farm profitably (with the ûnancial institution's dividend built in) are not considered viable clients (Marsden, l99l). There are other agents and objects which are a necessary part ofthe agriculture- finance relation. Depositors' funds are a primary source ofloan capital for banks. These depositorvinvestors require that the funds that they invest with the banks retum, via interest, a reasonable profit so that their investment may accumulate. As the banks on-lend these deposit funds, they must ensure that the interest rate charged ofborrowers exceeds that which the bank pays to the depositor, and reflects, in general and at least, tle average rate of profit. The depositors, together with the shareholders of the bank (where it is a publicly-listed company), also require that the bank itself is managed soundly, and does not jeopardise their investments by indulging in risky lending or lax credit and prudential supervision man¿gement. and This requirement obviousþ places constraints on who is considered credit-worthy. Farmers are, of course, depositors as well as borrowers. This structure possesses something of an inner mechanism whereþ each investor and lender is driven to achieve competitive rates ofprofit on hislher investment. Farmers, however, cannot extract sulplus from any other party in the strucfure (except, of course, where they have ftnds deposited with financial institutions or lend money to others, or in the relatively minsl case where they sell produce to individuals involved in the relation), but must rely upon increases in productivity and/or production to extraot the average rate of profit for their or¡m farm investment, plus that of the financial institution. In oonditions of steady or increasing positive terms oftrade for farm commodities, the farm zurplus - with the bank's retum included - can be extracted from the farm production cycle' But as the terms oftrade for most agricultural commodities have trended 7t downwards, particularþ over the last two decades, many farmers have been forced to attempt to maintain profit lwels through increased production, productivity and pluriactivity. As Marsden, et al. (1990) diqplay, for many UK farmers this has meant establishing new or deepening existing links with finance and merchant capital. That farming does not always retum the average rate of profit, or that nuny farmers are not driven purely by such profit-seeking goals does not negate the central principles ofthis argument. Emphasising the notion ofthe nation-state as an institutional ensemble, and as firmly entrenched in the wider economy and society (ONeill, 1995), the state can be seen to play a crucial role in the institutional framework of the agriculture-finance relation. Usuaþ via a quasi-independent central batk, it is reqponsible for the macro-economic setting in which this structure operates, transmitting quantitative and qualitative sþals ofrestraint and/or e>çansion tlroughout the economy. The manipulation of monetary and fiscal policy, together with qpecific sectoral policiess, touches upon all the agents and relations within the agriculture-finanoe relation. As Le Heron (1991; 1993a) and Fagan and Le Heron (lgg4) make clear, the state also plays a crucial role not only in regulating competition between capitals but also in regulating the relative permeability ofthe nation's barriers to extemal economic competition. With the collapse ofthe Bretton Woods Agreement, which helped maintain global eoonomic stability from 1954 to l97l by peggng national currencies to the $US and the gold standard, it is increasingly the case that "...the global qpace (i)s the 'natural qpace' for capital accumulation" (Fagan and Le Heron, lgg4,27g). However, far from suggesting that national economic management is now purely firnctional to the accumulation strategies of global capital Fagan and Le Heron (1994) recognise the cruoial paft played by national levels of regulation in mediating, resisting or conforming to the pressure of global financial markets. They also note that these trends can only be identified empirically, and at the level ofthe nation-state and below. 5 For example, subsidies, welfare payments, natural disaster relief, debt reconstruction and adjustment assistance and the like. 72 3.4. Conclusion The agriculnre-finance relation, by drawing together a range of intemally-related subjects and objeots across scales, explicitly recomises the social connectedness of scale. this Even at provisional stage of its dwelopment, it is possible to see this concept as an isolation in thought ofthe main transmission lines of economic and political power through scales (in a multi-directional manns¡). To fufher expand the agrioulture-finance relation,s applicability, however, it is necessary to develop a theoretically-informed context for tle empirical research sf rhis thesis. J[s ¡smaining chapters in Part One take up this task, Chapter Four beginning this process by examining the political economy ofAustralian agriculture since I 945. 73 CHAPTER FOT]R: AUSTRALIA'S PLACE IN GLOBAL SPACE: TM POLITICAL ECONO]VIY OF AUSTRALIAN AGRICTILTT]RE A¡TD RTJRAL SOCMTY AFTER 1945 4.1 Introduction This Chapts¡ ¿ims to describe the fi¡ndamental but dSaramic political and economic intenelationships between the Australian farm sector and rural communities and the nation- state from 1945 to the present. This analysis is divided into two main parts. The first section concentrates on the economic and political roles ofthe farm sector in Australia's post- Second World War reconstruction and nation-building phases during the long boom- It also examines how the boom ended for the farm sector with a series of sectoral downtums, a change in political fortunes and accumulated stresses from the cost-price squeeze during the late 1960 and earþ 1970s. The second section examines the mixed political and economic fortunes for the farm and rural sector and for Australia generally from l9Z3 to the present. This is the era when global forces of change increasingly came to bear upon and within Australia, changing the context ofnational decision-making and the whole tenor ofthe established relationships between ttre farm and rural sector and the regional- and nation- state. 4.2. Colonial Socialism: Exploring the Roots of the Political Economy of Australian Agriculture The history ofAustralia's political economic and social dwelopment following white settlemelrt has always been, to a greater or lesser extent, inextrioably bound up with the nature and strength ofthe nation's intemational links and the eoonomic performance of its primary industries. To varying degrees, Australian politica! economic and culn¡al institutions have been influenced by these factors. With the continuing economic dwelopment ofthe white Australiaû colonial settlement after 1788, Australia became firmly integrated into the trading links ofthe British 74 Eryire. Australia, along with the other commonwealth nations (e.g. canada, New Zealmd), could be seelr as a satellite of the Imperial centre, exporting primary produce (primarily wool the,lr wheat, meat, mins¡¿ls, dairy produce) to sustain Britain,s gfowing working class. In refum, the Commonwealth colonies received labour - in the form of forced and immigration assisted - and direct investment - in the form of railway and commt¡nications in-frastructure and land development capital brought by the new sefflers. The 'Tominion oapitalism" thesis (Ehrensaft and Armstrong, 1978; Armstrong and Bradbury, 1983; Schwart4 1939) attempts to summarise and explain the unique character ofthe economic and political linkages between the -ajor European powers and their colonies. This it does by looking at these colonies' (e.g. Australia, Canada, New Zealand., Argentina, UruguÐ broadly similar paths of economic, political and social dwelopment. These societies shared the following commor points: * Their colonisation was based upon the forceful dispossession of each country,s incligenous inhabitants; * In terms ofliving standards, class development (size ofthe working class, middle class, upper class), cultural life and the like, the new colonial society came to replicate the society of the rmperial power (e.g. Melboume society being similar to London society); * Most export trade was based upon primary produce, with this trade dominated by e4ports to the Imperial power; and * These societies tended to be industrially underdweloped compared to the major European powers. What industrialisation did oocur was primarily based upon the first stage processing ofprimary commsfiliss and./or import zubstitution. This weak industrial base was usually heavily protected by tariffs and quotas and other protective measures. In this sense, these countries oould be said to be devel oped, and dependent (Alexander, 1983; Armstrong and Bradbury, 1983). 75 The dominion capitalist thesis focuses most strongly on the role of class conflidg and alliances in shaping dominion capitalist societies. This thesis does, however, also explicitly recognise the influence ofthese class struggles upon the role ofthe state in directing national economic and social development. Emphasising the common experiences of Canada, Argentina and Australia, Armstrong and Bradbury (1983, 58) assert that 'ïn all tltee, the state has played a thoroughly interventionist role both socially and economicaþ over the past hundred years. The policies and practices of the state in these as in other capitalist societies have been strongly influenced by the capitalist class, and eqpecially by particular sectional interests of that class". This, howwer, exaggerates the ft¡nctional nature of public/private sector relations. For Butlin, Bamard and Pincus (19S2), pre-Federation public/private sector relations were characterised more by the evolution of a "strongly zupportive relationship, almost a partnership, of government towards major private business interests and a private acceptance (and use of) this zupportive relationship" (Butlin, Bamard and Pincus,lgSZ, l0). This relationship Butlin, et al. (1982) aptly titled "colonial socialism,,. Prior to the 20th Century, colonial govenrments acted as entrepreneurs, using their administrative powers to raise revenue from land sales, customs and public-oumed enterprises. British investment was attracted into colonial govemment coffers to build a basic but extensive network of railways, communications and water and sewerage works. The reqpective colonial govemments fr¡nded and administered these prograûrmes; the labour necessary for these and other major works was attracted, via assisted immigration, from Britain. The private sector's inability to lure capital and other resources for infrastructure development made it depende,nt on the public seotor's entrqlre,neurialism- Depressions, as in the 1890s (but not in the 1930s) enforced this dependency. The oentrality of state interve,ntion (albeit by diqparate colonial govenments) to the economic development ofAustralia in tÏe late lgth century is obvious when it is considered that from 1860 to 1890: 76 * govemment had subsidised inflow the of some 350 000 migrants, compared to a immigation total net of 750 000 and a total net population increas oiz 600 000; * " governme,nt had been direotly reqponsible for securing the infl.e¡ ofhalfthe total foreþ capital imports; * govemment had accounted for approximately 40 per cent oftotal domestic capital formation, essentially in the areas of transport and communioations; * govenment, by 1900, oumed approximately half the total fixed capital (excluding land) in Australia; * government, by 1900, conducted the largest e,nterprises in the economy primarily in tranqport and communications and in water and sewerage, thereþ absórùing approximately 5 per cent of the total workforce in the economy and generattg some 6 per ce,nt of gross domestic product (Butrin, et a[., l9gz,16-17). After Federation, a more genuinely co-operative relationship emerged between the public and private sectors. The public sector's erstwhile interventionist role gradually dwindled r¡ntil the Depression ofthe 1930s. During this phase, publicly-assisted immigration was increased to provide labour for the nascent manufacturing sector and for the publicly- assisted qpatial expansion ofthe farming sector, particularþ in Queensland and Westem Australia. Public intervention in agricultural industries, consistent with "closer settlement', policy, extended into the direction ofthe location, intensþ and quality of agricultural development' The diversification of agriculnre into mixed farming, smaller wheat farms and irrigated horticulture þrimarily fiuit-growing) required heavy public expenditure into the extension of irrigation, road, rail and communication networks (Butlin, et al., lgg¿). The Depression of the 1930s marked the tunring point in this relationship. The large overseas debts accruing to the State and Federal Govenrments imPlicated the public sector in financial mismanagement, and from this time on, apart from the intervention required to mânage the war effort and the post-war reconstruction, "public enterprise outlays in total public capital formation and ... public capital formation as a whole in total Australian capital formation" (Butlin, et al., 1982,37) declined. An aversion to foreign debt continued long after the Depression, to the extent that conflicts emerged between public and private interests for domestic firnds. Increasingly, Federal Government policies aimed to attract more private capital into projects and encourage more foreign investment into the 77 manufacturing (in the 1950s) and mining (in the 19ó0s) sectors (Butlin, et al., lgS2). public sector concems for the provision of oapital-intensive inÊastructure gradually decreased throughs¡1the long boom, leading to a considerable decline in the scale and quality of Australian inÊastructure (Butlin, 1983). The recognition ofthis decline lay at the centre of the Whitlam Govemme,lrt's urban and social reform progtams that temporally intemrpted the "decline of colonial socialism" (Butlin, et al., lgBZ). These trends will become evident in the following analysis ofthe political economy ofAustralian agriculture in the post-war period as the nation underwe,nt the zuccessive phases ofpost-war reconstruction, nation-building and finally, crisis, response and adjustment. It must be remembered that while tlese phases are broadly consonant with sqafsmporary political and economic trends in other advanced Westem capitalist nations, the particular direction of economic dwelopment taken in Australia represents a particular set of political choices. These choices set the framework in which farm families, financial institutions and rural communities operated in both periods examined below. 4.3. A Nation Rebuilds and Prospersz 1945-1972 Although Australia had successfully man¿ged the various foreign and domestic exigencies of the Second World War, the management of the transition to peace-time reconstruction was to prove as challenging, politically, as the war-time effort. Probably the most important effect ofWorld War tr was tle wideqpread rcahzation of the vulnerability ofAustrata as a small and isolated nation, and the consequent need for increase in population and production particularþ in manufacturing. This realization has permeated national thinking and govemment policies on post-war development (Committee of Economic Enquiry, 1965,2). In drawing up their reconstruction plans prior to the ceasing ofhostilities, Chifley and his ministers drew valuable insight from the bitter experiences of the 1930s Depression 78 and the aftermath ofWorld War Ir. Three critical conclusions were draum: l) Australia,s economic depe,lrde,nce on agricultwe was potentiaþ damaging to the national economy in times of financial adversþ because of agriculture's inherent price and production instability; 2) doubts about the futrue security ofAustralia's traditional agricultural commefi¡y markets required the fr[lher reduction of this dependence; and 3) without rigorous state control over supply and demand, ttre economy would soon be plunged into recession, as it was after World War I (Hooke, 1970; Maddock, 1987). Compounding these economic vulnerabilities was the more emotive and popular concem with the nation's physical susceptibility to attack. Low population densities in most of the arid northem and inland parts ofthe continent exposed it to northern aggressors, as ttre Japanese wartime attack on Darwin displayed. Australia also found itself in a new intemational environment after 1945. The political and economic hegemony of the us was affirmed in the immediate post-war period, first, with the siening of the Bretton Woods Agreement n 1944, and second, with the establishment of the General Agreeme,nt on Tariffs and Trade (GATT) process in 194g. The Bretton Woods Agreement installed the $US and the US' vast gold reserves at the centre of the intemational financial system- The US agreed to convert other countries' holdings of $US to gold at a füed rate (the 'gold standard'), thus eradicating the potential for ourrency qpeculation (Daly and Logan, 1989; Harvey,lggr;Fagan and Webber,1994,lg-19). importance 1[s ofpreferential trade among the Commonwealth members was broken down by the move to greater multi-national trade, enshrined in the General Agreement on Tariffs and Trade (GATT) process which was begun in 1948. Essentially, the GATT worked hand-in-hand with the Bretton Woods Agreement (sþed in 1944) as a I Despite the failure of the post-World War I soldier settlement schemes (Bolton, 1978; Lake, l9g7; Williams, 1995), Federal and State Governments planning for the post-WWII reconstruction adopted the same basic template as their predecessors to repatriate its war heroes. The South Australian Government received approval for the establishment of a soldier settlement scheme on Kangaroo Island (the site of the case study for this thesis) in 1947 (Nunn, 1981, l9). The Kangaroo Island War Service Land Settlement Scheme was to consume 93 100 ha(230 000 acres) of the Island. This scheme was one of the nation's largest, being second only to the Gairdner River scheme in Western Australia (Hoffman, 1970). 79 vehicle for the reduotion of trade barriers betwee,n nations and the developme,nt of global free trade. l¡1this changing intemational regulatory milie¡, the Federal Chifley Labor Government sought to deal with the nation's pressing domestic mâcro-economio, demographic and geographic concerrs. It campaþed, unzuccessfully n lg44 for a five year exte,nsion of its wartime defence powers from tle declaration of peace. A second Referendum in 1948 seeking control of re,nts and prices also failed (Bolton, 1974). Without a popular or High Court mandate for zuch stringent control economic policy shifted to the new Ke¡mesian demand-management approach, concentrating on gturency stabilisation (through the Bretton Woods Agreement and ongoing membership ofthe sterling bloc), price and imfort controls and an exte,nsion offood and fuel rationing. Housing price controls and a permit system to restrict the availability of building materials were also introduced to dampen inflation (Hefford, 1985). To ease concems over Australia's strategic vulnerability and to frrlfil its industrialisation strategy, the Chifley Govemment implemented a large-sc¿le immigration programme. Overseen by its Minister fs¡ Immigration, Arthur Calwe[ ttre sheer size and ethnic heterogeneþ ofthis scheme dramatically changed the size and character ofthe Australian population. Betwee,n 1950 and 1970 approximately 2.5 million immigrants arrived on Australian docks (Hudson, 1974, 521), and comprised 'fuell over half of the growth of the Australian workforce since World War II" (Hugo, 1986, l0l). Calwell's immigration programme was to prove one ofthe longest standing legacies of t.he Chifley Government. However, politically constrained by a war-weary population eager to unleash its growing qpending power, and besmirched by the Communist spectre, the Chifley Labor Govenrment was swept frompower in the 1949 election. Promising to remove the remaining economic restrictions, the Menzies-Fadden Liberal-Country Party Coalition was welcomed by the farm sector and the general population. In the immsfi¿1s post-war years, the farm sector feared an agricultural recession. Farm investment, already low because ofwar-time shortages of labour and necessary 80 materials, was fi[ther discouraged by the Chifley Govenrment's encouragement ofthe manufacturing sector (Hooke, 1970) and its continuation of rationing after the war. Large stooks ofwheat and wool had accumulated in Australian ports throughout the war as the Federal Govenrment became the principal purchaser ofboth commod.ities in the absence of intemational commodity markets. It was widely believed that these stocþiles would depress the prices for both commodities in the immediate post-war period (Freebaim, 1987). The "cheap food" polioy operating during tle war had also dampened production in other farm industries (Lawrence, 1987). Events extemal and intemal to Australia ensured that a farm crisis was avoided. The Menzies Govemment abandoned 1¿flsning and import controls, triggering a new round of farm investment. The physical disruption and destruction of European agricultural and industrial production by the wat en$ued that Australian wool and wheat stocks were soon dissþated at rising prices. "Over the period lg46-5},wool prices increased by more than 300 per cent and prices received for otler Australian farm products (in aggregúe)increased by 54 per cent" (Hefford, 1985, 80). Further, the American intervention in tle Korean War saw tle index of wool prices (base 1936-39=100) increase from 592 in July 1950 to 1437 nMarch l95l (Hefford, l95l). Farm incomes leapt from an aggregate level of $g76 million in 1949-50 to $l 535 million in 1950-51, a level not reached again until lg72-73 (Lawrence,lggT).Awash with liquid frrnds, farmers bought large quantities of imported plant and machinery. The new Govemment's relaxation of imlort oontrols also allowed the rapidly-growing pop'lation to unleash its spending power and create wen greater demand fe¡ imported goods. In combination with the dissipation of the wool boom in late 1951, this import boom triggered a balance'oÊpaynents crisis: "1951-52 export eanrings dropped by 31.4 per cent while the value of commodity imports increased by 4l.S per cent. In that year, the deficit on current account was $1,166 million and, by the end of that period, our foreþ feserves had fallen to $746 million" (Hefford, 1985, 82). 8l Confirming the former Govenrment's worst foregasts, this episode exposed the delioate nature ofAustralia's economy: without a vigorous export industry and a reliable import-replacement manufactruing sector, a burgeoning population could plunge tle nation into a balance-oÊpa5ments crisis that it may not be able to extract itself from- Seeking to capitalise on Australia's putative comparative advantage, and no doubt enhancing its popularity with its rural constituency (Warhurst, 1990), the Menzies Govemment shifted the balance of public policy back to the farm sector. The publicly-facilitated e4pansion of the agricultural sector was seen to soþe two problems facing the eoonomy at once. First, more export income was necessary to sotve increasing balance-oÊpalments and terms-oÊtrade problems. Second, the low productivity and ouþut growth ofthe farm sector in the immediate post-war period also raised concems that food imlorts may be needed to suppty the growing population. This was, perhaps, zupremely ironic given the earlier prominence attached to poptrlating and farming Australia's sparsely-settled lands. The volume of farm output in l95l was only nine per cent above the average of the three years prior to 1939 (Hetrord, 1985). Over the same period, the population had increased by 2l per cent (Committee ofEconomic Enquiry, 1965). Agriculnual production during the late 1940s and earþ 1950s increased by about one per cent per annum, while the population had grown by three per cent annually (Hooke, l97O). In his policy speech of February l952,the Minister for Commerce and Agriculture (and later Leader ofthe Country Party), John McEwen, placed upon agriculture the mantle that it would hold for almost 20 years: The commonwealth Govenrment has, therefore, decided to adopt as its policy objective, a Commonwealth-wide progfamme of agricultural expansion, not only to meet direct defence requirements, but also to provide food for the growing population, to maintain our capacity to import, and to make our proper contribution to relieving ttre dollar problem Out of consideration of all these circumstances, the Commonwealtl Govenrment has decided that activities directly concemed with the production of essential items of food and agricultural products in this country shall be classified i¡1 imFortance with defence and coal produotion (Hooke, 1970,205). 82 Accompanying this policy înnouncement was the introduction offive year produotion plans for a wide range of agriculnual commodities, a20 per ce,nt depreciation rate on all farm plant, equipment and structures, the introduction of a home consumption price scheme for wheat and the advent of concessionary lending by the major trading banks to farmers. These policies had a direct impact on the direction of agricultural dwelopment thereafter. Agricultural ouþut increased by 35 per cent in the 1950s and by the same amount again in tle 1960s (Gruen, 1990). This gror,rltr was supported by the state-facilitated capitalisation of farm operations and public agricultural research and extension. For example, broadacre farmers benefited enormousþ from the development of clover pastures and phosphate fertiliser and biological rabbit control via the m)D(omâ virus. Generous government bounties and depreciation allowances helped increase the number oftractors on farms from 103 800 in 1950 to 212 400 tn 1957. Over the same period, the number of fertiliser qpreaders increased from 44 100 to 74 4}O,hay balers from I 100 to 25 100 (Hefford, 1985). To enzure that machinery "eamed its keep" tle average farm had to expand to attain new economies of scale. The total area of farm holdings increased from 940 million acres to I 143 million acres between 1952-3 and 1957-8, with a similar rate of increase in the area so\iln to pasture (Hefford, 1985). No doubt the large soldier settlement schemes contributed to this growth. Agricultural output soared. The introduction ofthe home consumption price scheme for wheat saw wheat plantings increase from four million hectares (ha) to 5.2 million ha in the decade to 1960-61, driving exports up to five million tonnes per ailrum from 2.3 million tonnes per allnum (Lawrence, 1987). Subsidies, import controls and dual price schemes hélpedboost sugarproductionfromsevento 9.1milliontonnesfrom 1950-51to 1960-61, while butter production increased from 125 to 176 million pounds, wool exports rose from I184 to 1524 mìllion pounds and thevalue of meat exports grew from $60.g million to $106.2 millis¡1, all during the same period (Lawrence, l9S7). 83 Naturally, these trends had the obverse effect on farm employment. In 1950-51, the agricultrual workforce totalled 466 000, peaking at 480 000 in lg53-54. The period to 1960'61 saw the loss of 40 000 farm emfloyees, and a further decline to 414 000 employees in the following decade (see Figure 4.1) (Freebaim, r9g7). These policy changes had social and economic ramifications beyond the scale ofthe farm family household. From 1950 onwards, farm mechanisation and occasional sectoral doumtums fed into a ch¡onic process of rural depopulation, tuming around a briefperiod of non-metropolitan ruban growth after 1945. Many smaller centres dwindled, giving up their fr¡nctions to larger regional centres (Bowie and Smailes, 1988, 238-239). Oeser and Emery for¡nd in their 1954 study of 'Mallee To\ m" (wild, 1981, 100-107) that there was an interdependent yet r¡nstable relationship between small town business people and farmers: Proqperity at the time of the study had led to a relatively harmonious relationship, as well as to an increased participation in the life ofthe toum by the farmers, but any recession in the price of farm products would lead to 'a renewal of sharp practices by the business people and consequent hostility on the part of farmers 1wld, l93l, r03). As Bowie and Smailes (1988, 251) state, the increased farm incomes of the long boom'favoured the regional centres and the larger 'standard' country towns". Smaller country towns are affected much more by the number of farm ¡¿milies and employees in their hinterlands than by farm rncome per se (see Smailes, 1979). Federal Government economic and farm policy, the two being zubstantially linked, thus had different impacts at different scales. The drift of population from the small centres accelerated with the full emergence of the cost-price squeeze and sectoral downtums in the late 1960s, halting temporarily in the earþ 1970s to earþ 1980s in the spatially-concentrated population tumaround phenomenon (Hugo and smailes, 1985; smailes and Hugo, r9B5) . Despite the obvious success ofthe Menzies Govenrment's programme of agricultural expansion, Australia's economic development proceeded in a characteristioally 84 Fig. 4.1. Total Fam Emplo¡ment, Australia, 1955/56 - lggstgí ('000s). 500 450 400 350 300 u) t 2so 2oo 150 100 50 0 t95sls6 t960l6t t96sl66 l970l7t l97sl76 lgso/8l 1985/86 tgg)tg| tssstgl Sor¡¡ce: ABARE, 1995, 23. 85 "stop-go" fashion (Committee of Economic Enquiry, l9ó5). Australia shared the long boom with all other OECD nations, this proqperity underpinned by high lwels of manufacturing sector protection and, of course, a competitive, expof-based primary sector. However, as Linge (1988, 242)notes, "The nub ofthe problemwas (and remains) the reconciliation of Australia's dual structue: an inefficient industrial sector which is significant in terms of erylo¡ment, and effioient farming and mineral sectors which directly and indirectly contribute 80 per cent of total exports but provide jobs for only 8 per cent of the workforce". This dual stnrcture occasionally played havoc on macro-economic menagement, although the highly co-ordinated nature ofthe intemational and national financial regulatory fiamework (based on the Bretton Woods Agreement) allowed the Federal Govenrment to maintain relative balance. For example, the balance-oÊpa5ments crisis of l95l-52 was followed by a prosperous 1953-54, only to be followed by more balance-of-pqments problems in 1954- 55 as domestic consumer expenditure drew in large amounts ofimported goods. A contractionary Budget in 1956, including increased rates of sales tax and excise on con$,lmer goods was followed by an oipansionary Budget in 1958-59 which caused a seven per cent increase in GDP - one ofthe largest increases in the post-war period. This boom created more balance-oÊpaSments problems in 1960-61 , aggravated by high levels of domestic liquidity. The 1961 Budget was severe, introducing a 30 to 40 per cent sales tax on motor vehicles, a tightening of monetary poticy and constraints on the lending ability of the non-bank financial intermediaries (NBFIs) who lay outside ofthe official ambit ofthe Reserve Bank. The result: a dramatic decline in new vehicle registrations, a 2Q per cent decline in the number ofnew dwelling commenceme,lrts and in the flow of fi¡nds to oonsumer credit, induoing one ofthe harshest recessions since 1945, inoluding high levels of unemploSment (Committee of Economic Enquiry, 1965). Despite another recession n 1965-66, the 1960s saw the fastest gowth in the economy of any decade yet this century (Maddock, 1987). Yet it was also during this deoade that the relative importance of agricultural exports for national income began to 86 deoline. Wool the staple commodity central to national economic development in prwious eras, had provided around 50 per cent oftotal export eamings in the earþ 1950s, but by the end ofthe 1960s its contribution had dwindled to around 20 per cent. In aggre1ate, agriculture's relative share of GDP declined from 25 per cent in 1949-50 to eight per cent in 1969'70 (Freebaim, 1987). This relative decline occurred deqpite an overall increase in the value of agriculnual exports from $l 495 million in 1950-51 to $2 210 miilion n 1967-6g (Hefford, 1985). In large part, these trends reflected the changing nature ofAustralia's trade linkages with the rest ofthe world. Global orport trade boomed during the post-second World War era' This growth was primarily based, however, on the expansion of manufacturing exports. Intemational trade in manufactures grew by an annual average rate of 7.5 per cent from 1960 to 1988, while mineral and farm commodity trade grew by an average oftlree to th¡ee-and-a-halfper cent per annum over the same period (Fagan and Webber, lgg4,16). Australia effectiveþ missed the global trade boom in manufactures and endured the gradual decline in primary commodity trade. These trends would have qpecific effects on Australia's extemal economic vulnerabilitf, and on the family farm sector. The existence of a significant low farm income problem was uncoveÍed by researchers around this time (McKay, 1967). Problems had emerged temporarily in certain farm industries in earlier times, but the late 1960s and earþ 1970s marked the onset of a general sectoral decline. A national mineral resoruces boom not only reduced the significance of agriculture's economic contribution to the national economy, but also reduced the intemational competitiveness ofAustralian farm exports through its stimulatory influence on the exchange rate (Gruen, 1990). The farm lobbies'political influence dissipated and public assistance, once granted generously (and at times on dubious grounds) was no longer guaranteed (Hefford, 1985;Lawrence, 1987). As international farm commsfi¡y markets deolined, cost-price pressures on farmers were aggravated by the appreciation ofthe exchange rate ($A) and cost flow-ons from 2 These effects are examined in the next chapter. 87 hieùer inflation (Freebaim, 1987). Farm input costs rose by three per celrt per an4m betwee,n 1965 and 197l(Laranenoe, 1987), oausing a decrease in farm input volumes. Rates of farm output declined after 1968-69, increasing again only a decade later (Gruen, 1990). The emergence of global grain surpluses in the late 1960s and 1970s3 also harmed Australian farmers. Wheat quotas imposed by the wheatgrowers' o\ m marketing body in the 1969170 season cut farm incomes dramatically (Hefford, 1985). "In lgTO-71 average real farm income fell by I I percent from the 1969-70level and by 24 percent from the 1968-69 level" (Lawrence, 1987, 193). This era of decline translated into higûer average indebtedness and a marked aversion by the major trading banks and pastoral finance oompanies to lending to the farm sector. The shortage of carry-on finance finished Íuny farmers, who also oonftonted depressed land prices upon leaving the industry. The Rural Reconstruction Scheme was established m l97l in recognition ofttris orisis, offering concessional loans and grants for farm build-up, debt reconstruotion or "rehabilitation" (Hefford, 1985). It was to be the first of a number of amended versions of adjustment assistance to be offered the whole farm sector in the ensuing decades. A portent of the dire position of the industry came in the same year when the Commonwealth Development Bank, in a reversal ofits traditional role in encouraging farm expansion, offered carry-on finance to needy farmers from a qpecial frrnd of $30 million for "rehabilitation" and farm amalgamation (Lawrence, 1987). It was also around this time that the catchcry, originating in policy-making circles, of 'get big or get out' gained c¡¡ïency. For struggling farm f¿milìss, howwer, this aphorism was, at best, simplistic; at worst, economically damaging: If the present primary producers, nuny ofwhom are allegedly uneconomic, are producing, or could easiþ produce, surpluses which are difrcult to sell at profitable prices, then how is this problem to be solved by eliminating the uneconomic producers and having a comparativeþ few big produoing units oreating even bigger 3 See Friedmann (1993) for a comprehensive account of the global political economy of these surpluses and how they were managed. 88 qurplus (sic) through the greater effioiency which it is being claimed results only from bþess? (Phds, 1972, l0). No clearer indications existed to show that agricutture's days of state-assisted prosperity were ending. The era of adjustment was nigh. 4.4 1972 to 1983 The election ofthe FederalAustralian Labor Party (ALP), led by Gough Whitlanq to power tn 1972 is still often seen by the farm community as marking the cuqp for Australian agriculture. This is deqpite the earlier emergence of a number of deep-seated problems in the sector during the late 1960s. The Whitlam Government's period in office, relatively brief as it was, was characterised by, first, hasty political and social reform, and later, economic and financial crisis. The intemational context in which the Government operated was, however, equally one of economic and financial rupture. First, the OPEC oil prioe rise in 1973 caused massive debt and an entre,nched political and economio crisis amongst most countries outside of the cartel. Second, the breakdoum of the Bretton Woods Agreement led to a gradual degeneration in the intemational oo-ordination and management ofnational culÏencles. It is nevertheless true that the Whitlam Government's political reform program sought to break the rural bias of the Menzies era to address the social and economic problems that had emerged from the rapid but unevenly distributed dwelopment of the post-war boonr This change ofpolicy focus represented a distinct political choice and it was no zurprise that the agricultural sector, and rural society in general, lost some of its preferential standing. Given the ALP's consistent ten per cent share oftle farmvote (Warhurst, 1990, I 16), the electoral ramifis¿1ieas of this strategy for the government .were probably minimal. The establishment of the Industries Assistance Commissisn (IAC) n lgT}to replace the TariffBoard and the creation ofthe Coombs Committee to review the previous 89 govemment's planned expenditure were desþed to give the Whitlam Governme,nt solid grounds for reallocating resources to fund its social welfare programmes (Hefford, 1985; Lawtence, 1987). The Coombs Committee, while acknowledgng the need for targeted assistance to farmers in times of crisis, found a strong case against the projected expenditure of $233 million on direct government assistance to the agricultural sector in buoyant market conditions (Hef[ord, 1985). Beef and wheat retums had increased significantly from lgTl- 72to 1973-74, reversing the farm sector's poor forn¡nes during 1969-70 (Wonder and Fisher, 1990,54-55). Wool retums also improved dramatically after the 1970 market collapsea. In 1973, the füst Whitlam Budget repealed the qpecial depreciation allowanoes, replacing them with much lower depreciation rates on a limited range of capital goods. Investment allowances were abolished, while claims for capital expenditure on land clearance, dam-building and the like were to be spread over ten years instead of being fully deductible in the years in which the expenditure occurred, as formerþ. The annual dairy subsidy was phased out over a two year period and bounty pa¡ments on processed dairy produce were reduced from $29.4 million n 1972-73 to $9 mitlionn 1974-75 and ended in the following year. Restrictions on the domestic production ¿¡d imlortation of margarine were also eased (Hefford, 1985). More general measures included the 1973 withdrawal ofthe concessional provision oftelephone and postal services to rural areas and the ending of govemment-directed concessionary lending to farmers by the major trading banks and the removal ofthe fertiliser bounty n 1974. The wheat industry had its cost-related guaranteed price replaced with a "stabilisation" price n 1973-74 which was to more accurately reflect world wheat market movements (Hefford, I 985). A number of dramatic developments outside ofAustralia threatened to upset the Whitlam Government's rebalancing rct, however. The 1973 accession of the UK into the EEC was perhaps the most damaging element, particularþ to the dairy and fruit industries, 4 This dovmturn caused a number of Kangaroo Island farm families to seek work on the South Australian mainland in order to keep their farms (see Chapter EiChÐ. 90 which lost their most reliable export market. 'Ia l969-7q ... Australia exported g1,600 tonnes ofbutter, ofwhich 69,700 tonnes found an outlet in the U.K By 1974-75,total exports ofbutter had fallen to 18,900 tonnes, ofwhich none was sold in the U.K', (Hefford, 1985, 193). The Rural Reconstruction Scheme was extended to the fruit industry and included a tree-pull soheme for orohardists leaving the industry or diversifying into otlers (Hefford, 1985). The 1973 oil "shock" ended the post-war'long boom", triggering a major recession throughout the OECD nations m 1974/75.It also exacerbated Australian farmers'woes by appreciating the exchange rate ($A) and adding to an already high inflation rate. The wool industry, resurgent after the 1970 oollapse, gained fromthe negative effect that the oil price rise had on rytrthetic fibre competitiveness, but also lost some intemational competitiveness because ofthe hisher exchange rate. Together, these extemal and intemal factors caused a considerable loss of confidence across the entire sector. Farm investment levels declined in the 1970s relative to 1950s the and the 1960s, influenced no doubt by the low rates of retum in agriculture since the beginning ofthe 1970s. Compared to govemment bond yields of 3.9 per cent per annum' agriculture during this phase retumed onty 1.3 per cent on invested capital (powell and Milham, 1990). The farm sector's growing antipathy toward the Federal Govenrment was salved somewhat though by a25 per cent cut in the manufacturing sector ta|¡trn 1973. This, it was felt, would at least reduce the cost sf imported farm machinery. In 1974, the first of a sequence of increasingly economically dry advisory reports on the farm and rural sectors was released. The Green Paper on Rural Polic]¡ (Working Group, 1974) was the most comlrehensive analysis of agricultural and rural policy for some time. The Paper's authors felt that the special conditions of isolation and risk under which farmers operated required that policy be assessed and changed ifnecessary, to provide stability to the industry. One ofthe distinctive features ofthis report was its concem for environmental resotuce conservation, the authors advocating tax concessions for on-farm soil and water 9l conservation, the use of environmentally-sound farm inputs, the abolition oftax incentives for land clearance and the adoption of user-pays principles for inigation water rates. In line with the Whitlam Government's concem for regional development and equity, the Working Group recomme,nded greater govenrment assistance to rural regions, particularþ where regional economies were agriculturally-based, to ensure equality between urban and rural residents with regard to social security accessibility and the like. Encouragement was given to decentralisation policies, the Group believing that it was necessary for rural residents to have easy access to tor¡ms of about 5 000 residents. It would be fair to say, though, that the Green Paperwas more concemed with the individual farm firm and rural regions than it was with rural communities. Nevefheless, the report was generally well-received because of its advocacy of continued government assistance to agriculture as a form of oompensation for the inflationary effect of manufacturing sector tariffs. The utility ofthis argument began to wane, however, with the gradual removal of protection from across the manufacturing sector. The accession to power in 1975 by the Liberal/National Country Party,led by Malcolm Fraser, did little to restore to agriculture its m¿ntle of pre-eminence. The depreciation and capital expenditure allowances lost during the Whitlamyears were not restored. The Govemment, following advice fromthe IAC, agreed with the previous Govemment's plan to gradually reduoe the nitroge,nous fertiliser bounty. The Department of Urban and Regional Development (DURD), after offering to rural commr¡nities the prospect of decentralised services provision and some economic autonomy, was abolished. In May 1979, Federal Goverrment funds allocated for rural extension were hahed, and abolished in 1982 (Launenoe, 1987). Over its entire period in power (November 1975 - Maroh 1983), the Fraser Government's contribution to rural research declined by nearþ one-third (Lawrence, 1987). Nevertheless, the farm sector was delighted with the restoration of the farm investment allowances (albeit with arbitrary guidelines) and the superphosphate bounty and the underwriting of the dairy industry in the first year ofhis govemment (Hefford, 1985). 92 The introduction ofthe Beef Industry Incentive PaSments m lg77 continued the targeted assistance to the hard-hit beefindustry although beefprices improved significantly in mid- 1978 (Watson,1979). One ofthe most persistent problems faced by the farm sector during this period was, howwer, more central to national economic policy. A significant element ofthe Fraser Govenrment's economic managemert involved the deliberate over-valuation ofthe exchange rate ($A) to dampen inflationary demands. This policy had nvo important effects on agriculture. Firstly, those farm products reliant on export markets suffered from a decrease in intemational competitiveness. Secondly, the high exchange rates attracted foreþ capital into Australia, particularþ after the 1973 OPEC oil price hike. Although these price rises triggered a major world recession (discussed last chapter), th"y also precipitated a mineral resources boom in Australia, further increasing the attractiveness of the $A to foreign investors and thus impairing Australian farm export trade (Davis, l9g9)5. The Balderstone Report was released in 1982 into a growing debate over the usefulness ofAustralia's regulatory frameworks for finaûco, benking and trade. This Report further emphasised the necessþ for Australian agriculture to become more selÊreliant and intemationally-competitive. Its recommendations included the hastening of the pace of farm adjustment to permit the scale economies of modem farming. Government intervention had to be minimised to allow the unfettered market allooation of resources to ensure efficiency. The Report's authors recommended that marketing authorities be partially privatised and totally deregulated, and like farmers themselves, allowed to source their funds from a deregulated financial market. Financial deregulation, still being considered by tle Campbell Committss, was viewed by the Report's authors as wholly positive for the farm sector. Farmers would no longer require concessional treatment by Govemment or second-best credit packages it was felt, as the free credit market would automatically seek to cater for their needs. This claim is examined in greater detail in the next chapter. 5 Both these trends in turn initiated a major urban property boom. Over one-half of Sydney,s CBD of,frce sp¿¡ce was rebuilt over a 12 year period f¡om the early 1960s as a result of this capital inflow (Langdale and Rich, 1989). 93 A si8nificant element ofthe Balderstone Report was its recognition ofttre newly- formed National Farmers'Federation (NFF) as a powerfrrl lobby group whose higù standard ofpolioy analysis and advocacy deserved to play a role in national agricultural poticy dwelopment (Working Group, 1982). The NFF was formed m lgTg in reqponse to the rise of corporatist, participatory politics at the Federal leve! exemplified by such groups as the ACTU, various chambers of commerce and industry and environmental lobby groups who sought to influence policy in their reqpective fields. The farm lobbies, represented by a plethora of commodity organisations, were forced to amalgamate to compete effectively with these groups and remain politically relevant. Such a united front, it was thought, would increase the farm lobby's influence in the increasingly complex and sophisticated agricultural policy debate - itself a legacy of the IAC (Milliken, 1991). Formally bipartisan, the NFF embraced the dominant ideology of "economic rationalism", as evidenced in its first manifesls, Farm Focus: The 80's (NFF, lgSl). This document diqplayed the NFF's concem for reform across a broad policy field, a characteristic ofthe organisation since. The traditional bugbear of manufacturing sector tariffs ¿1d imPort quotas were recommended for reductions or replacement with more "visible" measures, zuch as bor¡nties. Other measures to improve Australia's international competitiveness included fiscal and monetary restraint,wage restraint, interest rate reductions, a lower exchange rate, higher levels of domestic saving and a reduced reliance on overseas investment. Financial deregulation was supported, as was tle greater use of market forces in the adjustment process and agricultural research and development. In contrast to the Balderstone Report, however, the NFF document envisioned a prominsal if arbitrary role for the state in administering the Rural Adjustment Scheme (RAS), frrnding of agrioultural research, the upgrading of rural telecommunioations and a greater role in promoting soil conservation. Subsequent events in the farm sector were to fi¡rther elevate tle NFF's position in the agriculnual policy debate6. 6 The notion that there is a "'single class"' of fa¡mers (Lawrence, lg87,lg)which is the natural constituenry of the NFF is, of course, a m¡h. "What the NFF appears to have managed to do is to have fused the sectional precapitalist interests of the more wealthy employer farmers with those of the smalle¡ family farmers, those for whom price volatility is of paramount concern but whose large numbers are 94 The election ofthe Hawke Labor Government in 1983 coincided with the ending of a swere nation-wide drought, but for nuny farmers their joy was short-lived. A combination of oombative intemational trading policies (princþally between the US and the EEC) and glutted world markets for agricultural commodities led to a general agricultural recession in 1984 (Lawrence, 1987). 4.5. 1983 to the hesent By this stage, the normally reserved farm sector was on the brink of deqpair, and a distinctly militant tone began to emerge in a spate of crisis meetings and protests in l9g4 and 1985. Nationally, about l0 000 farmers protested in 1984 over a range ofissues including increased irrigation water charges and falling sugar cane prices. In l9g5 the protests heightened in intensity and scale ¿s high interest rates bit deeply into declining farm inoomes. Between I 000 and 9 000 farmers marched through Perth protesting against high interest rates, ... rail freight charges, low commodityprices and the tariffbwden. some 17,000 farmers and their supporters mounted a protest in Adelaide, this time taking iszue with the Federal Labor Government ol0", it, imposition of new taxes and and the proposed capital gains tax. These state demonstrations were to culminãte,"hurg"., on 1 July, in a majs¡ demonstration outside Parliament House, Canberra, attended by some 40,000 rural producers. It was the largest protest rally ever staged in the nation's capital (Lawrence, lgï7, l2). The Australian Farmers' Fighting Fund (AFFf) was formed at this rally, under the auspices ofthe NFF. The Fund was established to "... fight issues which have national significance required to lend weight to the leadership's aims" (Lawrence, lg87,7g). The NFF has felt this tension in recent years when, during the height of the national rural crisis of the mid-1980s, it supported sweeprng mactÈeconomic reform (including financial deregulation) while simultaneously campaigning on behalf of farmers financially stricken by high interest rates or foreign currenry loans gone wrong, and defending the farm sector's access to structural adjustment assistance. 95 and which would set precede,lrts for action by other individuals or groups" (The Australian Farmers' Fighting Fund, 1995, 8). The NFF and AITFF have since had a number of strategic successes. They zupported the Penberry fu-ily in the precedent-setting industrial relations diqpute at the Mudginbeni abattoir and backed a South-East South Australian farm family in their recent zuccessful action against merchant þank, ANZ McCaughan Ltd., over a foreþ exohange loan that 'blew out' after the A$ plurnmeted relative to the Swiss franc during 1985 and 1986 (Stock Joumal, 1995a,7). The iszue offoreþ currency loans is covered in greater depth in the following chapter. The Hawke Government, deqpite offering a contrasting management style to the individualist and, at times, confiontationis style ofthe Fraser Govemment, facilitated the dominance of "economic rationalism" (Pusey, l99l) in the policy-making process and offered little real change in political direction. Deqpite its adoption of consenzus politics (e.g' the formation ofthe Economic Planning Advisory Council (EPAC), the Accord and numerous economic summits) and a Ke¡mesian approach to economic men¿gspenf, ths Hawke Government quickly embraced the process of financial deregulation begun by the prwious govenrment. It implemented the exchange rate float in late 1983, oversaw the removal of most other bank regulations and invited ló foreþ banks to enter the Australian market over the next two years (Battelino and McMllan, 1989), Further tariffcuts were announced in July 1988, with the level of manufacturing industry protection to be reduced from l9 per cent to 14 per cent by July 1992 (Gruen, 1990) in a bid to create a more intemationally-competitive manufacturing sector. With the exchange rate beyond the direct control of the Govemment, the Australian dollar was rapidly devalued - in November 1985 and June-July 1986 (the latter being the infamous "banana republic" episode) by intemational money markets (Davis, 1989). with a constrictive monetary policy operating to restrain domestic demand and improve balance- of-pa¡ments problems, interest rates qpiralled. Prime rates reach ed 20 per cent in earþ 1985 and fluctuated around that level for some time after (Lawrence, l9B7). 96 By 1986, ann¡ral interest repa¡m.ents on an average farm increased to $ I I 000, nearþ double those of 1984, while over 25 per cert of farms in the cereal, rice and úeep- beef industries had debts of $100 000 or over (Lawrence, 1987). The average debt per broadacre farm peaked at $129 247 n 1986-87; with interest rate declines and im$oved commodity prioes, this figrue decreased to $94 000 in 1990-91. The average debt servicing burden increased for broadacre agriculture from less than ten per cent at the start of the 1980s to 36 per cent in 1985-86. This ratio fefl during the wool boom of 1985-86 to l9g9- 907 but increased again in 1990-91 to 37 per cent due mainly to the removal of the wool reserve price scheme (Peterson, Dunne, Morris and Ifuopke, l99l). The 1986 policy document, Economic and Rural Polic)¡ (Australian Government), offered farmers little reqpite from the ongoing farm crisis. This report affrmed the strong graqp of economic rationalism over public policy generally, and agricultural policy in particular (Warhurst, 1990, l2l-122).Withmost sectors of the industry now at least zubstantially exposed to the tendential operation ofthe intemational commodity markets, the document's autlors stated that tle effectiveness of government intervention was simifioantly oi¡cumsoribed, short ofretunring to a more suppofive role. With the intemational trading envi¡onment domin¿1s¿ by the adversarial trading policies of the US and the EEC, the Federal Government opted for an almost de facto role in agricultural policy, offering to facilitate the sector's development through hastier micro-economic reform and a greater diplomatic effort in reducing trade barriers across the globe. Needless to say, the Government's ¿fl¿mant refusal to increase public expenditure in agriculture and rural areas only encouraged more radical and militant agrarian protests and movements. One area where sienificant state intervention was deemed appropriate by the Hawke Govemment was the stimulation and implementation of soil, water and native vegetation conservation programs and the adjustment process. Its Landcare initiative has been a major vehicle for this polioy focus. The encouragement of a "clean and green" agricultural sector was a major pre-occupation ofthe Labor Govemment, as it sought to capitalise on 7 The wool boom was marked by an escalation in wool prices and production and sheep numbers until the suspension of the Reserve Price Scheme in February 1991. See Chapter Ten fo¡ furthe¡ details. 97 Australia's perceived "esmf arative advantage" and its close proximity to the booming Asia- Pacific region. Seeking a niche in this expanding market, the Federal Government was keen to promote Australian farming systems as efficient and environmentally-sustainable providers of a conrucopia of fresh and nutritious foods, r¡nsullied by the environmental problems plaguing Westem and Eastem Europe and the US. To date, this strategy's success has, deqpite some mins¡ gains, been distinctly ¡nderwhe¡ning (Instate, 1993). On this strategy there has been a remarkable con-fluence of opinions amongst the hitherto opposed forces ofthe NFF and the Federal Labor Govemment. The Govenrment has sought to aotiveþ facilitate the penetration ofthe Asia-Pacific food market by Australian agribusiness and farmers through a range of investment concessions, industry deregulation and reform and hieû-level trade negotiations with countries in the region. Its aim is a more intemationalised and vertically- and horizontally-integrated agri-food industry (Button and Crean, 1992;Crean and Grifrths, 1993; Crean, lgg2). A similar message is contained in the NFF's latest manifesto, New Horizons - A Strategy for Australia's Agrifood Industries INFF- 1993). The future role ofthe family farm and Australia's rural commr¡nities in this strategy is r¡ncertain. Emphasising the exposed nature ofAustralia's economic and trade structure, New Horizons "... argues that farmers must seize the oppornrnity to maximise their share of ttre consumer dollar, both domestically and intemationally, by establishing closer tinks with processors of farm products" (NFF, 1993, 3). To survive in this new environment, farmers will need to acquire a new set of finance and ¡isft man¿gement and marketing skills, while those not willing or able to adapt must step aside to allow a more dyramic agricultural sector to develop (NFF, 1993). The pace of farm adjustment must increase, aocorrling to the peak farming body, to allow the full development of a vigorous and intemationally competitive agricultural sector. Some of the more recent policy initiatives by the Federal Depaftment of Primary Industries and Energy broadly zupport this objective. These policies are "designed to enhance rural industry competitiveness by encouraging efficient structural change and rural 98 dwelopment. Elements ofthis package are, stronger commercial link¿gsg, farm productivity grorvth, dwelopmelrt ofthe capitalbase, and strong and resilient rural communities,, (Kingma, 1993, l-2, added eryhasis). How rural communities are to remain "strong and resilient" in the context ofthe official enoowagement of agribusiness on the one hand, and hastier farm adjustment - pitched al¡nost inwitably at the farm family scale - on tle other, is unclear. Beneatl the woolly polioy rhetoric, it is clear from the ongoing reform of the Rural Adjustment Scheme (RAS) over the pas 20 years that, in a stark rwersal of McEwen's lgl}intervention in the sector, farm families and rural communities are very much on their oum in men¿giag structural change, regardless ofthe scale such change emanates from: In seeking to create a more resilient, selÊreliant, zustainable and intemationally competitive sector, the new scheme (the 1992 RAS) seeks to assist the rural sector,s adaptation to Australia's increasing integration into the intemational economy, deregulation of financial and cruïency markets and other characteristics of the contemporary Australian economy (senate Rural and Regional Affairs and Transp ort References C ommittee ( SRRATRC ), lg g 4, l2). In terms of the practical implications of the RAS, this means that the scheme is very much focused: hieûer up the scale where we make those tlat we know can survive in the industry more efficient and do it better than they have in the past. That may mean a bigger gap, it nuy mean more might fall out the bottombut the new scheme is intenãed to make the industry more efficient for tlose who can survive in the long haul (SRRATRC, t994, t3). At farm family and rural community scales, tle narrower focus ofttre RAS is evident in the formation of a number of 'regional development' schemes in marginal broadacre farming country in Queensland, New South Wales and South Australia. These schemes - tle South-West Strategy, WEST 2000 and the Eyre Peninsula Strategic Task Force 99 reqpectively, aim to reduce the number of landholders in each region via a process of farm adþstme'lrt and property amalgamation and to iryrove the economic and environmental sustainability ofthe more viable farms (Eyre Peninsula Strategic Task Force , 1995; Stapleton, 1996). The Eyre Peninsula Strategic Task Force u1e¡s hinges on the voluntary and assisted removal of 360 farmers over a six year period (Mtche[, 1995, 5; Bank Interview 3.1). The era of "closer settlement" has come full circle. 4.6 Conclusion To a zubstantial degree, the political economy ofAustralian agriculnual and rural dwelopment in the post-Second World War period has been a matter of renegotiating and reinterpreting scale relations. For Australian farm families and rural commr¡nities, the period entailed a gradually increasing exposure to the vicissitudes of global markets for primary commodities and finance. This process derived from changing intemal relationships between Federal and State Govenrments, farm families and nual communities and altered linkages betwee,n these entities and tle rest of the world. For example, because agricultue was ce,lrtral to the Australia's economic proqperity and extemal balance (Committee of Economic Enquiry, 1965), farmers received comparatively high lwels of protection ûom fluctuations in export prices and a suite of concessional investment and taxation legislation. As we have seen, these polioies had spatially-unsvsn impacts on the rural settlement pattem. Kangaroo Island remained relatively immune from the rural depopulation process as it enjoyed sustained population and economic growth from the quantitative expansion of its farm base through the War Service Land Settlement Scheme (see Footnote l). It nwertheless felt the impact ofthe 1970s and 1980s doumtums (see Chapters Eight and Ten). From the late 1960s onwards, howwer, Australian farmers began to endure a general sectoral decline, together with a growing reticence from govemments to subsidise agriculttue to the same level as before. With the election ofthe Whitlam Labor Government to power n 1972, and its establishment of the IAC as a policy advisory body, the halcyon days for Australian agriculture were indeed over. The ambit of governments since has been, 100 relative to prwious decades, constrained by the cnppling monetary and fiscal impacts of gtóuat cycles ofboom and bust, beginning with the first opEc oil hike n 1973. From the earþ to mid-1970s onwards, agricultural (and rural) policy has been increasingly dictated not by national interests or by the demands of farmers and rural residents, but by the actions of intemational finanoiar and commedi¡y markets and the need, and sometimes, the desire of national governments to conform to these actions. Thus, Australia's agricultural and rural sectors have not only lost the vast majority oftheir accumulated public concessions but have had to adjust to the increased internationalisation ofthe Australian economy. Agriculnual poticy, like all other fields of public policy over the last 20 yeafs, has been domin¿1s¿ by "eoonomic rationalist', principles, as the zucoession of official Reports testifies. Indeed, polioy advisors (including the NFF) felt that farmers would benefit enormously from such macro-economic reforms as financial deregulation, and would rid the regional-states and nation-state oftheir erstwhile reqponsibility for structural adjustment. The changing direction and objectives of national agricultural and rural policy partly reflects the decline in economic importance of agrioultue to the national economy and a reassessment ofpolicy objectives. However, the political dominance of "economic rationalism" in the policy decision-making process for these sectors has instituted an ignorance of the sooial and other economic rtimensions of such policy eþanges at different scales. Cost'cutting by both Federal and State Governments, botl Liberal and Labor, has partioularþ hurt rural areas as public sector jobs, with their drought- and market-proof incomes, and vital public services, like hoqpitals, public utilities, agricultural research and extension bodies, have been regionalised or withdraum to the capital cities (Rolley and Humphreys, 1993; social Development committee,L994;wahlquist, 1996a,1996b). Chapter Five examines how the scale relations between farm families, rural communities and State and Federal Governme, rts have been realigned by, perhaps, the most fundamental reform ofAustralia's intemal and extemal political and economic linkages in recent decades: the deregulation ofthe national financial systenr CHAPTER FTTT: THE PROFTTS'': THE DEREGT]II\TION OF THE AUSTRALIAN FINAIICIAL SYSTEM 5.1. Intuoduction This chapter has two main purposes. First, it seeks 1e s¡¿mins the political and economio forces, both domestic and intemational underlþg the deregulation ofthe Australian financial system- Second, it aims to chart, through scales, the consequences of the deregulation for the institutional structure ofAustralian finance, the menageme,lrt of macro-economic policy, the financial position of farm families and the provision of financial services to the farm and rural sectors. The following section gives a brief account ofthe collapse ofthe post-WWII regime of national regulation and its replacement with a de facto system of largeþ unregulated intemational capital flows. 1[s impacts ofthis change on Australian national economic managemerit are also oonsidered. The suoceeding sectioa e¡¿mines the process ofthe Australian finanoial system's deregulation in more detait focusing on the politica! ideological and eoonomic pressures for and against this reform- The findings ofthe Campbell and Martin Inquiries are reviewed and assessed, as are 1fos impacts of deregulation on the institutional structure ofthe financial qystem. The third and final section conce,ntrates on the agricultural and rural sectors' experience ofbanking before and after deregulation and assesses the broad social and economic advantages and disadvantages of deregulation. 5.2. Involution and Revolution: The Liberation of International Finance and the Australian Economy. As mentioned in Chapter Four, tle Bretton'Woods Agreement formed the comerstone ofthe intemationaþ co-ordinated regime of cwrency and finance regulation, with the gold standard and the $US aoting as twin zupports ofthe intemational monetary system- This Agreement, it was hoped, together with the ongoing process of the GATT, would establish an open and free trade world economy, thereþ abolishing the bilateral and 102 t imperial trade agreements that proliferated in the inter-war years. The United States was cexrtral to the successfirl operation of this political and economi o pact, its political and economic might forming the anchor for the post-war accumulation strategies ofthe advanced capitalist world. Indeed, the economic history ofthis period revolves around the geographio and temporal diqpersion ofthe US surplus (Daly and Logan, l9g9; Harvey, l99l;Fagan and Webber, 1994, I B- l9). From the mid-1960s, confidence in the Bretton Woods system of currency man¿gs¡xs¡f waned as the post-Second World War economic reconstruction in Westem Europe and Japan neared completion (Harvey, l99l). The international trading environment came under increasing pressure fromthis time onwards as these two hitherto reliable markets for US oçorts gradually emerged as competitors with the US in the export trade for m¿nufactured goods. The US's gradual loss of these valuable export markets caused confidence to sllp in the $US: the oomerstone ofttre Bretton Woods Agreement. In the wake ofthese events, American corporate profitability declined, leading to rationalisation (i.e. retrenchments and plant closures) within the US manufacturing sector. Consequently, American TNCs began to look for more profitable markets oËshore, taking their bankers with them" These banks tapped into the Eurocurre,rcy markets to fund their corporate clients' ofl shore expansion. The Eurocurrency markets were essentially the creation of majs¡ national banks (thiefly US banks), who sought to cater for the credit needs of a rapidly-growing offshore corporate market (Pecchioli 1983; Daly and Logan, 1989; Fagan and Webber, lgg4, lg- l9). The growth ofthese markets in the late 1950s and 1960s parasitised the Bretton 'Woods system, the transratioo¿l þanks gaining stature and strength in inverse proportion to the power of national govemments to control the flow of intemational finance (Daly and Logan, 1989). The pound sterling and the $US were both forced to offioially devalue during the 1960s in the wake of speculative assaults originating in these markets. "The Ewomarkets gave the banks po\¡/er: the power to shift vast zums of money, to set the price rlncluding the Ottawa Agreement, of which Australia was a signatory. This Agreement protected imperial trade within the British Commonwealth @aly and Logan, 1989). 103 ofthat money, and sometimes, by qpeculative menipulations, wen the exchange value of that money" (Daly and Logan,1989,73). The gold standard also came under pres$ue, as the growth ofworld exports outpaced the global capacþ to extract gold. Intemational gold reserves consequently dwindled in the 1960s (Daly and Logan, 1989). In this gulf the banks stepped in, dwising new mechanisms to expand the availability of credit and, he,lrce, to maintain the systends impetus. honically, banks beoame central to the survival of the Bretton Woods Agreemelrt and the intenrational economy, particularþ after the OPEC oil prioe rises of 1973 and, 1979 (Daly and Logan, 1989). The co-existe,nce of the Eurocurre, cy markets with the Bretton Woods organisation wentually became untenable, however: "... Nixon's announçsmsnf th¿f the US dollar was no longer convertible into gold in August l97l was no more than a recognition ofthat fact" (Daly and Logan, 1989,76). While the post-war boomwas maintained until the OPEC oil price rises of 1973 vta the extraordinarily loose and inflationary monetary settings ofthe UK and US governme,lrts, the total collapse ofthis system had become almost inevitable (Harvey, l99l). However, while the intemational benks were establishing their or¡rm empire, they were still constrained by the regulatory hold of national govenrments. Despite the relativeþ open conditions they found themselves in the post-Bretton Woods era - the switch to floating exchange rates significantly expanding intemational and national banks' freedom to deal in foreþ currencies - it was inwitable that the banks would press for the full deregulation of national financial systems. Rapid advances in information technology were the catalyst for the emergence of global banking. These advances tightly integrated the world's finance and commodity markets, negating their physical and temForal separation through the dwelopment of faster clearance and settlement procedures (Harvey's (1991, 240-242) 'time-space compression"). This gave qpeculators and financiers access to a widervariety of capital and markets than ever before. "Time and qpace in the þankers' world were pliable, moveable, profitable constructions which might or might not correspond with the mr¡ndane geography ofnational territories" (Daly and Logan, 1989, 103). As Harvey (1991,161) notes, 'ït is now the case 104 ttrat 'an English buyer can get a Japanese mortgage, an American can tap his New york benk account through a cash machine in Hong Kong and a Japanese investor can buy shares in a London-based Scandinavian benk whose stook is denomin¿1sd in sterling, dollars, Deutsche Marks and Swiss francs"'. The gold standard had been replaced by the information standard (Daly and Logan, l9B9). '¡Xs þanks' drive for deregulation was essentially an ideological crusade for a free global financial market, which, in qpite of the rise of "aggressive neo-conservatism" (Harvey, 1991, 166) in the US and UK2, was initiaþ resisted. Atthough the Thatcher Govenrment was reE)onsible for the "big bang" deregulatory reforms ofthe London financial centre in 1986 (Harvey, l99l) and the Reagan Artminist¡¿1ion for the full deregulation ofthe American savings and loans (S and L) benking industry in l9B0 (Sherrill, 1990), tlese governments viewed the total deregulation oftheir financial systems with trepidation. Freeing banks from regulation implied their possible collapse, which would in tum tlreaten the viability ofthe entire financial system (Daly and Logan, l9g9). Nevertheless, both the Thatcher and Reagan adminisl¡¿1ions liberalised their reqpective financial systems. Notwithstanding their initial caution, these conservative, libertarian adminìstrations were still forced to intervene to attend to financial crises. The Reagan and Bush Administrations were forced, on political grounds as much on the need to cut the losses of debt-laden S and Ls, to ftnd and artminister this faltering seotor (Sheni[ 1990; Galbraith, 1992, 5l-64). The bailout was estimated to cost between $US 50 and 100 billion at September 19883 . The Thatcher Government was also forced to spend heavily to maintain the pound sterling within a reasonable range in 1987 (Harvey, 1991, 168-169). The breakdor¡m ofthis intemationally-oo-ordinated regime offinanoial and eoonomic regulation also caught Australian policy makers in a Gordian knot. Chapter Four analysed the origins ofAustralia's dual economy (Linge, l9S8) and its impacts upon the nation's intemal and extemal economic vulnerability. By the late 1970s the neagan Republican Administration and Thatcher t the Conservative Government respectively, Of the S&L scandal, as it has popularlybecome known, Galbraith (1992,6l) comments, '"This, which was allowed to develop in the 1980s, had emerged by the end ofthat decade as the largest and costliest venture in public misfeasance, malfeasance and larceny of all time". 105 and earþ 1980s, these trading rnrlnerabilities were being fully e4posed. Simultaneously, the intemationalisation sfþanking and the adoption offlexible exchange rates in most OECD nations liberated gteat volumes of liquidity seeking profitable avenues of investme,nt and qpeculation (Pecchioli 1983). Australia's tightly controlled exchange rate regime was placed under increasing pressure from the late 1970s onwards as foreien cruïency dealers and corporate treasurers shifted vast funds into Australian financial markets, forcing the Reserve Bank to buy or sell large quantities of $A to maintain the pre-determined rate. Monetary policy was progressively stripped of much of its previous effectiveness (Kelly, lgg1). Whether Australia willed it or not, it was being more closely integrated into the global financial systenq with all the attendant problems that intemational scrutiny of its distorted trade structure brought. Australia's place in the sun had been in question for some time. National living standards, as measured by GDP per capita, once renked amongst the hieùest in the developed world, slipped rapidly fiom 1970 onwards relative to other OECD nations. "In 1950, Australia still ranked third among the industrialised countries in terms of GDP per capita, behind America and Canada. That rank position has fallen steadily, to flfth in 1960, swenth in 1970 and to fourteenth in 1980, (Emy and Hughes, 1991, l2). In combination, the rapid decline in tle national terms oftrade and living standards and the assaults on the national finanoial system by global capital enforced the need for major economic structural change. It is in this political and eoonomic context that the decision to deregulate the Australian financial system needs to be considered. Financial deregulation was grasped as a policy measure, to some the pohcy measure (Emy and Hughes, l99l; Kelly, 1992) necessary for the thorough restructuring ofthe Australian economy. As critics like Stretton (1987), Fitzgerald (1990) and Daly (1992),have asserred, though, policy makers and Treasury officials could have made other choices were they so inclined. The remainder ofthis section examines the forces and events leading to the collapse ofthe intemational regulatory system and its replaoement (in the world beyond Australia) by a distinctly autonomous and unregulated network of markets, corporations, financiers and speculators. 106 5.3. The Rise and Fall of Organised Finance: The Deregulation of the Australian Financial System. Consistent with the Kelmesian mode ofmacro-economic mânagement, dominant throughout the OECD, Australian economio policy in the post-war period was artministered primarily through the operation of monetary policy; itself controlled principalty by quantitative credit restrictions. Special Accountsa were implemented to control the excess liquidity ofthe benks. These accounts comprised a fixed proportion of a bank's frrnds and were held by the Commonwealth Benk, which paid below market interest rates on these accounts. Limits were also imposed on bank deposit and lending rates, while qualitative restrictions on lending govemed the direction oflending to government priority areas of housing, farming and small business. Maturity controls on deposits, extensive foreþ exchange oontrols and a fixed exchange rate all facilitated the strong public control over the money supply (Grenville, l99l). Although this hiehlty-directed and regulated environment swerely constrained the independent operation ofthe major private trading and savings banks, these institutions and the general publio derived considerable benefits from acoepting the security inherent in these regulations: The banks formed the oore of aggregate domestic financial markets and, in turn for accepting a hieh degree of govemmental oontro! their depositors received implicit proteotion against default, their employees could count on job security, their shareholders could anticþate a stable level ofprofitabiliry and their managers had several layers of strategic decision-making tifted from ttreir shoulders. Onty bank customers were left out, although werything was done in their name (pauly, lgg7, 28). In retum for their coryliance, tle banks' dominant market position was proteoted by government regulations limiting foreþ entry into the domestic banking industry (Pauly, 1987). The durability ofthese arrangements "... was fundamentaþ contingent upon compatible fiscal policies which ensured general price stability, upon the absenoe of alhese were later changed to Statutory Reserve Deposits (SRDÐ. 107 disequilibrating extemal economic pressures, upon enduring saving and borrowing habits, and upon a man¿gs¿þle rate of change in the technology of financial intermediation" (pauly, t987,29). This regulatory system came under stress in the earþ 1950s as the burgeoning population, freed fromthe austerity ofwar, sought to iryrove its living standards by indulging itself in the growing variety of consumer items. The official bank sector, r¡nable to exte'nd credit for anything but essential purposes, began to lose market share to the steadily expanding non-bank financial intermediary NBFÐ sector. Operating outside of the control ofthe oentral bank and Treasury, ttrese NBFIs offered attractive rates, terms and conditions on tleir instalment credit, althougb tleir credit was more expe,nsive than that ofthe ofEcial þenks. Finance companies were the first major NBFIs to challenge the dominance of the major trading and savings banks, providing instalment credit for consumer items to this increasingly acquisitive society. Government regulations sought to prwent the NBFIs from competing with the official banking seotor by forcing them to use their or¡m securities ratler than bid ft¡nds away from the official þanks. Finance companies b¡passed these regulations, however, when they began to issue their or¡m debe,ntures (Grenville, l99l). The level of zuccess with which the finance companies were able to fill the unmet demand for personal finance is menifegt when it is realised that hire purchase credit purchased 40 per cent of allnew cars, 70per cent of allused cars and75 per cent of all household purchases between 1950 and 1960 (Committee of Economic Enquiry, 1965). In 1947 , the major trading and savings þanks provided 7 5 pet cent of all credit with the NBFIs responsible for the remainder. By 7962, however, t,he official bank sector's market share had declined to approximately 50 per cent (committee of Economic Enquþ, 1965). The development of the NBFI sector was heavily dependent on foreign capita! which was only permitted to participate in the Australian financial system through equity participation in a local NBFI or the establishment of representative offices. As these NBFIs were not, in the strict sense, banks, State Govenments were reqponsible for their zupervision. This arrangement prevented effective regulation ofthis sector's activities 108 (Pauly, 1987). The ability of the NBFIs to oircumvent scrutiny would later form a central plank in the argument for the deregulation of the Australian financial system- Reqponding to this dramatic erosion oftheir market share, the official banking sector began a major spatial expansion during the 1950s and the 1960s. The trading bank branch network grew from 3942 n 1950 to 5779 n 1963, while the savings bank branch network expanded still faster, from 501I to l8 532 branches over the same period (Committee of Economio Enquiry, 1965). Two processes were in operation here. First, as the trad.ing and savings banks were prevented fiom coryeting with each other on the price of their services (i.e. interest rates), oompetition was restricted to product diffeientiation. The creation of an extensive branch network broadened the market for bank services and virtually ensured the spread of the major trading and savings banks and their frrll range of services across Australia; an outcome that probably could not be justified on strict economic grounds. Seoond, this erpansion could only be profitable if banks were able to offer a broader range of services to potential customers. Hamessing the NBFI sector did just this for the banks. From 1953 all private trading banks dweloped major financial interests in hire- purchase companiss, with one possessing a wholly-oumed zubsidiary. This interest developed further after 1956, with most trading and savings banks expanding their services to inolude development banking, inzurance and superannuation (Committee of Economic Enquiry, 1965). The official bank sector, therefore, played a central role in increasing the complexity of the financial system and the operation of monetary policy. Prior to deregulation, SRDs and the LGS conventions were used to directly and effectivd control the banks' reseryes and enforce the direction of monetary polioy. The tacit tolerance of the NBFI sector by the Govemment and the Reserve Bank tlroughout this era gradually r¡ndermined the effectiveness of monetary policy, though, as increasingly large pools of liquid funds lay outside ofthe official reach ofthe central bank. Although the 5 'Each trading bank was required to place a cefain propofion of their Australian deposits" in Statutory Reserve Deposit (SRD) accounts (HRSCFPA, 1991,23). This proportion was periodically adjusted by the Reserve Bank to control the banks' liquidity and thus regulate inflation. The banks were paid a low ¡ate of return for these deposits. The LGS convention consisted of a agreement between the major trading banks and the Reserve Bank that the banks would keep a certain propofion of their depositors' funds in Liquid assets and commonwealth Government securities @attelino and McMillan, l9g9). 109 economy had reacted quiokly and with some certainty during the balance-oÊpa¡ments orises ofthe earþ 1950s (discussed in the prwious chapter), with the nation lurching from boom to bust in one Budget period, the brakes became progressiveþ spongy as the influence of the NBFIs grew. The emerge,nce of merchant þanks in Australia in the late 1960s to help fund the mineral resources boom fufher integrated the Australian economy into the global financial system- This dwelopment weakened the Government's sovereignty over tle operation of monetary policy as flows of intemational capital into the Australian market became increasinglyvolatile and of a short-termnature (Grenville, l99l). Thisvolatilitywas exacerbated by high inflation caused by the mineral fesources boom and a wage-price qpiral set in train during the Whitlam Govenrment's first term (Hughes, 1979). These merchant banks further cemented their place within the Australian financial system when they gained the taoit approval ofthe Whitlam Governme,lrt to fr¡nd its expanding bonowing in the face of a credit squeeze (Pauly, 1987). The creeping ineffectiveness ofthis regulatory regime became inoreasingly apparent to policy makers. The continual assaults on the $A by curïency qpeculators could only be mediated at considerable cost to the level of ce,ntral b¡nk reseryes and effectiveness of monetary policy. Intemall¡ this volatility disrupted the hitherto insulated banking system- While the official banking sector had endured a decreased market share since ttre 1950s, this decline steepened during the 1970s due to the inability ofthe benks 1e eompete with NBFIs through the persistence of credit directives (Grenville, l99l). As in the global qphere, pressure for some form ofnational deregulation mounted. This pressure was fuelled by the growing popularity of monetarist views in intemational finance circles. Advocating an end to the Kelmesian regulation of international and national finance, the monetarists, 'çthe eloquent ¿¡1d diligent spokesmen of (whom) is Professor Mlton Friedman" (Galbraith, 1992,' 89), claimed that floating exchange rates would allow nation states to pursue their oum macro-economic policy without disturbing the intemational financial system- Central banks only had to adjust interest rates to control the overall liquidity to control inflation, and, it was assumed, the strength of the economy ll0 \¡/ould do the rest (Galbraith,1992; ormerod, 1994, g7-gg). This philosophy had considerable support amongst the upper echelons ofthe Australian financial establishment in Treasury and the Reserve Bank (Pusey, 199l)6. A progressive liberalisation ofthe Australian financial system was undertaken during the earþ to mid-1970s. Nevertheless, the þanks failed to regain market dominfllçs. 4t zuccessive waves ofintemational capital swamped the fixed exchange rate, the regulatory authorities reinstated some ofthe prwiousþ abandoned controls, complaining that the new market-based approach was not powerful enough to restore national control over monetary policy. In 1976, credit directives were restored, reductions in SRDs were abandoned, the LGS ratio raised from 18 per cent to 23 per cent and a Variable Deposit Requirement introduced to insulate the domestio economy from fuither flows ofvolatile overseas funds (Grenville, l99l). In this context, the Liberal-National Coalition Government appointed the Campbell Committee to inquire into the financial system- This committee, established in earþ lg7g, was comprised of some ofthe more influential men in the private and public finance sectors'7 Its terms of reference emphasised the "Government's free enterprise objectives', and the "importance of efficiency" (Committee of Inquiry, 1981, )ofl/ü). The objective ofthe inquiry, according to the ttren Treasurer, John Howard, was not 1þe implementation of more govemment regulation (Committee of Inquiry, lg8l). Accordingly, the Campbell Committee recomme,nded the near-total deregulation of the Australian financial system- Their recommendations included: ttre removal of all interest and maturity controls on bank lending and deposit-taking; the abolition of quantitative and 6 Reflecting on the American experience of monetarism, which found its natural habitat under the Reagan Presidenry, Galbraith (1992, 89-90) states: At one time monetarism had a prominent role in the political economy of contentment. A better design to limit the role of government and to support the view that all economic life would function under its own automatic guidance could hardly be imagined. Alas, however, the monetarist faith was unduly optimistic, even for the contented. A rþorous effort at monetary control in the early 1980s in the United States contributed to the most severe recession since the Great Depression. Union power and resulting upward pressure on prices were, indeed, curbed, but this, in considerable part, was done by curbing the economic strength and even solvenry of tlts- employers. Chairman, J. Campbell, was the head of thã Hooke¡ Corporation, a major real estate developer and merchant bank @auly, 1987). nl qualitative lending direotives, although most of these restrictions had been removed prior to the Committee's establishment;the floating ofthe $A; the dismantling of captive markets for Govenrment securities; the admission of foreþ banks as fully-owned zubsid.iaries into the Australian financi¿l sector and the removal of all foreþ exchange controls. The various financial mechanisms and institutions established to provide sectoral assistance to the farm sector were also targeted for reform- Deregulation, the Committee felt, would improve coryetition and ensure the provision of appropriate credit and savings packages for the farm sector (Committee of Inquiry, lg8l). The Commonwealth Dwelopme,nt Bank" a provider of concessional credit to farmers, was recommended to be merged with the Commonwealth Bank ofAustralia and its concessionary role abandoned. Likewise, the Primary Industries Bank ofAustralia (pIBA), another concessionary lender, was targeted for privatisation. This would prwent, in the Committss's collective judgement, the Government exefing influence over the pIBA,s commercial operations. The phasing out ofthe Rwal Credits Department ofthe Reserve Bank ofAustralia, a major financier of agricultural marketing authorities, was also recommended. These marketing authorities were encouraged to source their ftnds through the Budget process, or, following the dismantling ofthe foreþ exchange controls, from overseas financial markets (Committee of Inquiry, lggl). The Campbell Committee's Report was received with ambivalence by the Federal Govenrment. Although Treasurer Howard was broadly zupportive ofthe Report,s fi¡dings, his Prime Minister, Malcolm Fraser, was zuspicious of any moves to grant the banks more autonomy. On this point Fraser had allies in the National Party (Kelly, lgg2). Although some of the Report's recommendations were acted on promptly (e.g. the liftiog of controls on interest rates for Commonwealth Govemment securities (Kelly, lgg})),the core ofthe Report was referred to a Treasury working party. This working party only reported back to Cabinet in February 1983 (Pauly, 1987). The major trading and savings benks were divided over the potential effects of deregulation. On the one hand, manyviewed deregulation as the mechanism to ensure fair competition between them and the NBFIs. On the other hand, mâny feared theywould be tt2 overwhelmed by the sheer size and experience of the foreþ banks. In the policy hiatus after the Campbell Report's release, the major trading banks moved rapidly to shore up their positions in anticipation offoreþ bank entry. The Bank ofNew South Wales merged with t.he Commercial Bank ofAustralia to formWestpac, while tle National Bank merged with the commercial Banking company of sydney to form the National Australia Bank (Standing Committee, l99l), creating a core of four national trading banks. These four banks' extension oftheir intemational operations brought the subject of foreþ bank entry to the forefront ofthe Australian policy agenda, as most faced signifioant obstacles in establishing foreign branches because ofthe host nations'8 demand for reciprocity (pauly, le87). The Campbell Committee drew criticism fromthe broader community for its homogeneous oomposition and the perceived vested interests of its members. Even the financial press criticised it for being too narrowly based (Crough, 1980). The philosophical and political standpoint ofthe Report was equally attacked, Crough and Wheelwright (1982,100), labelling it as: the most reactionary and dogmatic, of any govemment committee in Australian history. Its view of 'efficiency' almost totaþ ignores the broader sooial aqpects of the allocation of financial resources by financial institutions, the question of efficiency for what, for whose benefit, and the question of sooial reqponsibility. Those aspects are lost in the idolatry ofthe great god Mammon, in whose soaring temples of glass and concrete most members ofthe committee dwell. No oonsumer, no trade unionists, no token aoademic defiled its pristine composition, which was virtually a representation of tle financiers, by the financiers, for the financiers. Shylock would have been proud of tlem. $imil¿rþ strident reactions were prevalent in the Federal Labor Party (ALP) then in opposition (Pauly, 1987;Emy and Hughes, l99l;Kel1¡ l99z). Then opposition Leader, Bill Hayden, supported by two Parry luminaries who would later play decisive roles in the deregulation ofthe financial systeq Bob Hawke and Paul Keating, emphasised the ALP's tChiefly the US and Japan. ll3 opposition to financial deregulation in 1980 and l98l (Emy and Hughes, 1991). The 1982 ALP National Conferenoe saw a consolidation of this opposition, the Party pledging to: maintain and extend essential regulatory power... for control of interest rates and lending polioies offinancial corporations, retain a central role for govenrment in the determination ofthe exchange rate and impleme,nt effective controls over foreign capital inflows and the operations oftransnational corporations in Australia (Pauly, 1987, 59). Further, in the beliefthat "foreþ domination ofthe Australian economy endangers our national sovereignty", the ALP promised to: maintain existing restriotions on foreign entry to strategic sectors of the economy including banking, and reverse ttre cu¡rent trend towards increased foreþ domin¿1ie1 ofthe Australian economy by seeking increased Australian oumership and control of resources and enterprises by carefrrlly regulating foreþ investment and short term financial flows (Pauly, 1987, 59-60). Meanwhile, Federal Cabinet approved the Treasury's working party report on the implementation ofthe Campbell Committee's recomme,ndations, which included the admissisa often foreþ benks. However, ttre Fraser Government was swept frompower by the Hawke-led ALP before it could fully inrylement the deregulation. The complex process of the deregulation ofthe Australian financial system is interwoven with many striking ironies. The Liberal,/1.[ational Coalition's piecemeal approach to the Campbell Report was distinctly at odds with its free market rationale, evident in the Campbell Committee's terms of reference. The popular depiction of the Coalition as the representative of large private business was damaged by its inability to heal its own internal rifts and deliver a deregulated financial market to its constituents. Perhaps the greatest irony of this entire episode was the ALP's volte-face upon its Federal election victory. The ALP's emphatic opposition to financial deregulation, expressed publicþ less than one year before l14 the floating ofthe Australian cwïency, was apparently overridden and discarded in the face of ongoing problems in the financial system The Hawke Labor Govenrment was unlike any previous Labor Government, espþining corporatist politics (labelled "consensus") with free market principles and a commitment to labour market regulation. Howwer, the deoision to float the $A on December 9, 1983 was made largeþ free ofideological considerations. The ten per cent depreciation of the $A undertaken by the Hawke Government immediateþ upon assuming office in March 1983 was quickly reversed by foreþ crurency qpeculators bidding the $A up. These qpeculative assaults continued throughout 1983, initiating a series of currency crises (Kelly, 1992). Meanwhile, the Reserve Bank estimated that approximately $g00 million was targeted at the $A in December 1983, enough to raise the money supply by one per cent and smash any attempts to curb inflation. The Reserve Bank was simultaneousþ being forced to buy up to $1.5 billion in foreþ exchange to maintain the $A's fixed rate, with predictable consequences for monetary policy (Kelly, 1992). Confronted by these developments, the Government was effectiveþ left with Hobson's choice. It deoided to float the $4. This was, howwer, only a prelude to more dramatic financiar reform to follow. Treasurer Keating established the Martin Committee in May 1983 to inquire into the Australian financial system to update the CampbåU nq"iry and place the ALp,s own stamp upon the financial system's renovation (Emy and Hughes, l99l; Kelly, 1992, gl). The Martin Report gave qualified support to tle Campbell Report's findings. The Committee envisaged a continued major role for market forces in increasing the financial system,s efficiency. Foreign banks would still be invited to establish facilities in Australia, but co*ld only hold up to a maximum 50 per cent share holding in any zuch bank (Review Group, 1983). On almost all other mâtteÍs, the Martin Report was at one with its predecessor. Keating quickly and forcefrrlly gained support for the Martin Report's main recommendations from the Labor Caucus and Cabinet in 1934. The deregulation of the remainder of the financial system then proceeded apace. Following the float of the $A in December 1983, the exchange rate controlswere dismantled and interest rate ceilings on 115 overdrafts under $100 000 were removed. Savings banks were allowed to accept large de'posits from profit-meking bodies and to offer chequing facilities. Minimum and maximum maturities on trading and savings bank deposits were abolished (Battelino and Mcffillan, 1989). The most controversial move invohed the granting ofnew þenking authorities to 16 foreþ banks in earþ 1985 (Pauly, 1987). To understand if and how financial deregulation impacted upon farm families and rural commr¡nities it is necessary to r¡nderstand how changing regimes of financial regulation have influe,nced the farm seotor's dwelopment. This means rwisiting the fortunes ofthe farm sector from the onset ofthe post-WWI boom to the present, the focus of Chapter Four' This review is necessary however, to develop a general but nevertheless important background to the more intensive analysis offarmer/financial institution relations contained in Part Th¡ee of this tlesis. 5.4 Agricultural Finance in Regulated and De-regulated Environments Historically, the main institutional lenders - the maje¡ trading and savings þanks - have generally been cautious in their lending to the farm sector. Farmers have been equally reluctant borrowers. Farmers have traditionally relied on their owrr accrued savings from good seasons to finance farm investment. The seasonal and price instability of agriculture makes farm lending riskier than most other forms ofindustry lending. Hence, prior to deregulation the larger and more financially secure farmers had been able to secrue credit from the major lending institutions more easiþ than smaller farmers. It will prove useful to bear these trends in mind throughout this briefreview ofthe major trends in farm credit in the post-Second World War period. Prior to the establishment ofthe Commonwealth Development Bank in 1959, the major source of farm credit was the major trading banks, with additional finance provided by the pastoral finance coppaniss, government institutions, life assuranss ssmpenies and other informal sources, including solicitors, stores, merchants and family arrangements 116 (Hefford, 1985). The overdraft was the main form of finance provided to farmers by the trading þenks, and was meant primarily for short-term finance. Banks were generaþ conpliant to requests for exte,nsions to the overdraft, zubject to annual budget zubmission and approval. Although overdraft loans did contain some risks for farmers, particularþ when benks were forced to reduce lending limits at short notice, overdraft interest rates were generally lower than longer-term finance rates. Mortgages on land and fi¡sfl improvements were usually held as security by the banks. In the absence of more suitable, longer-term credit the overdraft met farmers'needs. Pastoral finance companies offered a wide range of credit, including interest-bearing wool advances, stock purchase advances and short-term loans for carry-on finance. Interest rates were surprisingly oompetitive with baxk overdraft rates, given the frequently unsecured and generally short-term nature of these forms of credit. In many reqpects, this service to farmers ensured a pastoral company's control over the sale and hanrlling of a farmer's wool, livestook and other produce, and probably offset the costs of such a service. Prior to 1952,there was little govemmental involvement in lending to the agricultural industries, besides marketing board advances and the War Service Land Settlement Scheme. The Mortgage Bank Department ofthe Commonwealth Trading Bank and the State Banks lent rarely. Life assurance company lending was equally scarce, notwithstanding the AMP Society's land development projects in the South-East of South Australia and Victoria (Heford, 1985). With the advent of a new era of agricultural expansionn 1952, a variety of stimulatory and concessionary credit measures were introduced to ensure the stable development of the farm sector. The majs¡ trading banks were encorraged to offer credit to farmers on concessional terms, effectively causing 1¡s þanks to ration this credit to farmers (and some non-farmers also) with high liquidity at the expense ofmore needy farmers (Hefford, 1985). In 1956, an interest rate averasing requirement ry¿s implemented, which kept overdraft loan interest rates below the m¿ximum level. This requireme,lrt was discontinuedn 1962, but preferential treatment for farmers was maintained (BAE, lg72). tt7 The Commonwealth Developme,nt Bank (CDB) was established in 1959 with the princþal purpose of providing term loans to farmers to e,ncourage longer-term farm investment and dwelopment. Although it also lent to manufacturing firms, it was primarily a farm lender, with 70 per oent of its loans going in this direction at Jr¡ne 30, 1964 (Committee ofEconomic Enquiry, 1965). Part ofthe CDB's concessionary role was the provision of credit to farmers who had bee,n unable to access oredit elsewhere, thereþ reduoing the disoriminatory effects ofthe Federal Governme,rt's 1952 directive to the private benks. Nwertheless, ttre continued reluctance ofthe major private trading benks to extend genuine long-term credit to primary producers saw the Govemment introduce the Term Loan Fr¡nd (TLF) m 1962 in co-operation with the maj6l trading benks. Loans were to be ofthree to eight years' duration at rates lower tlan prevailing overdraft rates. This initiative was followed by the establishment of the Farm Dwelopment Loan Fund (FDLF) n 1966, again a co-operative move betwee,n the Federal Government and the major trading benks (Hefford, 1985). These loans were of a longer term and at lower rates than the TLFs, offering fixed terms up to 15 years (BAE, 1972). These two loan packages were funded from the Statutory Reserve Deposits (SRDs - see Footnote 5). Therefore, the trading banks profited from these two loan funds, as their retums on these loans far exceeded returns from the SRDs. Overa[ these measures achieved their stated objectives, with lending to the farm sector increasing markedly after 1953. The major trading banks and the pastoral finance esmlranis5 at this stage held aror¡nd 70 per oent of all outstanding loans. From 1959, a steady proportional increase in the ratio of medium- to long-term loans to short-term loans also occurred, as evidence ofthe latent demand for long-term credit (Hefford, 1985). Finally, the himary Industries Bank ofAustralia (PIBA) was created in 1978 by the Federal Govenrment for the refinancing of long-term loans, particularþ for farm purchases. The benk did not lend directly to farmers, but directed fr¡nds to the trading and savings þanks for on-lending for terms of eight to 30 years (Hefford, 1985). Ownership of PIBA was originally divided between eight trading and state benks and the Commonwealth, with 118 the loan funds provided by the IED Trust Account. Commonwealth lending to the pIBA reached a peak in 1980, whe,n $l l0 million was lent to the ban! $75 miltion ofwhich was on-lent at five per cent with the balance yielding seven per cent. After 1984, PIBlfs position weakened with that of the economy and with the increased coryetition following deregulation. After its privatisation in 1986, it limited its range oflending, concentrating on provitling innovative credit packages to mainly large farmers (Powell and Mlhanq 1990). Through PBA the level of long-term loans increased dramatically, \ rith TLF and FDLF loans accounting fornearþ 57 pet cent oftotaltradingbenk ady¿aces outstandingto farmers in June 1982 (Hefford, 1985). Ten years earlier, overdraft loans comprised 77 per cent oftotal institutional lending to the farm sector (BAE, 1972). What impact did the removal ofthis zuite of conoessionary finance agencies and programmes have on the farm sector? As discussed in Chapter Four, ttre combination of drought and unprecedentedly high interest rates during the mid-1980s was catastrophie f6 many farmers, and political and social unrest followed. This period, incorporating as it did the process offinancial deregulation, dramatically altered the nature and direction of farm credit. As a result ofthe farm crisis and the process of financial deregulation, the RAS and the State banks now provide around 30 per cent of farm finarcs: with the RAS now the only major source of concessional farm finance (Powell and Milham, 1990). Even this avenue is now diminishing. "In the light of these dwelopments it oan be argued that farm finance in Australia in the 1980s has been essentially þrivatised' and 'commeroialised, (powell and Milham, lgg0, Z34). Farm debt levels have increased due to a range of factors, including: depressed commsfi¡y prices; the gradual reduction of concessionary lending; increased real interest ratese; and the inoreased use of levies and charges in banking practice. During the cost-price squeeze of the late 1960s and earþ 1970s the interest oost of borrowing varied from ten to 17 per cent of the Net Value of Farm Production (NVFP). t Real interest rates are measured as the difference between the nominal interest rate of bor¡owings and the prevailing rate of inflation. This is, essentially the real cost of borrowed money. il9 However, since 1982 at least 20 per cent of interest adjusted N\IFp has been required to meet interest palments and it peaked at 57 per cent in the worst drought year ... The above siryle but conservative estimates contrast the deregulated 1980s with the regulated earlier periods ... Prior to the 1980s the debt burden was nwer high because regulations kept interest rates low and because farm lending was relatively unattractive. The main issue was that of available supply, i.e. there was likely to be a significant amount of tumet demand for finance. From the late 1970s the reins on t.he supply offarm finance were loosened and debt lwels climbed. Subsequently -acroeconomic conditions led to a steep rise in the cost of finance and a number of farmers þerhaps 20 per cent) with large debts experienced severe oash flow problems (Powell and Mlham, 1990,234-3). These trends were distinctly at odds with the forecasts made by agricultural economists about the likely financial environment for farming after deregulation. Adams and Minnis (1982) contended that deregulation would ensure that agricultural credit was rationed more efficiently and would no longer be allocated on a non-price basis (see Ockr¡r¡ell and Bafferham, 1980), and would force farmers to become more astute financial mânagers. Overall, Adams and Minnis (19S2) concluded that deregulation would raise interest rates slightly on both loans and deposits, producing a small but negligible net cost to farmers. Herr and Woodward (1983) had arrived at a similar conclusion to Adams and Minnis (1982) on the overall effect of deregulation on the farm sector. However, Herr and Woodward's (1983) more intensive analysis revealed that there would be significant proportions ofwinners andlosers from deregulation because ofthe evolving importance of concessional farm credit from the earþ 1950s. Around two-thirds of all farm credit in the earþ 1960s was provided under some state-assisted program: this proportion rose to around tlree-fifths by 1980-81. Herr and Woodward (1983) predicted that, with the repeal of state-backed finance mechanisms, those farmers reliant on such credit could be zubstantially affeoted. Herr and'Woodward (1983) viewed this new era with some apprehension, conceding that credit would be rationed a deal morc eficiently,but that it would certainly not be rationed more equitably,withlarge farmers more likely to benefit from this re-organisation. Ironically, this was the group that was apparently favoured by the previous regime' s arrangements. 120 Although there has been no detailed analysis to date ofthe impact of the deregulation upon the farm sector, the post-deregulation era has been marked by a considerable unease in bank-farmer clie,lrt relations. With the gradual abolition, privatisation or commercialisation ofthe wide array ofpublic farm lending institutions and programmes, the major trading and savings banks dweloped their oum financial products for the farm sector, seeking to meet the particular needs of farmers and agribusiness in the new regulatory milieu. For example, foreþ currency loans were widely elrcouraged by banks and independent financial advisers in the earþ 1980s as the $Awas floated and the exchange controls on foreþ qurericy borrowing were removed. These loans were used relatively widely by large corporations, govenrments, semi- govemment bodies, importers and expofers prior to deregulation but required considerable financial expertise to manage successfrrlly. This was particularþ the case given the generally harmonious and trusting relationship betwee,lr bank managers and farmers prior to this period. Many farmers preferred to concentrate on mana$ng the farm,s physical operations and left the financial management of the farm to their bank managef (HRSCFpA' lggl, 276'277). The gap between many farmers'financial aoumen and that required to manage the increased complexity of financial products following deregulation has often been pointed out, but the gap between the appropriatelweloffiduciary duty owed by financial institutions to their farm clients in promoting such complex packages and theiactual reqponsibility taken has been rwealed. For instance, the merchant bank arm of the Australia and New Zealand,Bank (ANZ Batk), ANZ McCaughan Ltd. has recently lost one important test case and settled out-oÊ court in anotler over its lack of fiduciary reqponsibility to its foreþ oruïe1rcy loan clie,lrts. Both cases invohed farmers from the South-East of South Australia taking up loans for the purchase of additional property, which subsequently "blew out" as the A$ plummeted in relation to the Swiss franc during 1985 and 1986 (from $850 000 in 1984 to $1.7 millisa þy 1986 (stock Joumal 1995,7) and from $380 000 in 1985 to over $l million by l99l t2t (Megalogenis, 1995, l) reqpectiveþ). As far as I am aware, no Kangaroo Island farmers used foreign exchange loans. Minoring experiences in the wider community, farmers and rural interest groups vilified the deregulated banking seotor for its perceived adoption of a mercenary attitude towards its clients. Rural Aotion Groups formed in the places of greatest financial stress tlroughout Australia in an attempt to present a r¡nited front againsif þanks, stock firms and governme,nts and to prwent individual farmers frombeing "pioked of,. These goups actively caryaþed against 1þs innposition ofpenaþ interest rates on non-performing loans and fought to prwent wholesale foreclosures on seriousþ indebted farms. H¡pothetically, the selling-up of such farms could potentially lead to a total collapse of regional land markets. This would be counter-productive for the banks and would seriousþ erode neighbouring farms' equity (Cronin, 1993). Such was the level ofpublic animosþ towards ús þanks that a House of Representatives Standing Committee on Finance and Public Administration was formed in 1990 to address these community concertrs. In rwiewing the impact of financial deregulation on the farm and rural sector, the Standing Committee e,ncor¡ntered a bewildering aîay of accusations and counter-accusations. Farmers accused the banks of foisting credit upon them in a cavalier fashionr0; of adjusting the interest rate margins of farm borrowers without prior discussion or consultation with tle client; of refirsing to negotiate with financially-troubled borrowers and ofbeing insensitive to the effects ofbank branch rationalisation on local commr¡nities (HRSCFPA l99l). Late4 farm borrowers corylained that some banks would agree to provide finance only on the condition that the farmer invohed sign a "Deed ofArrangement", which would allow the bank to foreclose on ttre farmer and sell his/her property ifthey missed one montlly pa)ment. Some farmers also expressed the view that benks had increased their risk to The Standing Committee, which hea¡d evidence in Nyngan, Dubbo and Charleville in 1991, received one submission alleging that one particular Nyngan Commonwealth Bank manager conducted business over the bar of the local hotel, lequested that cash flow documents be submitted in pencil so that the bank could alter them, deliberately over-valued properties and denied clients access to their personal details on file (HRSCFPA leel). t22 margins on farm lending in an arbitrary fashion, these margins averaging betwee,n l.5 to 3 per ce,nt. These allegations culminated in the zubmission from a number of Rural Action Groups that a moratorium on farm wictions, foreclosr¡¡es and bankruptcies be implemented and that long-term concessional credit for farm dwelopme,lrt be channelled through the hitherto public financial institutions. Not surprisingly, this submission was rejeoted by the Standing Committee (House ofRepresentatives Standing Committee on Banking, Finance and Public Administration, 1992). Other accusations against t.he banks by farmers include: the introduction of "user pays" principles for all loan applications (including r¡nzuccessful ones) and bank månager consultations and the raising of risk margins as nominal interest rates have decreased. This perceived hardening of the banks' attitudes towards farmers and farm lending has been attributed to their need to make provisions for a rapid rise in bad and doubtful debts held by the majsl trading banks after the corporate lending frenzy ofthe boom days preceding the 1987 stockmarket crash (Neales, 1990). Whatever the cause, a strong antipathy is now flourishing between some farm clients and their þanks. Recent proposals for a farmers' credit co-operative (Ambrose, 1994), calls for a public regional bank for South Australian agricultrue (Hill, 1993), the South Australian Farmers' Federation's proposal of a US-style farm mortgage corporation (Mitohell" tlee: 3), show that the creation of a commercialised and privatised credit market has not been in the interests of farmers as a class, even though it is widely recoenised that deregulation has facilitated the development of more innovative and flexible credit and saving products (HRSCFPA¡ l99l). While financial deregulation crnnot ofitselfbe said to have caused all the financial problems being experienced by heavily-indebted farmers, it has been fundamentally implioated in the ongoing farm and rural crisis in Australia. 5.5 Conclusion When you have overthror¡m tle few national barriers which still restrict the progress of capital, you will mereþ have given it complete freedom of action ... All the destructive phenomena which unlimited capitalism give rise to within one country 123 are reproduced in more gigantic proportions in the world market (Marq in The Poverty of Philosophy, quoted in Crough and Wheelu¿right, 19g2, g9). Four main themes have bee,lr consistelrt throughout this and the precerting chapter. First, the dwelopme,lrt of a trade and industrial pattem centred on the exte,nsive produotion and export of largely r¡ntransformed primary commodities led, over time, to a dangerous imbalance in Australia's economic structure. Second, Australia's macro-economic mânagement beoame increasingly ineffective at solving the oocasional crises stemming from this dysfunctional trade system- Third, and perhaps most importantly, the tightening of Australia's eoonomic integration with the wotving global economy over this period, including the heightened prominence ofthe NBFI sector in the domestic financial systeq both frrlly exposed the Australian economy to the external and intemal "shocks" to which it has always been zusceptible, while making the swift resolution ofthese "shocks" progressiveþ more difficult and tardy. Fourth, the agriculnual sector historically fulfilled ¿¡l important role in the Australian economy, although the sienificance of its contribution has declined relative to other sectors over recent decades (see Chapter Four). The farm family base of the agricultrual sector has seen govenrments intervene, directly and indirectly, to provide long-term, concessional interest rate credit to farmers to ensure the ongoing security ofAustralia's export income. Although these anangements certainly aided long-term farm investme,lrt and the financial security of many farm families, tley could not prwent the ocoasional emergence of chronic 'adjustment' traumas in the sector, partioularþ from the mid- 1970s onwards. The deregulation of the Australian financial systemwas regarded by many economio policy advisers and academic economists as the onlyviable solution to these problems. Although it will be recalled that the Hawke Labor Govenrment's decision to float the $A was not truly autonomous, the full deregulation of the financial system was the linch pin for its more thorough-going agenda ofrapid economic structural reform and, increasingly, government by the market (Pusey, l99I; Se[, 1993) . t24 Financial deregulation was seen as tle tool necessary to "stop Australia going dor¡m the 'Argentinian road' and tunring into another society wholly depe,nde,nt on the export of primarycommodities" (EmyandHughes, 1991, Il). ForKelly(1992,76),it,'hamessedthe Australian economy to the intemational markeçlace - its rigours, excesses and rutllessness. It sþalled the demise of the old Australia - regulated, protected, introspective',. Stretton's (1987; 1989) deregulation 'scorecard' rweals, howwer, that ttre liberalisation has failed to deliver to Australia the key advantages promised by the monetarist prophets. Australia's persistelrt balance-oÊpayments problems would be sofued, according to the deregulation's promoters, as free trade in the floating $A would correct any disequilibrium. Howwer, Australia's balance-of-palments and foreign debt has worsened dramatically since the float. The removal of alnost all controls over the financial sector and the increasing prominç¡1ce of foreþ and Australian TNCs in the global trading environment have allowed vast zums of capital to wash in and out of the Australian economy. It is no surprise then that most ofthe accumulated national debt after 1985 was of a short-term nature, borrowed at high rates ofinterest (He¡nvood and Tamaschke,l99l;Daly,1993; Fagan and Webber, 1994,62). The dramatic growth in Australia's foreign debt has fo¿fl imfilications for Australia's current account figures. Interest paSments on the growing foreign debt after the mid-1980s now form the biggest single component of the more recent current account deficits. The primary influence upon the Australian balance ofpa¡ments figures are ..... the majs¡ changes in the global flows of money after 1985 leading to high net volumes of income payable overseas, rather than global trade in oommodities" (Fagan and Webber, L994, 59). The deregulation ofthe Australian financial system was viewed as the necessary and zufficient mechanism to restore the effectiveness of monetary policy because it would rid the system ofthe regulations that had caused the NBFI sector to emerge and flourish in the first place. Outside ofthe ceteris parióres assumptions ofthe free-market mode! however, deregulation has only rendered monetary policy impotent. With the abolition of SRDs and the LGS convention, the zurrendering of control over foreign exchange dealing and interest rates and the setting adrift of the exchange rate, monetary policy is now directed al¡nost 125 exclusiveþ by interest rate settings. This has proved to be a very blunt instrument, the metaphor of a cudgel being a partioularþ apt description ofits social and economic impacts. Deregulation would allow larger and more diverse capital resources to enter Australia, it was promised, thus encouragng innovative, productive and emplo¡ment- generating Australian business to flourish. Traditional pattems of capital inflow and outflow have indeed been fundamentally redraum by the liberalisation of financial markets across the globe, but not in the ways predicted. up r¡ntil the mid-1970s , capitalinflow into Australia was dominated by the direct investment of foreþ-based TNCs for their Australian branch plants. This investment came mainly fromthe profits ofthe TNCs themseþes and was physically 'bedded-doum' in real factories, maohinery, plant and the like. Financial deregulation dramatically altered this established pattem, with debt financing becoming much more prominent (Fitzgerald, 1990; Emy and Hughes, l99l). The overall share of foreþ direct (equity) investment in Austraria's total capital inflow ptummeted from the lwels prwailing through the mid-1970s, declining from alnost 60 per cent in 1974175 to 20 per cent in 1985/86 (Fagan and Webber, lgg4,59). Debt finance - money borrowed from the Eurocurrency markets and the like - made up the ¡emainder. Consequently, Australian production has been restructured as finance has moved rapidly between industry sectors in search ofthe biggest returxs. This trend has led to the creation of large conglomerates (Elders-D(L, Bell Resources, Bond corp., Adelaide $1e¿mshiF, Quinte4 etc.) and facilitated the relative demise ofthe manufacturing sector and rise ofthe service sector. Deregulation has failed to narrow þank profit margins, another of its stated objectives, with total profits increasing after liberalisationrr. Profit rates have declined dwing this period, initially as a result of a rise in the provisions needed for bad and doubtfrrl debts, but more recently due to increased competition. Effioiency has improved, however, mainly through the increased use of labour-diqplacing technology (Milboume and Cumberworth, 1990). Nevertheless, tle level of market concentration in the retail banking rl The four major trading banks all announced profits in excess of $ one billion at the end of 1996 (Kirby, 1996c,54). 126 sector has increased, with the four major trading þanks holding about 72 pet cent of tle market in 1990 (HRSCFPÁg 1991). This degree of concentration looks set to increase in the near frrtue with the proqpect of another ror¡nd offinancial liberalisationt'. The 'big four' major trading þanks are presentlyjockeying for a merger either amongst themselves or between one or more ofthemselves and the smaller (but growing) regional banks (Heinrich, 1996; Kirby, 1996b; Westfield, 1996a,1996b). Bank branch rationalisationr3 has been one ofthe more visible local manifest¿1isng of deregulation and the increased competition between the major banks at a national and global scale. The acquisition ofthe seriousþindebted BankSA (previousþ the State Bank of South Australia) by New South Wales regional bank, Advance Bank in Jr¡ne 1995 (westfield, 1995, 38, 39) has been accompanied by branch and operating hour rationalisations (Mitchelt 1995). The Rural Counsellor whose area was most afected by these branch closures described the Bank's action as "'an insult"'(Mitchell' lgg5, g). Commonwealth and National Australia Bank þ¡¿¡çþ closures across the Central West of New South Wales have similarþ generated local antipathy towards the banks (Grifrths, 1996,5,97). The banks have, for their part, stressed the'time-qpace compression" (Harvey, 1991, 161) aqpects ofnew þanking technology and asserted that no rural customers will be disadvantaged by branch rationalisations. The problem, though, is that the physical withdrawal of such vital services serve to reinforce ttre dor¡rmward spiral of strugeüing rural communities in a highlyvisible fashion. The loss of a number of drought- and market-proof incomes with the branch closures accelerate this decline. Fitzgerald (1990) and Stretton (1987, 1989,1992) have called for a selective re- regulation ofthe financial rysteq based on the control of foreþ capital in- and out-flows 12 The newly-elected Houa¡d Liberal/National Coalition Federal Government (elected March 1996) established yet another inquiry into the fînancial system. Labelled the 'Wallis Inquiry' after its chair, Stan Wallis, (Westfield, 1996b,55), this investigation seems set to clear the wayfor further market concentration, technological innovation, branch rationalisation and bank staffredundancies. t3 According to Westñeld (1996a,35), "(t)o remain competitiVe, they (the banls) can only cut costs, and, given that Australia has about 40 per cent more branches than is considered optimum, the magnitude of cost-cutting and branch closures required can only come through a merger". Equally, Al.{Z Banking Group's chief executive, Don Mercer, has forecast the shedding of half of Australia's present 200 000 bank employees within ten years as new banking technolory is introduced (Kirby, 1996, L3). t27 and the active encouragement ofthe national export ¿¡1d import-re,placement industries. Not surprisingly, their arguments have bee,n grven short shrift by the economic orthodoxy and their apologists in the mainstream media.ra Fitzgerald (1990) swns up the dilemma thus: one of our present problems is this: We have in charge of economic policy ¿ high proportion ofpeople who landed us in trouble, and nobody who is knor¡rm to differ from them, or is even allowed to do so. Kelmes used to say how wonderfirl it would be if economists were humble, oompetelrt people on a level with dentists. You and I oan change our dentist ifwe dont feel satisfied. The same thing happens to unsuccessful footballers and tennis players. In economics, tle failed players are harder to replace. Financial deregulation, as an exemplar ofrecent govemments' embrace of economic globalisation, has led to a gradual 'opening-up' of scale relations in Australia's society and economy. Established public commitments to, and provisions for regional dwelopment and equity, assistance for economically- and socially-significant sectors have been stripped out ofthese relations, allowing for much more rapid connections betwem farm families, rural commr¡nities and the global scale. ft is imPortant to realise, though, that, relative to many ottrer developed capitalist countries, Australia has only recently and gradually moved to firlly expose itselfto the govemance, scrutiny and opportunities ofthe global economy. New Zealand has, however, since 1984 taken part in the global integration of economic activity at a startlingly rapid pace. The result of this reform has bee,n a thorough-going reorganis¿1ion of that nation's established polity, economy and social and culnral relations. As a dominion capitalist (see chapter Four) society and economy like Australia, New zealand'sreorganis¿1ion potentially serves as a comf arison and portent for the changes being wrought in rural Australia via financial deregulation and broader-based policies of liberalisation and privatisation. Chapter Six reviews the New Zealand experience of restruoturing. tt Kelly (1992) lumps together all those who have had the audaciry to question the increasingly ,,economic rationalist" trends in recent Australian economic and social policy into an "alliance" of "sentimental traditionalists" (661). This alliance includes such disparate figures as B. A. Santamaria, Ken Davidson, Hugh Stretton, Phil Cleary, Ouadrant magazine and some Kerry Packer magazines, led, what is more, by Malcolm Fraser! 128 CHAPTER SDft CHANGING PLACES AND SCALES: AGRICT]LTURAL A¡ID RURAL RESTRUCTURÌ..{G IN NEW ZEALilYD) 6.1 Introduction This Chapter reviews 1þs impacts ofNew Zealand'spost-19g4 macro-economic reform process on its farm families and rural communities. The aim of this review is, given the historical similarities between New Zealand and Australia, to ascertain if the New Zealandpost-I984 'experiment' offers any clues or lessons to interpreting and understanding the Australian farm sector's and rural society's past and tikely firture ,reforms,. experienoes of financial deregulation and other macro-economic As noted in the introduction to this thesis (Chapter One), the New ZeaLand. experience plays an important role in informing the attempt in Chapter Seven to dwelop a conceptual argument concenring 1þs impact of global economic change on national agricultural sectors, farm familiss, rural regions and oommunities. What is the nature of this formal similarity betwee,n Australia and New Zealand? Historically, bottr countries, tlrough their membership ofthe British Commonwealth and as co-si8natories to the 1932 Ottawa Agreement, relied heavily on Britain as an export market. The UK's accession to the EEC in 1973hurtboth Australia's and New Zealand's farm sectors. Australia's trade relations with Britain declined significantly and relativeþ rapidly after 1945 (Fagan and Webber,1994,50-51). The UKwas, howwer, New Zetland,smajor export market until 1980 (Le Heron, 1996a,28, 30). Equally, both Australia and New Zealand have maintained dual economies for much oftheir reqpective post-white settlement histories. These dual economies were comprised primarily of largely unprotected e;pof sectors concerned with the production and sale of agricultural commsfilies, which in tum supported heavily-zubsidised import replacement manufacturing sectors that employed the vast bulk of each country's working populations. Both countries have shared the economic vulnerability that stems from this trade pattem. t29 Figure 6.1 Locations and Populations of New Zealand Auck I and NORTH Woibto R ISLAND ñ amt tt o lc Kut Gisbom . New Plymouth lurrnB¡ sr¡rford 150 kn 'Ohûkuñc Hastings Nonh [¡vin ngton,/Hutt Grcymouth Hokhika SOUTH ISLAND MlC@k Christchurch Á Ashbunon o Populrrim sizc O Over 8([.(XX] lUaìtùi R Quæn¡torn o t00.0m - -1(X).000 Tc Ailu o 40.000 - 7-5.(xx) Dunedin Gorc o o 10.0ü) - 31.üx) ' Undcr 10.(XÐ ¿E ,rrruARr TsLAND Source: Brittoq Le Heron and Pawson, 1993, )odi. 130 New Zealand's economic development, like Australia's, has been described by one commentator as characteristically "stop-go', (Franklin, I9g5, I7). Since 1984, New Zealand. (Fig. 6.1) has radically and rapidly restructured the established administ¡¿1ive, economic and social institutions and arrangements that underpinned its post-WWI trajectory of dwelopment. In essence, the forces driving reform in New Zealand.were similar to those confronting Australia in the earþ 1970s, considered in Chapters Four and Five. Both countries have, until quite recently, been nearþ totally reliant on the oiport of agricultural commodities for the bulk of their national income. Although botl nations have sought to diversify their trade structures in recent decades, they remain, to varying degrees, dependent on the performance oftheir agricultural sectorsr. The following section reviews ús importance of agriculnne to the post-second World'War New Zealand economy, including the 1960s experiment with indicative planning for the agricultural sector. This section is followed by a brief outline ofthe post-19g4 deregnlation process, including i1s impacts on New Zetland'sfarm sector and rural communities. The reqponses by farm familiss, rural communities and the state to the changed economic circumstances are also considered. 6.2. The "Processed Grass" Economy Goes Global From 1945 to 1960, the farm sector received minimal state assistance but exefted considerable political influence because ofits economie imFortance. State intervention in the 1920s and the 1930s did, howwer, help shape the farm sector for its post-war expansion. During this period Producer Marketing Boards were established to ensure effective produce marketing and, thus, high but stable retums to producers (Le Hero4 l989a). Ifthe creation of the bulk of the nation's income was an essentiaþ private affair, with the state t New Zealand's dependence on farm commodity exports, however, has proved particularly intractable. ,,In 1960 agricultural exports made up 87.9 pu cent of expot earnings, and by 1985, although greatly reduced in percentage terms, remained significant at 66.0 per cent of export receipts. " New Zealand is still very much an "agriculturally dependent economy" (Le Heron, 1988,274).Its reliance on untransformed farm commodity exports has nevertheless declined in recent years, relative to the g¡owth of processed primary commodity exports (Le Heron, 1996a,29). 13l only subsidising agricultrual research, extension and product inqpection services (Le Heron, 1989a), the maintenance of the wolving welfare state and import-rqplacement sector was a correqpondingly large public r¡ndertaking. A strict Kelmesian approach to macro-economic menagement bufered the intemal economy (i.e. the import replacement side ofthe dual eoonomy) from the "shocks" (short-term international commodity price fluctuations and the like) felt by the export sector. New Zealand's post-second World War economic and social policy performance was underpinned by what campbell (1994,55) terms an "'historic compromise"': This compromise, mediated by extensive state interventions, established the welfare state and firll emplolment as unassailable tenets of social policy. While the nature of business activity was also closely controlled, the intervention of the state to stlmie the power of the labour movement ensured that businesses would be adequately recompensed for the costs of social policy... (Campbelt 1994, 5S). The wealth created by the export sector, and hence the agriculnual community, itself supp orted this " compromi se". Avast array of regulatory machinery not dissimilar to that implemented and maintained by zuccessive Australian govemments during the same period, was established to mediate the exposure ofthe heavily-protected intemal economy to foreþ capital movements. Fixed foreþ exchange rates, restricted levels of foreign investment, cruïency transfers ¿1d import controls and tariffs insulated the New zealand economy from the vicissitudes of intemational financial movements. This regulatory framework was buttressed by the state's zupervision of barking procedures, interest rates and the tranqport sector (Le Heron, 1988). As in Australia, this bifurcated economic structure became susceptible to worsening balance-oÊpa¡ments problems as t,he post-second World War long boom ground to a halt during the late 1960s and earþ 1970s. Sizeable trading surpluses in the e:iport sector almost invariably caused inflationary surges in the domestic economy, forcing the govenrment to t32 repress booms before they could be translated into an e4panded demand for imports (Franklin, 1985). During the 1960s, a state-administered progranrme of export industry diversifioation was imlrlemented to cure this fundamental imbalance (Franklin, l9g5; Easton, 1993). This venture into trade reform relied heavily upon the expansion of the pastoral economy' Growing ler¡els offarmer disinvestment were recoÊnised in the late 1950s (Le Heron, 1989a), leading to official concems that the foreþ exchange crises which periodically beset the nation would worsen, the farm sector being reqponsible for the bulk of the nation's export income (Le Heron, 1988). The expansion of the pastoral economy \ilas seen as necessary to correct this trend, and was accomf anied by the official stimulation of the nascent exotic forestry and horticultural sectors (Le Heron, l9B8). Projecting that four per ce,lrt growth rates would be necessary to maintain living standards for a growing population for the decade to 1972-73, an ADC target of I I I million stock units, to be achieved by l972,was set in 1964. A generous package of tax concessions, input subsidies and fertiliser subsidies was introduced to increase and stabilise farm retums and facilitate the achievement of the 1972 targets (Le Heron, 1989b). Stabitsation schemes were introduced for the woo! beef and lamb industries and a Livestock Incentive Scheme and a Land Dwelopment Encouragement loan fund were established to enable both established and newer farmers to further dwelop their properties and intensifyproduction (Le Heron, 19S9b). A Supplementary Minimum Prices soheme (SMPs) was also introduced in 1978 to create a stable environment for farm expansion and intensification. Set for two years in advance, SMPs aimed to support farmers' livelihoods and investment needs and operating expenses more adequately than the Producer Board arraûgements. '"The SMP scheme was used extensively from l98l-82 onwards. Some $(NZ)223m, $395m, $310m and $l8lmwere allocated in l98l-82 to 1984-85 reqpectively. To this total must be added $130m, $165a S223mand $258m in stabilisation and producer loans interest concession in the same years" (Le Heron, 1989a, 28). 133 The large outlays fromthese combined measures did not produce comme,nsurate increases in export eanrings and, most importantly, improved balance-oÊpalments figures. The ADC tnget of I I I million stock ¡nits by 1972, the objective required to deliver the pastoral sector's projected lwel of foreþ exchange eamings, was nwer reached. While the total volume of agrioultural exports inoreased over this period, the actual value of these exports grelil more slowly, contributing only a slight increase in total export eanrings in real terms (Le Heron, 1989b). The above-mentioned oombination ofr¡nfavowable climatic conditions, rising input costs, declining commodity prices and agricultural terms of trade conqpired to produce these disappointing results. The National Party Government, led by Prime Minister Robeft Muldoon, grew impatient with the lack of zuccess that two decades of active stimulation ofthe farm sector had brought. In 1983 it announced that: 'Agriculture faces problems at present in part because input costs, determined in the domestic economy, have outstripped intemational product prices. The solution is basic. The New Zealandeconomy must become more efficient in intemational terms" (Le Heron,1989a,29). The National Governme, rt selectively but gradually rationalised state assistance in its latter years. In a bid to increase the export performance ofboth the extemal and intemal sectors of the economy from the late 1970s to 1984, it reduced its protection ofthe import- replacement sector, enacted a National Dwelopment Act to streamline and speed up the dwelopment process, deregulated the transport sector and agreed to Closer Economic Relations (CER) with Australia. The financial systemwas gradually liberalised during the late 1970s and earþ 1980s. Regulations covering the overseas capital holdings ofNew Zealand residents and the export of oapital fromNew Zeúandwere relaxed, although the core foreip. exchange rules remained in plaoe until 1984 (Le Heron, 1993b, 27-28). The election of the Fourth Labour Governme, rt in 1984 is conventionally see,n as the dividing line between the post-second World War regulatory order and the beginning of the restructuring ofNew Zealand's economy and society along free market lines. Yet the restructuring of New Zealand's economy, as we have seen, had begun well before the Lange Labour Government gained power in 1984. Nevefheless, the economic, political and sooial t34 transformation wrought by this new regime surpassed the scope and depth ofthese earlier reforms. Cloke (1989), in seeking to explain the free market zeal oftle Lange Labour Government, contends that the hiehty-centralised character ofthe New Zealand nation_state and smellness the relative of its political class have made it comparatively easy for new hegemonic groups to capture the political agenda. Both Cloke (1989) and Campb ell (1994, 60'62) point to the ascendancy of a loose alliance offinance and service industry interests, disaffected elements ofthe bureaucracy and the urban middle-class as influential in the development of the Labour Government, s reform programme. Frustrated by the lack of progress during the final years of the Muldoon National Govemment, and buoyed by the popular sweep of monetarism through the advanced capitalist nations, this 'bloc' came to power. A public sunrmit, held in l9g4 by the new Prime Minister, David Lange, to discuss the firture direction ofthe economy helped formulate the Government's programme for radical economic restructuring (Campbe[ 1994,60). The radical economic reforms implemented by the Fourth Labour Govenrment necessarily involved the agricultural sector. Although the nation's trading pattem had become muoh more diverse following tle period ofindicative planning in the 1960s and 1970s, agriculture remained central to the national economy. Hence, any contemplated macro-economic changes to policy had to account for any effects, positive or negative, on farmers and processors. Forefront in the minds ofthe Treasury advisers and new economic managers was the need for a rapid contraction in the level of state assistance to the farm sector' From 1980 to 1985, these public assistance measures represented an aggregate transfer of $N22.5 billion from the state to farmers (Cloke, 19g9, 3g). For a small country still largely dependent on primary commodity export markets and susceptible to foreþ 135 exchange and balance-oÊpalments crises, this lwel of expenditure had become rtifñcult to sustain, politically and economicaff . The new agricultural policywould conformto a free market trilogy: (i) maintain an appropriate domestic cost and price structure by controlling infl¿fisa and public qpending and dealing with exohange rates. Such a'stable' environment will allow all market sectors to function efficiently. (ä) all price changes should be relative price changes which sþal emerging scarcities and surpluses. (üi) this ma cro- economic background is essential for agricultural'stabili zation'. Provided tax and other arrangeme,nts are neutraf there will be little need for the Govemment to intervene in order to supplement the risk avoidance and hedging tactics of farmers (Cloke, 1989, 39, original emphasis). The removal of the network of state assistance measures for agriculnue and the implementation of a deregulated financial market and economy, firlly zubject to global capital flows, was therefore seen - as it was in Australia - as compatible with the reinstatement of an autonomous, dyramic and efrcient farm sector. Fully confrmed in his monetarist neo-liberal beließ, Finance Minister Roger Douglas3 oversaw tle near semplete transformation of the New Zealand economy from a nationally- bounded and predominantly publicly-or¡med and supervised struoture into a largeþ privatised and intemational system of flows and counterflows. The financial reform package included the removal ofwage and price controls; the complete deregulation ofthe financial systeq including the floating ofthe exchange rate;reductions in import tariffs and the removal sf imfort controls; tax reform, including the introduotion of a goods and services tax (GST) in 1986; reduced levels ofpublic expenditure and the privatisation and corporatisation of many state enterprises (Cloke, 1989;Easton, 1993). 2 Ofcourse, given that these transfers helped ensure farm export trade, the high levels ofstate assistance provided to New Zealand farmers were a nixture of private and public gain. Douglas and his advisors were successful in arguing though, that these supports lvere a direct private gain for farmers. }Ihe radical economic reforms introduced by Douglas during hiì term as Finance Minister were dubbed "Rogernomics', following the trend in Britain and the US in which such neeliberal economic policies were identified with their chief advocates (i.e. Thatchernomics and Reaganomics respectivelÐ (Easton, 1993). 136 Douglas and his advisers felt that the economic reform process would produce only benefits for farmers. While it was certainly true that the high levels of protection given to the agricultual sector had cost the nation financially and had eroded its intemational standing in commodity markets, this blinkered view relied upon a rather simplistic but commonly held belief in the virtues of free financial -arketsa; a belief shared by many Australian financial commentators. As in Australia, tle micro- and macro-economic effects of a floating exchange rate, enfeebled monetary policy and privatised and commercialised finanoe provision on the farm sector have been zubstantial. Prior to the float oftle $NZ in March 1985, tle Labour Govenrment devalued the crurency by 20 per cent. This weakened the $NZ relative to the $US in 1985 and enhanced the competitiveness ofNew Zealand export goods. However, with the Reserve Bank seeking to maintain a strong $NZ through high domestic interest rates, any temporary benefits that farmers rnay have gained were soon lost as the currency appreciated strongly from 1986 to 1988 due to the Reserve Bank's high interest rate policy (Le Heron, l99l; Easton, 1993). Obviousþ, this strategy had a double impact on the farm sector: increasing the price ofNew Zealand export goods in overseas markets and raising the cost of borrowing in the domestic market. Correspondingly, the artificially-high exchange rate, lowered tariffs and import controls made importing more attractive. Macro-economic policy focused ahnost exclusively on suppressing inflation during this earþ post-deregulation phase. A tight monetary policy, operated through the only mechanism available to the govenrment - interest rates - was accompanied by the introduction of the GST; which was zubsequently raised from ten per cent to 12.5 per cent in 1988. Together with the introduction of user- pays charges to some govenrnent services, tlese reforms actually fuelled infl¿fi6¡1 (Dalne\ o Le Heron (1993b,2?) states that, "underpinning the wisdom of the free ma¡keteer advocates of the l9g0s was the belief that once the exchange rate was floated the deficit in the current account would be overcome by automatic adjustments in the rate of exchange. This mechanism would ensure that direct poliry intervention, the hallmark of the abandoned regulatory order, would be unnecessary. Exportìncentives and import protection could be effectively dismantled. Subsequent events have shown that in the international money market, the New Zealand dollar, like its Australian counterpart, is treated as a speculative currenry and its value reflects moves in world commodity prices, interest rates and perceptions of cross-border money flows rather more than New Zealand's trade performance". t37 1992; Easton, 1993). The "average montlly stock market gross trade and capital flows increased 13 fold between l9B3 and 1986, from $NZl2.zm to $NZl72m', (Le Heron, 1993b, 27) as foreþ investors sought to capitalise on the comparatively higù interest rates offered in the New Zealand market. Consequently, the number of foreþ takeovers of New Zealand firms rose rapidly, as did the level of overseas capital interest in local CBD property and securities. Simultaneously, equity investment in manufacturing and agriculture dwindled, as in Australia (Britton, 1993). Effectively, national macro-economic policywas being directed towards, and virtually dictated by, the profiteering motives of intemational finanoiers. This represented a rationing of resources in new and more reactionary ways, with the looally-based wealth creating sectors ofthe economy forced to compete with the high groraÍl, low stability paper entrepreneurialism expanding in the CBDs of the major cities. State assistance to the agricultrual sector was removed rapidly, with most protection retracted within three years ofthe 1984 election. The major changes to agricultrual policy during this phase are shor¡m in Table 6.1. The actual financial impact of these changes on New Zealand farmers, and on the govemment's budgetary outlays, is evident nTrble 6.2. Assistance to farmers increased dramaticaþ in the years just prior to the 1984 election to reliwe the stresses emanating ûom a combination of drought conditions and continued commodity price declines (Cloke, 1989). The 1985 ñgures appear anomalous, but are explained by the phasedwithdrawal of the vast collection of farm assistance measures after 1984. The 1990 level of assistance to the farm sector stood at only one-fifth ofthe 1985 level. During the same period, the Labour Govemment had reduced the ratio of assistance to the total value of agricultural output from22.6 per cent in 1985 to 3.4 per cent in 1990. In a very short period, the whole protective barrier that had been erected around New Zealand's agriculnual sector over the previous two decades had been dismantled. As Le Heron (1993d, 96) notes, 'Deregulation in 1984 quite simply overtumed preconceptions relating to farming and the environment in which farmers and companies were operating. Adjustments, rather than being something which was urged, by farming leaders, business interests and government, became a necessity for survival". We have seen in tlis section the many striking resemblances between the processes and forms ofAustralia's and New 138 Table 6.1. New ZealanùAgricultural Policy Changes 19g4-g5 Year 1984 Interest rates on all government-funded n¡ral lending moved to market rates. Full of fees. Fertiliser ort and lime subsidies removed. Fertiliser to terminate in 1986. Farming investment allowance to terminate in 1985. Reduced subsidy on community inigation schemes. Reduced gtant rate on rual water supply schemes. Rwal Bank to raise loans on open market FarmVe,ndor Finance Scheme ended. Noxious Plants Control Scheme to e,nd in 1985 SMPs to e,nd. 1985 Sl29 Income TaxAct (10 year clawback) to be repealed. 5188 Income TaxAct 10 000loss limitation to be ealed. Land concessional tax treatment ended. Livestock standard value system put on similar basis to general business taxation. Source: Cloke, 1989; Le Heron, 1989a. Table 6.2 Assistance to Pastoral 1980-90. Year 1980 1985 1990 Output Assistancer 136 630 35 Input Assistancez 79 57 18 Assistance to 189 348 153 Value-Added Factors3 Total Assistance 404 1035 206 TotalValue of 262r 4577 6148 Output NewZealand Dairy Board stabilisation; meat industry stabilisation; SMPs; inspection, grading and hygiene; town milk subsidy. 2 Fertiliser zubsidies, Livestock Incentive Scheme and Land Development Encouragement bonus, agricultural pest control. 3 Advisory services, labour, research and extension, animal health and quarantine, interest concessions, tæration concessions, agricultural organisations, Rural Bank debt unite-ofl climate relief grants. Source: Le Heron, 1993c,95 139 Zealand's macro-eoonomic reform strategies ofthe 1980s and 1990s. In the following section, 1fos imPacts ofNew Zealand'srapid and fundamental economic renovation upon its agricultural sector are examined, as are the farm-level responses to this change. The following discussion offers both a point of comparison with the broad evidence of the Australian farm sector's e>iperienoe ofrestructruing in the 1980s, discussed in Chapters Foru and Five, as well as providing a potential portent for the Kangaroo Island case study contained in Part Three of this thesis. 6.3 Analysing the New Zealand Farm and Rural Crisis 6.3.1. Changing the Rules of the Game According to Campbell(1994,95), the onset ofthe farm crisis was evident in the worsening trends of four m¿in financial indicators: l) farm revenue; 2) input expenditure; 3) farm profit; and 4) farm equity. Table 6.3 diqplays recent trends in the first three of these indicators. The 1982/83 and 1983/84 figures (i.e. the period included in the Table before the introduction of eoonomic reform) are somewhat atlpical ofpre-deregulation farm income levels due to the depressive effect ofthe severe drought ttrat occured during these years (Cloke, 1989). What is obvious in Table 6.3 is the rapid grorvth in total farm oçenditure after 1984185, and the concomitant growth of interest costs as a proportion ofthis increasing expenditure. Inl984/85, interest pa¡mrents formed l8 per cent oftotal farm expenditure (13'4 per cent of gross farm revenue (GFR)). In 1985/86 however, interest costs as a proportion of total farm expenditure reached 23.6 per cent (over 20 per cent of GFR) and increased to just r¡nder one-quarter of total farm e:ipenditure in 1986/87 ( 19.3 per cent of GFR). The burden of interest payme,nts deolined gradually after this year but remained over 20 per cent of total farm expenditure in 1989/90, accounting for over 15 per cent of GFR Sheep and beef producers were especiaþ adversely afected by the hieh interest rate policy (Campbelt lgg4, 67)s. 5 It should be remembered from Chapters Four and Five that Australian farmers similarly endured severe interest cost burdens during the mid-1980s as a direct result ofcurrency and banking deregulation. 140 Unlike the Australian situation, the exposure ofNew Zealand,farmers to debt through interest rate rises was exacerbated by their loss of government assistance. The introduction of SMPs in 1978, combined with various other input concessions, effectively insured farm incomes from market-driven fluctuations. These zubsidies maintained an unnatura[y high deman¿ for agriculnral land. Prices for farming land increased by 240 per ce,nt between 1976 and 1982, while farm incomes rose by only 25 per cent over the same period (Cloke, 1989, 38). With the removal oftlis protection, land prices were reduced by up to ha¡q particularþ in the hill country g5;añE areas (Le Heron, l9S8). Table 6.4 diqplays changes in the debt-to-equity ratios and debt servicing capabilities of sheep/beef and dairy farmers from l98l to 1986. While there has been a zubstantial increase in the level offinancialvulnerability of livestock farms dwing this period, these average levels did not signify tle financial collapse of entire industries. These statistics disguise much ofthe financial stress experienced by many farm families, though. In 1983/84 only 60/o of sheep and/or beef farms had less thar_ 50o/o equity (a debt-to- equity ratio of greater than 1.00). Two seasons later 24o/o of farms naa iess than 50o/o equity, averaeing as a group 4I%o of gross inoome on debt servicing. A further 5% (1100) were felt to have zero or negative equity. The same report suggested that the bulk ofthe 6000 freehold farms purchased in the period l98l-85 were under financial stress (Le Heron, 1991, 1660). Benediktsson, Manning, Moran and Anderson (1990), in their analysis of pluriactivity amongst farmhouseholds in the Nofh Island hill country of Raglan County, found that 30 out of 105 surveyedfarmhouseholdswereusing 25per cent ormore oftheirfarmincome for debt repa¡ment. Twenty three of these farms had incurred debt tlrough land purchase, with the most vulnerable being those who took out loans after 1982 but prior to the 1984 restructuring: a period when land prices in Raglan County peaked. T¡pically, those farmers with the higûest levels of debt were younger than the sample average, a trend confrmed by other studies (e.g. Moran, l9S8). However, the impact oftlis sudden retraction ofpublic support has caused this distribution to widen and deepen, disrupting the operation of Moran's (1988) equity cyole (see Chapter Two). t4t Longitudinal analysis of Canterbury sheep farmers (Cumberworth and Jarvis, lgg4) and Wilson's (1996) research into the financial plight of Southland sheep and beef producers accord with Benediktsson" et al.'s (1990) findings. Commsnling on Cumberworth and Jarvis' (1994) research, Pomeroy (1996, 138) states: '?roperties least affected by external influences were the more established, more financiaþ sound, higher performing and more conservativeþ farmed properties. Risk takers were hardest hit". 6.3.2. Responding tolResisting the New Rules New Zealand farm level reqponses to these inoreased levels offinancial stress offer a potential insight into the kinds of survival strategies that might be eryloyed by their Australian counterparts and have been classified by Le Heron (1993c) according to their framework of farm adjustment strategies. This framework, constructed according to New Zealand evidence, accentuates the importance of six main factors: l) "farm enterprise change (changing the eryhasis ofthe farm zuch as expanding sheep while reducing dairying)"; 2) "labour change (substituting available fa.ily labour for hired labour, or the reverse)"; 3) "business structure change (forming trusts, partnerships or limited liability somp¡nies)";4) "tenure change (buing, leasing, renting) and asset change (buying or selling land or otler assets to reposition or refinance the business)"; 5) "income change (increasing or decreasing the income from oÊfarm sorrces, so altering the centralify ofthe farm business in relation to other segments of the business and to the family farm household)"; and 6) "diversifioation (changing the income from non-farming enterprises based on the farm, such as processing, úop, crafts)', (96-7). Campbell (1994) employs a broader, more encompassing set of categories through which to discuss Canterbury farm family zurvival strategies. These are: l) changes in farm production (diversification and the like);2) family survival strategies; and 3) labour process strategies (on- and oËfarm labour changes) (Campbelt 1994,99-lO0). Using Campbell's (1994) t¡pology, and drawing on recent locality-based analyses ofNew Zealand's rural restructuring, the remainder ofthis zub-section discusses each ofthese survival strategies in tum. t42 Table 6.3 sheep and Beef Farm rncome Expenditure 19g2lg3 to l990t9l (nominal Financial 1982183 1983/84 t984t85 1985/86 1986187 Year GFR t05 374 t04 77s 132 623 106 319 lt7 127 E>cpendinue: Interest 14 781 16 305 l7 736 2t 509 22 619 Total 8l 978 86 284 98 415 90 980 9t 270 Expenditure Net Income 23 396 l8 491 34 208 l5 339 25 867 Financial 1987/88 1988/89 t989190 t99019t* Year GFR 126 178 128 536 143 356 125 000 Expenditure: Interest 23 862 22 379 2t 642 2t 400 Total 97 697 100 279 106 071 99 200 Expenditure Net Income 28 487 28 257 37 285 25 900 * l990l9l data arcprovisional. Source: Cloke, 1989,42;Fairweather, 1992, B. Table 6.4 Debt-to- I urr. Ratios for and Farms Year Sheep and/ or Beef Dafuv ratiot debt ratiot debt servicingÍ servicingÍ l98l l9 10.8 .34 12.3 t982 .2t 12.7 24 12.2 1983 26 14.0 24 13. I 1984 27 15.6 27 14.4 1985 .32 t3.4 36 13.5 1986 53 20.2 43 ló.0 T The debt-to-equity ratio is defined as the ratio ofthe p ercentages of pwchase finance derived from debt to that contributed by equity. A 70 per cent debt financing (equivalent to a debt-to-equity ratio of 2.33) will bring most businesses to a financial collapse because of the burden of interest pa¡me,nts. $ Debt servicing capacity is defined as interest pa¡ments as a percentage of gross business income to the farnr Lwels in excess of 25 per cent are ssmmorily taken to indicate financial vulnerability. Source: Le Heron, 1991,1661. 143 Carybell (1994,89) disousses the widence of diversification across all farm size classes. Mainly, this diversification has invohed the zubstitution oftraditional livestock production with altemative livestock like deer, pigs or horses (Fairweather, 1992). Sheep numbers declined by nearþ 15 per cent from 1984/85 to 1989/90 and beef cattle numbers remained static in reqponse to a 55 per cent reduction in nominal profit in 1935/86 (Johnston, 1993,99). This conte,ntion is confimred by Benediktsson, et a1., (1990), whose empirical analysis offarm adjustment reE)onses in Ragtan County showed that diversification into deer and goat farming has been a oommon reqponse to ohanging economic conditions. Those farms that undertook some form of diversification also tended to expand their farm size. Smaller sheep and crop farms have te,nded to change over entireþ to new farm industries. In summary two dominant trends are evide,lrt: the increasing soale and diversification of pastoral-based farms; and the g¡owth of 'altemative' farm types at the lower levels ofthe farm size scale (Fairweather, 1992; Canpbelt 1994,89). This sbift away from traditional livestook farming towards newer livestook enterprises and horticulture is confirmed by ttre qpate ofnew agriculnual company listings tlat occurred in the immediate post-deregulation phase (Le Heron, l99l). Of course, a primary obstacle to farm diversification was many farmers' sheer lack of capital. Moving from traditional livestock farming to more remunerative industries like cropping would have invotved considerable investment in new or second-hand machinery. Campbell (L994, 104) cites the example of a bank activeþ blocking one farmer's diversification attempts by applying a 'penaþ loading' to that farmer's existing debt. One very important factor in farm adjustme,nt strategies not covered explicitly by the above tlpology discussed by Le Heron (1993d) - surprising since it has been such a strong feature ofthe post-deregulation farm adjustment process in New Zealarrd- is farm disinvestment or reductions in normal farm expenditure. Since the economic reform process began, the farm sector has endured a massive reversal in investment trends compared to the expansionary era of 1963-84. "Total capital spending on all farms (including sheep farms) has hafved between 1984/85 and 1988/89, from $NZ 915.9m to $NZ 450m" (Johnson, 144 1993, 100). In zuoh crisis situations one ofthe first farm inputs to be reduced is fertiliser, a contention confirmed in New ZeaLand. Official data rwealed that 32 counties experienced a 40 per cent or greater decline in phoqphatic fertiliser applications per hectare from l9g2 to 1989 and 38 counties experie,nced a 40 per ce,nt decline in stock numbers over the same period (Johnston, 1993,97). These tre,nds are re,presented in Figure 6.2. South Island case studies (Campbelt 1994; Wilson, 1996) confrm this rapid switch to 'low input' farming. Family survival strategies, as identified by Campbell (lgg4,l2}-137),included: reductions in personal expenditure, inoluding the foregoing ofholidays; asset sales, inoluding personal items and the cashing-in ofinsurance policies and 'nest egg, acco¡nts ('old money'). More legally dubious strategies included tax avoidance, fraudulent claiming ofwelfare income and insurance palments and illegal selling (not selling tlrough appointed merohants and thus avoiding royaþ pa¡ments). Extended fa-ily also at times fulfilled vital roles in rescuing the farm by, for g¡¿mple, acting as patient creditors or taking part in surreptitious and corylex'hhite knigût" deals to keep the farm in the familya . Such highlight schemes the lengths, considered inational by analysts ofthe 'average rate of profit' doctrine, to which families will maintain their tink with tleir land. Pluriactivity (i.e. combinations of oñ and non-farm emplolment and business activity) has always been a part ofNew Zealand.farming, regardless ofthe prwailing economic climates (Le Heron, lgg3d,,l04-106;Pomeroy, 1996). Nevertheless, since l9g4 it has changed in form and intensity, Fairweather's (1992) analysis of agricultural restructuring in New Zealand revealed that the traditional sexual division of farm labour had undergone a quiet rwolution sinoe 1984 as farm women, predominantly farm wives, have become more actively involved in the farm production process. Although this trend is partially a result of the belated recognition of the integral roles that farm women have a The '\uhite knight" stratery involves the nominal sale of the farm and/or its assets to family members who then "gifr" them back to the farm family. This stratery attempts to avoid institutional creditors taking possession of the farm assets and removing them from the family name (Campbell,lgg4,l3S). Pomeroy (1996, 136) ' notes that, "Prelimi-=nary results from a (lgg4)nationalanalysis of off-iarm income .., show that of the 619 farms surveyed, 46 per cent had income from work (either thr-ough self-employment or as an employee) off-farm, while 57 per cent had income f¡om off-fa¡m investments, aialS per cent had income f¡om either off-fa¡m farm work or oËfarm investment or both". 145 Fig. 6.2 changes in Livestock Farm rnvestuent and hoduction 1982-89 PERCENTAGE CHANGE PERCENTAGE CHANGE PERCENTAGE CHANCF. IN TONNES OF FERTILISER IN LIVESTOCK UNITS IN THE REAL VALUE PER HECTARE OF TOTAL CAPITAL EXPENDI'TLIRE Pcrccntage change V7Z -nt- -to I'-oo 200km , , D Þ Þ Sor¡rce: Johnston, 1993, 98 146 always played on the farm (Whatmore, l99la,l99lb; Pomeroy, lgg6),it also reflects the shift away from paid farm labour. Paid permanent and cazual emplolment decreased from 1984 to 1990, as t'npaid family labour increased. Partioipation by wome,n in the agricultural workforce as working owtrers ¿¡¿ r'npaid family members has increased noticeably during this period. This trend is both a cause and effect in the increasing use of partnerships as a form of farm oumership; an arrangement that recognises both husband and wife asformal equals6 in ttre enterprise and provides sienrificant taxation advantages. Benediktsson, et al. (1990) found that pluriactivity had increased dramatioally amongst their Raglan County farm reqpondents since deregulation, with around one-half of all surveyed farm households receiving income from non-farm sources. Although there was no clear relationship between the existence ofpluriactivity and the incide,nce offarm financial stress, men were more likely to be involved in pluriactivity to save the farm or suppleme'lrt farm income than wome,n, whose oËfarmworkforce participation was more related to individual career motives, selÊfulfilment and to the zupplementation ofhousehold consumption. Extensive survey (Pomeroy, 1996) and intensive locality-based research (Campbelt 199 4 ;Wilson, t99 6) confirm this fnding. Tenure change for most New Zealand farmers after 1984 has not been a viable option. Campbell (1994) did discem, though, polarised tre,nds in the scale ofNew Zealandfarming. Medium size farms were giving way to the growth of large farms via the process of "cannibalism" (Campbell" 1994,89), while small farms were also on the increase. Nevertheless, those wishing to sell have been constrained by dramatically-reduced land values and significant buyer resistance due to depressed farm commodity prices and unprecedentedly high interest rates. Benediktsson, et al. (1990) found farm expansion a relatively minor adjustment strategy in Raglan County. Cloke's (1939) locality study of Ahaura, a marginal dairy farming region on the South Island's West Coast, concurred with these findings. His study of Hororata on the central Canterbury plains, howwer, revealed that around one-quarter ofHororata farms had changed ownership from 1984 to 1987. 6lhis should not be taken to mean that the political and economic relationships within the family farm household are transparent and unproblematic (see Whatmore, l99la). t47 Significantly, ¡nany ofthese oumership ohanges invoþed "...Christchurch-based capitalists with interests in either agri-business or hobby farming" (Cloke, 1989, 45). This finding accords with Fairweathe/s (1992) analysis of business investment trends in farming land since 1984. 6.3.3 State Responses to Farm Financial Shess As alluded to in the previous sub-section, a significant "farm adjustment problem" emerged during earþ 1986 as the full macro-economic effects of deregulation were transmitted to the farm sector. The mounting visibility of the problem, with the media constantly reporting new aqpects of the debt crisis, forced the govemment to intervene. Its "Farm Package", released in July 1986, involved an integral but essentially conflicting role for the Rural Banking and Finance Corporation (oommonly knoum as the Rural Bank). Historically, the Rural Bank acted as the dominant financial institution for New Zealand farmers, providing around one-third of all farm credit and was ttre largest lender of long- term finance (Le Heron, 1991). A measure ofthe importance ofthe Rural Bank to the agricultual community can be gained from Table 6.5. The Bank's concessional role is obvious. The economic reform package implemented by the Fourth Labour Govenrment in 1984 included a range of measures to gradually commercialise the Rural Bank's operations. These included the cessation of public f,rndiog for the Bank, the introduction of market- based interest rate loans, the expansion of the Bank's activities and the beginning of its offshore fr¡nds-raising activities. The Rrual Bank's main commercialisation phase lasted from 198ó to 1989, during which time the proportion of commercial to concessional loans outstanding grew. The Rural Bank Discor¡nting Scheme, promulgated as part ofthe Farm Package, aimed to contain farmers' debt-servicing pa¡ments at their existing level th¡ough the reduction and reschethrling of debt. This strategy hinged on three options: l) longer term loans; 2) the suqpension of principal repa5ments; or 3) the capitalisation of interest. By the time the scheme was closed in Septemb er 1987, 4706 fatmers had been assisted from 8099 148 applioa¡rts. As Le Heron (1991) notes, this debt reconstruction package was actually a misnomer as the total obligations to creditors remained unchanged. Table 6.5 Nominal rnterest Rates for Major New Zealand Financial Institutions, 1980-86 Institution 1980 1983 1986 Rwal Bank 3.0 - 11.0 3.0 - 15.0 3.0 - 15.0 Trustee Benk 11.0 - 15.0 15.0 - 19.0 20.0 - 26.5 Private Savings 10.0 - 15.0 13.5 - 16.0 20.0 Banks Insurance 10.0 - 15.0 10.5 - 18.0 8.0 - 23.5 Companies Building Societies 9.0 - 17.0 14.5 - 19.0 t4.0 - 25.0 Source: Le Heron, 1991,1658. The sale of the Rural Bank to Fletcher Challenge, New Zealand's largest private frm, in August 1989, ended a long-standing public oommitment to farm development. The Govenrment did assure the farm sector that the Bank would continue its concessionary le'nding, though. The farming community's views on the privatisation were illustrated by the formation of a consortium comprised of a group offarmers, including a past Chair ofthe Rural Benk, to bid for oramership of the Bank. "The bid was aimed at introducing equity investment in the bank by farmers and at ensuring it continued to serve the financial needs of the rural oommunity by having control pass to a group who 'understood' the pressure facing the rural sector" (Le Heron, 1991,1664). The Farm Package was succeeded by the New ZealandRural Trust in September 1988, a govemment scheme aimed at helping farmers mânage debt and support their families. Applicants could choose to receive a free financial appraisal and general advice and support or to accept a New Start Grant of $45 000 to leave their farm and start afresh elsewhere. There were I 385 applicants for this form of assistance by July 1985, but the onset of drought saw demand increase in affected regions. Analysis ofNew Start Grant reoipients in the drought-affected Canterbury/1.{orth Otago area rwealed that only seven per t49 ce,lrt of "significant"7 farmers had applied for a New Start Grant. Ofthese se.ven per cent, one-flfth stayed on their farm r¡nder a new business arrangement (Fairweath e4 1992). 6.3.4. Rural Communities under the New Regime This Chapter has, thus far, concentrated on the fluctuating fortunes of New Zealand farm families, abstracted from their reside,nt commr¡nities, during a period of dramatic political and economic ohange. This sub-section examines the impacts ofthe post-1984 reforms on New Zealand's rural oommunities via a case study of the isolated West Coast region ofthe South Island. In this way, this rwiew seeks to provide some insight into how suoh small and isolated communities interpret, mediate, resist and/or accept extemally- driven change, thereby setting the context for the Kangaroo Island case study (Part Three). The re-election of the Labour Govenrment in August 1987 marked the exte,lrt to which the farm and rural lobby had been removed frompolitioal influence. Urban financiers and money-market dealers, appeased by the Government's first ror¡nd of deregulatory reforms, relished the proqpect ofmore booty from a promised privatisation prograÍL Meanwhile, the farm adjustme,nt problem lingered on, while the corporatisation and privatisation of most state activity - begrrn by the Lange Labour Govenrme,lrt during its second term - had a dramatic effect on selected regions and towns. This package of reforms was based on a now common belief amongst many Westem nation-states that govemment departments contain an inherent conflict ofpublic and private sector roles. The policy advisory roles of govemment departments have been perceived by a new class of men¿gsrialist adminìstrators as contradictory to their enterprise-tlpe fi¡nctions of service delivery (Stretton and Orchard, 1994\. The proposed solution to this "dilemma" has conventionally been a separation of these functions, with the policy advisory roles rem¿ining with the govemment departments and the enterprise activities being corporatised and/or privatised. ?All farms are classified according to their contribution to the estimated value of agricultural output (EVAO) in their particular industry/ies. The highest producing farms in each industry; all those farms whose EVAO comprise 95 per cent of the total EVAO; are classified as significant. The remainder are designated as "small". "As at June 1990, there were 41,559 significant farms and this group is 5l per cent of all farms in New Zealand" (Fairweather, 1992,26). 150 Adopting this approaoh, the Lange Government created a range of state-oumed e'lrterprises (SOEs). Some remained largely under public control but with new commercial oharters, while others like Postbank and Telecom were wentually sold to private interests. These changes have had substantial social and economis impacts through geographical scales. The colporatisation and subsequent privatisation ofthe Post Office,s mein functions provides a good illustration ofthe disjr¡nction betwee,n nation-state scale policy decision- making and regional and local scale reqponses and adjustment. The SOE process saw the former Post Office qplit three ways, with New Zealand Post, Postbank and Telecom corporatised as new coryanies on April l, lgï7. prior to this restructurin$, the Post Office had maintained 911 district post of,Eces, each with its own banking services, and 351 agencies. By 1991, there were only 286 offices and 603 age,ncies (Pawson, 1993, 169). In the relativeþ isolated West Coast region ofthe South Island this rationalisation process aroused p articularþ strong reactions. For the new Postbank, the old structure had provided an excessively extensive and costly network of basic services. Financial deregulation and the increased lwels of technology in the finance industry (ATMs, etc.) emphasised to ttre new men¿gs6snf ths need to trim the existing service. This view was backed by the fact that onty 400 ofthe 9l I Post Offices generated 90 per cent ofthe Post Office's savings bank business. A process of rationalisation was quickly impleme,nted, with ttre number of Postbank branches reduced to 390 by December 1988. This retraction also resulted in the loss of 1535 jobs. Altho,rgh the Post Office's post-rationalisation branch network was broadly comparable with that ofthe largest retail bank in New Zealand,, some rural communities' access to basic banking services was dramatioally reduced. The restructuring ofpostal benking services in the West Coast region ofthe South Island is graphically pofrayed in Figure ó.3. In 1990, just three New Zealand,Post Offices and four Postbank branches remained of the extensive service network of 19g3. These changes triggered a series of protest meetings in the affected toums and a "sit-in" at tl.e Karamea post office, culminating in a High Court challenge to the constitutionality ofthe closu¡es. The failure ofthe High Court challenge signalled the end ofthe West Coast's 15l public struggle for the mainte,nance of a esmFarable lwel of services, although Karamea was gtanted a postal rgency. No benks now exist south ofHokitika, with a weekly suûrmer and formightly winter mobile banking service substituted for the loss of six agencies with banking services. The loss of such basic public services was a qmbolic blow to West Coast residents. In zuch small communities, the post ofrce, with its multiple functions, helped to signify the community's viability and acted as an informal meeting place. Reporting on the qpate of community protests against the proposed closures, The Press commented tlat ',,most ofthe small communities find that the post office is the only bank and feel that reductions in services and closings will herald the total decline of the communities as a viable proposition"' (Bevin, 1993, 17 I). Nevertheless, the communities ofthe West Coast fought the restructuring process doggedly, their powerfi¡l sense ofplace and local pride acting as a potent unifying force. "Coasters", as they identify themselves, have had a string of small victories in recent years in their battles against the central govemment's aqpatial debt-reduction strategies. In 1986: ...2,500 people came togetler in Hokitika to express dismay at the prospect ofthe West Coast Accord ... One thousand people marched in Westport when Coalcorp,s plans were announced in 1987; 400 people tumed out in Gre¡'mouth to ,march for jobs' when the LWR factory was closed ... But the most intensive forms of action were directed against the Area Health Board, the most accessible large local eml'loyer. Its attempt to shut down a geriatric ward at Westland Hoqpital in 1985 prompted a 42-day sit in by up to 800 Hokitika residents, followed by a 290-car procession to board offices in Grelmouth ... In 1988, the announcement of closure of the Reefton cottage hoqpital brought 1200 people out to link hands around the facility ... (Pawson and Scott, 1993,281). These two latter protests were $rccessfirl in retaining local heatth services and emplo¡ment. The strength of place identity and looal politics in the West Coast gained official recognition in 1989 tlrough the local govenrment reform process when the Swenth Local Govenrment commission created a separate west coast Regional council (wcRC) t52 Figure 6.3. New Zealand Post Office Rationalisations, 1983 - 1990. t990 t9t3 Karamea r NZ Pos¡ outlet West . Postal agency t ihinui r , l50km, Scddonville .Ahaura Creymouth Dobson o lnangahua Juncrion Charlesron Rec Punakaiki .H 'Whataroa ì . Franz Joseph î Cllcier son Ngahcre o Moanâ mara Dobson. Ross . Pukekura o @Whataroa g Franz.Josåî o Fox Gla'cier @ with banking scrvice . without banking service Haasr 200 kilometres Source: Bevin, 1993, 170. 153 The WCRC contains the smallest population of any regional council in New Zealand, but has taken a vigorous approach to local economic dwelopment, sourcing investment ft¡nds for new ve,rtures from local enterprises and upgrading regional tourist faoilities. Perhaps the most significant protest against the regional impacts of restructuring carried out by Coasters was, howwer, the voting out of the sitting Member in the 1990 elections. For the füst time in 70 years the West Coast was not represented by the Labour Party (Pawson and Scott, 1993,281). 6.4 Conclusion Govemments and companies use space in the normal course of their competitive strategies, while communities, labour forces and nations bear the consequences. When major restructuring occurs, it is both organised and experienced territoriatly. A restructuring crisis unlocks new directions for action, all ofwhich are inherently geographic (Le Heron, Britton and Pawson, 1993,1l, original emphasis). Economic restructuring has left New Zealand a cleft society, socially, economically and qpatially. Conventional analyses ofradical economic reform focus on the removal of national boundaries by governments and the consequent increased presence of intemational and transnational capital in the economy. The literature reviewed in this chapter reveals that the profound economic change that New Zealandhas experienced has caused not so much a simple removal ofbor¡ndaries, but a realienme,nt ofthe lines of social division and a redefinition of scale relations. In removing the boundaries aror¡nd the national economy, the Lange Labour Government was forced into a renge political choices tlat involved the effective creation ofnew fault lines of conflict in New Zealand, society. In the post-deregulation phase, the fnancial services sector has boomed, transnational corporation penetration of the food and fibre processing industry has intensified and economic power has bee,n centralised in Auckland (Britton, et a1., 1993). Meanwhile, the farm sector has lost much of its erstwhile political clout and had its only concessional long- term finance provider privatised and fully commercialised. All forms of government assistance to the sector have been temoved, while ru¡al communities, along with weathering 154 the local dlmamics ofthe crisis, have been forced into confrontation with the central government over the loss of basic services and emplo¡ment. As noted above, the social and imf economic acts of such choices have forced the govemment to introduce patcþ and targeted programs of comfiensation and assistance, and in some cases, complete policy rwersals. As Stretton (1987, 47, oigþal emphasis) has noted of such deregulatory policies, "...there is not always /ess intervention under the new anarcþ, j:u*.worse intervention.,, What is more, t.he removal ofnational economic bor¡ndaries has not substantially reduced New Zealand's reliance on the farm sector, nor aided the manufacturing sector, nor decreased the nation's zusceptibility to foreþ exchange and balance-oÊpalments crises. Instead of being vulnerable to the performance of a few primary commodity markets, New Zealand, is now effectively economically depe,ndent on a handful of transrational corporations (Le Heron, 1988; Le Heron, et al.,l9g9). In this sense, though, it is not zubstantially different from Australia (Fagan and webbe r, 1994). New Zealand's established scale relations, like Australia's, have bee,lr radically opened- up by economic restructuring. The transmission lines of economio and political power from the global to the household now operate with a daunting vigour and rapidity. At the level of the nation-state, the reforms that reshaped New Zealand'sscale relations with the rest ofthe world were conceived to make the economy and society more efficient and cost-effective. Howwer, at the regional local and household scales this 'changing ofthe rules, involved fi¡ndamental changes and ohoices. The farm zurvival strategies rwiewed in this Chapter were as complex as tley were numerous. In most cases, the strategies employed by farm families did not conform to notions offamily sacrifice/exploitation but reflected a complex mix ofpersonal choices, family lifecycles, fnancial position and the like. Obviously, most financially-stressed families \¡/ere constrained in their choices, unable to afford to invest large amounts of capital into new farm or non-farmventures. Hostile creditors could also exert considerable influence over the farm's operation (Campbelt 1994). Most families, tlen, employed the simplest strategies first, cutting farm input expenditure dramatically. This stratery generally had, however, a rapid and harsh impact on 155 the local eooromy (Wilson, 1995). The thorough restrucnring ofNew Zealand's basic public service network had an equally dwastating impaot on rural communities. yet what the various case studies of New Zealand'srestructuring discussed in this chapter have shown is that the reorganisation and re-regulation (Le Heron and Pawson, 1996) ofNew zealand, society has bee,n a reflexiveþ contested and negotiated process. Underlining the social connectedness of scale relations, farm families and their representative organisations and nual communities and their organisations have taken their protests and J'mped scale' (Smith, 1993) by achiwing policy ohanges at the scale ofthe nation-state. The importance of committed, focused and organised local activism in achiwing local and regional equity cennot be underestimated, as is evident in the example of the West Coast's successes in maintaining at least some of its public services and emplolment. Over the past decade, there has occurred an increased concentration and centralisation of economic and social goods and services, in qpatial and social status terms. This has not entailed any retraction or rliminution ofpolitical action, however. Le Heron (1996c,168) notes tlat the globalisation ofNew Zealand's "eco- commodity systems" has proved to be a highly varied process, with particular industries well-suited to global linkages. What appears to be a more general process across the sector is the search for value-adding and, hence, increased profits. This trend reflects the adaptability of farm families when faced with crisis. Those ¡¿milies able to withstand the years of financial exige,ncy are almost undoubtedly stronger for their trials. Interest rate and inflation reductions in recent years have helped these families' survival (Johnson, lgg3). Every cloud has its silvs¡ lining. The real point of debate is, perhaps, whether the initial storm could have been averted in the frst plaoe. This chapter has provided a broad context in which to locate and discuss the case study and issues at the heart ofthis thesis. The strong similarities between New Zealand and Australia - substantive similarities in history, politics and economy - zuggest potential areas of similarity in the susceptibility to, impacts of and reE)onses to d¡amatic economic change. The following chapter, drawing on the arguments dweloped thus far, seeks to form a 156 framework of analysis for the case study of Kangaroo Island farm families and rural communities contained in Part Three ofthis thesis. t57 PART TWO CHAPTER SEVEN: Tffi AUSTRALASIÄN AGRICT]LTT]RE.FINANCE RELATION - AII ANALYTICAL IIRAMEWORI( 7.1 Introduction Part One ofthis thesis has sought to dwelop a relwant theoretical framework and geo-political economic and hisorical context within which to locate and discuss the hlpothetical role of financial deregulation in family farm and rural community impoverishment. This chapter has two central purposes. First, it aims to refine the abstract conoept of the agriculture-finance relation, provisionally dweloped in Chapter Three, to make it more relevant to Australian and New Zealand political and eoonomic experie,nce. Second, it seeks to develop an abstract argument concenring ús impact efthis restructured agricultue- finance relation on farm families and rural communities. This argume,nt will serve as a heuristic framework for tle following oase study ofthe role of financial deregulation in the restructuring ofKangaroo Island's agricultual sector and nual oommunities. Consistent with a realist ontolory and epistemology, the dwelopment ofthis argument forms one step in Sayer's (1992,87) "double movement" fromthe concrete to the abstract and from the abstract to the concrete. This double movement does not involve a simple to-ing and fro-ing as much ¿s il implies a more cornplex "spiraling" (Jessop, 1990, 164) between tle abstract and the concrete (see Chapter Three): There is always a dialectical interplay of abstract and concrete which moves in qpiral fashion as the introduction of lower order concepts entails modifioations in higher order concepts... In this sense 'tle objective is the dwelopment of concepts and not Verification' of a finished theory'... It is these dialectical phases which are crucial for scientific dwelopment and 'make theory something other than the exposition of conclusions already implicitly contained in an axiomatic systenr' (Aglietta, 1979, tn,Jessop, 1990, 164). 158 Such an approach is necessary to capture the complexity and contingency of a restructuring society and economy, yet still identify and interpret the principat causes and mechanisms at tle core of zuch structural change. 7.2 Reconceptualising the Australasian Agriculture-Finance Relation T.2.l.Introduction Two central tlemes emerge from Part One. Firstly, from the lgth Century to the late 1960s, agricultural production - based organisationally on the family farm - and intemational farm commodity trade were findametrtal to Australia's and New Zealand's economic and political dwelopment. This economic and trade structure allowed both nations to exploit their "comparative advantage" \ rithin the restricted British commonwealth market and use the income fr6¡ fhis trade to fr¡nd their reqpective 'nation-building'programmes. This expof income also counter-balanced the hign levels ofprotection allocated to inward- looking manufacturing sectors. Both countries during the late lgth and earþ 20th Centuries publicly underwrote the expansion of their pastoral frontiers, chiefly through the dwelopment ofnecessary tranqport infrastructure (i.e. railways, port facilities). After the Second World War, however, more complex and comprehensive strategies ¡ys¡s smployed to quantitatively and qualitatively expand the agricultural sectors in an attempt to underpin national eoonomic sovereignty. For example, in Australia from lg52,theFederal Govenrment directed the maje¡ trading and savings banks to target their business lending to farmers on concessional terms. Until the late 1970s, Federal and State Govemments played integral roles in the dwelopment oflong-term and low rate finance packages for the farm sector. While New Zealand farmers did not enjoy the same level of state benevolence as their trans-Tasman counterparts during the earþ post-WW[ period, they nevertheless benefited from a higú level ofpolitical influence and collectivised autonomy in the marketing of farm commodities. When farm investment began to decline during the late 1950s, New Zealand farmers received zubstantial state zupport to correct the nation's underlying economic problems (see Chapter Six). gignifisanlly, the publicly-owned Rural þank played 159 a celrtral role in this expansion. In summary the importance of agriculnual production and trade to these two dominion oapitalist nations was requited by the institutional arangements regulating farm production, investment and oredit. Secondly, with the OPEC oilprice 'hike' and loss ofthe British market in 1973 and the earlier collapse of the Bretton Woods Agreement, the role of governments; and importantly for the topic of this thesis; the role of financial institutions servicing agricultural production, were fundamentally altered. The collapse ofthe international men¿ge6sn1 r¡ national curencies oelrtral to the Bretton Woods Agreeme,lrt was the precursor of an equally strong drive for global markets in all facets oftrade as well as finance. As noted in Chapters Fout, Five and Sbr, these pressures þ¿d important effects on mâcro-economio and agricultrual policy manageme,nt in Australia and New Zealand. As Fagan and Le Heron (1994) assert, at the broadest lwel of capital circulation, tle state operates in two main ways: 1) via regulation, the state selectively admits the elaboration ofthe tlree circuits of capital within its national territory; amld2) due to this selectivity, regulation will benefit or hinds¡ differe,lrt oapitals in different sectors of the economy at any one time. Fagan and Le Heron's (1994) framework helps to explain how changes in state regulation can induce restructuring pressures into all sectors of the economy by forcing firms to adjust to new "benchmarks" ofproductivity and performance (see Chapter Three). For example, both Australia's and New Zealand's move from economies based on national capital and investment-constrained capital to global capital has brought intemational standards of competition to virtually all sectors ofboth economies - public and private. Drawing on these main themes, the following discussion examines the changing roles and strengths of the entities central to the agriculture-finance relation in Australia and New Zealand ûomthe conclusion ofthe Second rtrorld War to the prese,nt. Two main forms ofthe Australasian agriculture-finance relation are identified and discussed: a hignt- regulated (1952-1983) and a globalised (1984 - the present) motle. While Table 7.1 shows that the e¡¿ef fiming and policy approach for each relation was slightly different in New 160 Zeúand tlan in Australia, the long-term trajectory ofthe agriculnue-fnance relation in both countries is essentially the same. The globalised agricultrue-finance relation in New Zealand is discussed separatel¡ though, to draw on the wealth ofresearch into New Zealand,s agricultual restructuring to dwelop the heruistic framework celrtral to this Chapter. 7 .2.2 The Highly-Regulated Australasian Agriculture-Finance Relation This discussion should be read in conjunction with the diagrammetic re,prese,ntation oftle post-WWI highly-regulated agriotrlture-finance relation in Figure 7.1. This figure diqplays the nature and strength of the intemal relations which comprised this structure during ttris phase. The nation-state'st role in the Australian agricultue-finance relation during this "long boom" phase was not restricted to the implementation and maintenance of Table 7.1 The 20th century New Zealand Agriculture-Finance Relation Era Nature of Relation Characteristics of Relation 1945-1960 Strong state regulation - national Essentially similar approach to macre investment-constrained and market economic management to Australi4 but no constrained capital favoured targeting of agriculture for special concessions. Agricultural exports to finance domestic industrial growth 1960-1984 Maintenance of strong state regulation of Phase of indicative planning (refer to the economy's external linlq but increased Chapter Six); but enhanced and extended intervention in agricultural production - role for the Rural Bank - state underpinning national investment -constrained and stable conditions for production and market-constrained capital favoured, but accumulation increased use of global capital for mineral resources boom 1985-P¡esent Deregulation - global capital in Relative rapid remwal of concessional ascendancy measures for agriculture - privatisation and commercialisation of the Rural Bank - all sectors ofthe economy subject to uniform globalised economic conditions Source: Le Heron, l99l; 1993a,142-172;Le Heron, 1993d. ¡ The fo[owing discussion focuses primarily on the role of the Federal Government in the Australian agriculture-finance relation, although it is recognised that State Governments play quite important roles in policy affecting farming in a Federal polity. The term 'regional state' is used in tanãem with 'nation-state, in general theoretical discussion. 161 Fig. 7.1. The Highly-Regulated Australasian Agriculture-Finance Relation 1952-1983 Farm Families Interest Creation of Surplus Reserve Banks Bank Stock Firms State Shareholders/ Investors Depositors 1 Strong = pnrdential conEors and di¡ections to lend to farmers 2 Public = fina'ciar institutions and programmes supporting farming 3 = Control.s over rates for deposits and loans 4 prurJential = strong cont¡ols and directions to lend to farmers 5 = Paid and received relatively low interest rates 6 = Circumscribed by state di¡ectives 7 = Affected by stfong controls 8 = Relativety stable conditions underpinned by state support 9 sphere in which this relation = operated - national preferred over global capital, control strong regulatory over financial system and agricultural tra te"upiø 162 ar overarching regulatory framework, but wentually extended to the provision oflong-term and low interest rate finanoe and the dwelopme,nt of more suitable finance packages for farming than tle traditional overdraft. This was by no means an r¡nprecedented role for tle nation-state, given the previous entrepreneurial stance of colonial governments during the l9th Century, and the comprehensive "closer settlement" policies and large inftastructure projects ofthe earþ to mid-20th Century. The establishment ofthe Commonwealth Development Bank in 1959, the creation ofthe Term Loan Fr¡nds and the Farm Development Loan Funds during the 1960s and the establishment ofthe Primary Industries Bank ofAustralia in 1978 were all aimed at fr'ther stabilising the financial performance of the farm sector and enzuring its ongoing expansion and intensification. This intervention derived from a wideqpread govemme,lrt view that the prwailing credit market for agriculnue was fundamentaþ flawed and unable to breach the "credit gap" (see Chapters Four and Five). These measures were complemented by taxation concessions applþg to capital e;pelrditure and depreciation. In combination, these policies underwrote the post-WWII boom in farm investment, erpansion and, later, amalgamation (see Chapter Three). The application of concessional interest rates for farm credit \¡/as an expression of the farm sector's victory in the 'tariffcompensation argument" (Hefford, 19g5, 109). The sustained high levels ofprotection shielding the Australian manufacturing sector from foreþ competition, it was argued, effectively raised the cost of some neoessary farm inputs. As manufacturing sector tariffs and non-tariffprotection were lowered from 1973 onwards þrimarily by Labor Governme,nts), tlis argume,lrt, howwer, lost its plausibility. The New Zealand, agriculture-finance relation from 1960 to 1984 reflected two main objectives of the nation-state. First, following tle horrors ofthe Great Depression, zubsequent New Zealand governments accepted as an article of faith that the financial system should be tightly regulated. The central pillar of the New Zealand financial regulatory system was the Reserve Assets Ratio System (RARS), artministered by the 163 Reserve Bank ofNew Zeatand, The RARS essentially operated in the same mlnner as the Australian LGS convention (see Chapter Five), by restrioting the amount of money that trading banks could lend according to their lwel of deposits and bond holdings (Canpbelt t994,232). Second, the pre-1984 New Zealand agriculture-finance relation was also influenced by the Government's sesmingly unremitting commitment to expand the livestock sector and, hence, export income, in an attempt to restore intemal economic balance. Concessional credit for farm dwelopment was one compone,nt of a whole zuite of concessionary and stimulatory measures targeted at farming. These policies altered agriculture's attractiveness as a site for investment. For example, from 1960 to 1984 the price index for farming land increased a high level of farm property firmover (Le Heron, 1993d, l0l-104). Both trends declined sharply in 1982-83 - prior to deregulation - due mainly to climatic factors and differential moveme,nts in specific industry zubsidies (Le Heron, 1993d,,102-104). As discussed in Chapter Two, the family farm household, as the basic analytical unit, is a complex and gendered combination offamily labour, capital and property. In advanced capitalist societies, the farm family "can be sited within corylex and overlapping matrices and scales ofkinshifr relations, the regulatory and market conditions of specific commodity sectors and necessary farm inputs and the physical environment of the farm itself' (Chapter Two). Farm familìes do not only occupy a fixed portion ofland, but seek to perpetuate that place relation tlrough time via inheritance and succession. Although Australian Federal Govemment policies through the 'long boom' aided the capital intensification of farming, and encouraged some farm amalgamation, Federal Estate and State Succession duties posed an obstacle to this process (Hefford, 1985,257). As Harris (1970) stresses, this strong sense of attachment to land and the farming lifestyle forms one ofthe ¡s¡s important reasons why the low-income farmer problem that first emerged in the late 1960s has proved so intractable. Farm families oan remain in production at low income lwels for a number of reasons, including: their ability to meet thei¡ own subsistence needs and 'live off the 164 depreciation of the land and plant; their ability to tolerate low cash incomes for potentially zubstantial financial gains from the wentual sale of the farm; in depressed farming oonditions, the regional land market is also often depressed, effectiveþ prwenting families from 'adjusting'; and finally, many farmers are ill-equipped or trained for other oocupations and/or do not live within reasonable proximity to suitable job opportunities. The major trading and savings þanks and the pastoral finance coryanies in both countries held substantially the same powers as those described abstractly in Chapter Three, but in zuch higfily-regulated and relatively proqperous conditions had little cause to act punitiveþ to extract surplus from their clients. The maintenance of such a strong regulatory regime could not, howwer, eradicate all the contradictions inherent in the agriculture- finance relation. As noted in Chapters Four and Five, strong regulation ofthe official Australian banking sector caused the maje¡ trading and savings banks to search for more attractive investment and acoumulation avenues. Australian banks expanded geographically while simultaneousþ expanding their range of customer services by tapping into the burgeoning groraú ofthe non-bank financial institutions (NBFIs). The benks began losing market share to these NBFIs in the 1950s at a fairly gradual rate, tle rate of loss increasing tlrough the 1970s. The balance-oÊpa¡ments orises that periodically panicked the Federal Govemment and the Reserve Bank tluoughe6 the 1950s and 1960s - which the official policy of physical expansion and capital intensification of agriculture was supposed to solve - beoame more difficult and tardy to ame,lrd because ofthe NBFI sector's ability to meet the untapped consumer demend that the banks were effectiveþ precluded from exploiting. The macro- economic effects of zuch intractable and omnipresent balance-oÊpaSments problems wentually led to agriculture's contribution to the Australian economy being seen within a more realistic context, and also formed ¿¡l important argument in the financial deregulation debate. 165 As in Australia, the pre-1984 New Zealand,benking sector was characterised by its conservative,ness. Essentially, the New Zeúand,financial systemworked in the following m4nner: Trading banks tended to provide mortgages for small projeots or seasonal finance. State controls dictated that this lending could not be extended to land purchases. Alongside trading banks, stock firms emerged as major zuppliers of seasonal finance - usuaþ in the form of a mortgage against stock sales. Other creditors like finance conryanies and insurance companies were a common source ofmortgages for land purchasing, land improveme,lrt, house building or renovation, travet education, machinerypurohases and general dwelopme,nt. At the same time, farm machinery sellers and car retailers offered 'hire pruchase' in which the vendor became a mediumterm creditor. Within ^his system, farmbonowers tended to take out parcels of debt with multiple institutions ... creating a tSpical pattem of debt which both business and farm interviewees referred to as 'piecemeal funding' (Campbelt 1994,233). The publicþor¡med Rural Bank came to dominate farm lending, particularþ after 1982 when it undercut its private conryetitors' le,nding rates. From 1980 to 1987, the Rural Bank's loan portfolio grew ûomNZ$ one billion to NZ$ three billion (Campbell,1994, 234). Howwer, lurking within these statistics was a porte,nt of the Bank's troubled times ahead. The Bank was very much a 'lender of last resort', its loan portfolio esal¿ining û 'tigh proportion ofnew farmers and financially struggling farmproducers" (Campbelt t994,234). Under the highly-regulated agriculture-finance relation, farm borrowing was relatively secure. New Zealand farmers enjoyed an almost guaranteed income through high levels of state price zupport and production concessions, while low interest borrowing, based on security, not cash flow, allowed farm families to artificiaþ keep pace with dsslining terms of trade for farm commodity exports. Relations between New Zealand farmers and their bankers were 'trnproblematic" (Campbelt 1994,235). To generalise tlen, botl nations' farm sectors during this period enjoyed a "privileged" position within the agriculture-finance relation due to the role oftheir 166 reqpective nation-states in delimiting, enhancing, and in some cases, creating the environment in which the relation operated. Under such conditions it may be aszumed that more farm familiss experienced highs¡ relative proqperity and stability than had unfettered market forces prwailed. Nevertheless, in Australi¿ þanks and stook firms could, and did, shift their investments out of agriculture whe,n the need arose. Admittedl¡ this occurred rareþ, if wer, during the post-war "boom" phase. With the decline in farm commodityprices during the late 1960s and the earþ 1970s, though, and the Whitlam Govenrment's removal ofthe many taxation concessions built up during the 'long boom' period applylng to agriculture, the maje¡ trading banks and the stock firms called in many loans to reduce their possible exposure to bad debts. Many farm families were financially ruined by this policy change (Hefford, 1975). The Commonwealth Dwelopment Benlq by contrast, actually increased its lending during this period to encourage farm build-up as part of the solution to the sudden recognition of a small farmer problem (McKay, lg67),while the first of a succession of farmer assistance schemes was introduced. At this point, Australian farming's era of grand expansion had effectively come to an end. This "small farmer problem" resulted fiom the fundamental contradiction inherent in higfilty the regulated agriculture-finance relation. This contradiction essentially involved the conflisl between the social goals of state policy towards agricultue (the dwelopment and maintenance of a stable and efficient family farm sector) and the economic (and social) tendencies of capitalist production. The blanket encourageme,nt offarm expansion (aggregate numbers and size) and capital intensification encor¡ntered few obstacles in global conditions offood and fibre shortages, but the market-surplus driven crisis that emerged from the late 1960s onwards plainly showed the limits of this policy approach. Under zuch crisis conditions, an interesting shift took place. The Australian nation- and regional-states' facilitated expansion and stabilisation of the farm sector r¡ntil the late 1960s was fooused very much at ttre sectoral level. As farm indebtedness grew, howwer, the balance ofthe agriculture-finance relation switched to individual farm capitals and their t67 need to inorease their size, effioienoy and capital intelrsity or "adjust out" offarming (the 'get big or get out' doctrine). Theoretically, this strategy may have worked if a suffcient number offarmers left the industry but given the ability offarmers to adjust to new economies of soale (not to me,lrtion the tenacity of financially-stressed farmers to remain on their land), this could only have been a short-term and zuperficial solution to production surpluses. Many farm families reqponded to the depressed incomes from the late 1960s by forming family paftnerships and thus qplitting the farm inoome. This strategy effectivd decreased the taxable portion of the farm's income (Hefford, 1985, 257). These issues will be discussed in greater empirical detail in Part Three of this thesis. The relative political and economic stability ofthe 'long boom' period (deqpite occasional balance-oÊpa5ments crises) resulted directly from Federal and State Governments' active roles in delimiting and e,nhancing the envhonment in which the agriculnue'finance relation operated. This interve,lrtion created the necessary conditions for finance capital to invest in agricultural production on the farm sectors' (and the nation- and regional-states') or¡m terms. From 1945 to 1972,Federal and State Governments attempted to circumscribe the operations of the agricuttrue-finance relation. As noted above, however, the selective character of state interve,ntion meaût that, although the coercive and strictly- qis m¿intained macroeconomic environme,nt sf dme ensured the stability ofthe e,ntire financial syste4 these conditions also hampered the profitability and entrepreneurialism of tÏe benks. 7.2.3. 1973-1983: The Regulated Australasian Agriculture-Finance Relation in FIux At an intemational lwel the collapse of the Bretton Woods Agreement in 1971 and t.he fallout ûom the OPEC oil "shock" of 1973 signalled the end of the intemationally-co- ordinated regime of currency manageme,lrt which had underpinned the economic proqperity and stability of the post-WW II era. In its place came the TNCs and their financiers, which had both parasitised this regime and simultaneousþ acted as the only mechanisms by which the reeime could operate in its final days. The forces released by this collapse were 168 transmitted unwenly around the globe. While Australia had maintained a strict regulatory system of its oum, it had tacitly tolerated the involveme,nt of global capital in the financial systemvia its participation in the NBFI sector. Later,in measures which partially explain why the regime began to decline in the first place, global capitalvia merchant benks was used more explicitly but selectiveþ bV the nation-state to help fund the mineral resources booms ofthe late 1960s and late 1970s and the Whitlam Govemment's first term expe,ndinue. Nwertheless, while most other nations adopted floating exchange rates in the wake ofthe collapse ofthe Bretton Woods Agreement, Australia persisted with a fixed exchange rate, only partly acceding to the strong demands for financial deregulation. This allowed intemational financiers and currency speculators to play offAustralia's füed foreþ exchange rate against other floating currencies, oausing the Reserve Bank to, attimes, strongly intervene to maintain the $A. Such intervention was usually costly and reinforced the fragility ofAustralia's "dual economy" (Linge, 1988) and its regulatory ûamework. The emergence of surpluses in Australia's traditional e>Eport markets ûom the l9ó0s - intemrpted only by a brief period of food shortages following the sales of US grain to the Soviet Union n 1972-73 (Friedmann , lgg3,39-40) - essentially marked the beginning of the widespread crisis oonditions which have beset agriculture and agricultural policy at an intemational and national level since.2 Particularly, the emergence ofthe EEC as a siqnificant farm commodity orporter (and, as a corollary, with a farminput import replaceme,lrt sector that reduoed its reliance on US feed grain imports (Friedmann , lgg3, 37)) and hence, as a potential rival bloc to the US, r¡ndermined the trading conditions under which Australian farmers had beoome accustomed. The oollapse ofthe "integrated Atlantic agro-food sector" (as Frierlmann (1993, 37) describes the mutually interdependent agro- commodity trade flows between the US and the EEC from 1945 to the mid-1970s) in the 2 A cursory glance at the titles of many recent articles and bools grouped into the "agrarian restructuring" literature from the last decade or so reveals an explicit and widespread concern with this theme: The International Farm Crisis; "The Political Economy of Food: a Global Crisis": Capitalism and the Countrvside: The Rural Crisis in Australia; "The Historical roots of the Present Agricultural Crisis',, " The Farm Crisis and the Food System: some ¡eflections on the new agenda". 169 wake ofthese surpluses had ramifisations for other players in the intemational farm commodity market as the US and the EEC sought 1s dilpose of farm surpluses at each othet's expense. Australia found that it oould no longer afford to support the farm sector to the extent that it had become accustomed to. This was no better illustrated than by the Fraser LiberaVCountry Party Government's decision not to reinstate maûy of the concessions and forms of state assistance lost to the farm sector during the brief reþ ofthe Whitlam Governme,nt. It also deliberately maintained an inflated exchange rate to facilitate a local mineral resources boom- These economic imperatives were buttressed by a compatible ideologioal perqpective - monetarism - which increasingly gained favour in the place of the post-Second World War dominance of the Kelmesian mode of economic mânagement. Although the Fraser Govenrme,nt shank from more direct financial zupport for the farm sector, it initially maintained, and later expanded the public farm credit instrumentalities. This strategywas, howwer, in accordance with the prwious policy shift away from the blanket expansion and inte,nsifioation of agricultural produotion to an emphasis on farm amalgamation and adjustment, thus encouraging the concentration of production into larger farm r¡nits. This shift was compatible with the appare,nt resolution ofthe farm adjustment policy debate in favour of a more market-oriented approach. For the influential Schapper (1970, 99), an economically-rational but sooiaþ just farm adjustment policy had to recognise a number of key premises. Three of the core premises were: (l) That agriculture's cost-price squeeze will continue indefinitely. (2)That an increasing volume oftotal farmproduction is consistent with fewer farmers. (3) That economic efficiency of farming is more important to Australia than the number of farmers. This premise precludes placing the burden ofthe welfare of small farms onto large farms (Schapper, 1970,99). t70 Betwee'n 1954 and 196ó the number offarmers decreased by l5 per celrt, while farm output grew by 45 per cent (Schappe4 1970,99). It can be seen, then, that the Australian agriculture-finance relation was undergoing significant change prior to the deregulation ofthe financial system in 1983. I>rior to lg7l, public fnance played an integral part in farm borrowing, and state assistance to the factors of agricultural production heþed secure the private financial institutions' investment in farming. From 1972 otwards, howwer, strategic changes to the public farm finance providers, combined with a decreasing state commitment to agriculture generally and the depressed condition ofintemational farm commodity markets, exacerbated low farm investment lwels, low profitabilify and increasing farm indebtedness. Although the National ParE Government implemented a piecemeal reform of its industry policy and financial system during the late 1970s and earþ 1980s, it may be assumed that New Zeùandfarmers were not as e>çosed to these crises as their trans-Tasman counterparts because ofthe more exte'nsive and intensive network of state protection and New Zetland,sesmfarative drought-pro of nature3. 7 .2.4 1983-The hesent: The Globalised Aushalian Agriculture-Finance Relation The following two zub-sections contain separate analyses ofthe globalised agricultue'finance relation in Australia and New Zealand,. This separate examination is necessary for the following reason: although the New Zealandpost-I934 agriculture-finance relation is essentially the same as the Australian mode! the sheer volume of research into the local- and individual-level impacts ofNew Zealand's economic and social restructuring allows tle dwelopme,lrt of an abstract argumelrt regarding fts imîact offnancial deregulation on isolated farm families and rural oommr¡nities. This argument will inform the Kangaroo Island case study contained in Chapter Th¡ee. 3 This is not to suggest that New Zealand farmers do not occasionally suffer from drought. A severe drought ontheSouthlsland'sCanterburyPlainsinlg88andlgSgseriouslyaffectedlocalsheep graziers(CampUett, 1994, 81). t7t The period from the floating ofthe exohange rate in December 1983 to the present has seen the gradual but assured transition ofthe Australian agriculnue-fnance relation from a higùly-regulated and circumsoribed structure to a higbly-volatile network of relations, permeable to the flows of global capital now circulating freely within the Australian economy and sripped ofmuch of its regulatory zuperstructure. This globalised and deregulated agriculture-finanoe relation is represented in Figrue 7.2, allowing the changes in this structure over the last 50 years or so to be seen via comparisons with Fig. 7.1. ln the following, the main modifications to the operation of the Australian agriculnue- finanoe relation due to financial deregulation will be briefly summarised. The deregulation of the Australian financial systemwas part of a more ge,neral drive by the Federal Government to establish its new role as a hanrlmaiden to the market. This transition inplied losses of state zupport not only for the farm sector. Manufaoturing industries, particularþ the hitherto highly-protected textiles, clothing and footwear industries, suffered dramatic, if gradual tariffreductions r¡nder the Hawke Labor Govemment. Exposing the farm sector more to the vicissitudes of global capital was, then, mereþ part of a more comFrehensive strategy to restructure all sectors and scales of the Australian economy. Figure 7.2hi+hliehts the swere weakening of the nation-state's intemal relations with the other entities involved in the agricultue-finance relation. The state's prwiously coercive role in the structure has been replaced by a more forma[ non-partisan position. Its inte¡ral relations with the other entities are similarþ more formal and consistent. He,nce, tle state's prwiousþ multi-layered relations with the major trading banks has bee,n pared back to a more formal internal relation concenring issues ofprudential zupewision and the aotion of monetary policy on interest rates. The privatisation, commercialisation or scrapping of the various ssmponents of the vast network of public agricultual finance instrumentalities and programmes has swered most of the intemal relations between the state and farmers, with the RuralAdjustment Scheme (RAS) ¡sm¿ining as the Govenrment's sole concessionary finance mechanism for farmers, albeit (as the 1i1ls imflies) with a significant 172 adjustment eleme,lrt. Natural disaster provisions ofthe RAS are also an imf ofant aqpeot of the RAS for farm families, given their depe,ndence on and vulnerability to the physical e'lrvironme,lrt. As noted in Chapter Four, the concessional functions ofthe RAS are increasingly being whittled away. With the state now allowing the full elaboration of global capital in the domestic economy, and the extemal link (the exchange rate) now floating and so effectively manipulated by intemational judgements (largeþ short-term), the whole agricultue-finance relation has been exposed to a great deal more volatility than heretofore. As Chapter Five makes clear, Australia's intemal and extemal economic vulnerabilities, and its inability to sotve them, have not received qryathetic judgements from the intemational money market traders and financiers who now, by and large, control the exchange rate and significantly influence interest rates. In zuch a deregulated environment, the propensity for such balance- oÊpayme,lrts orises to occur (or the impact of intemational crises to be transmitted to the Australian economy) have increased, while the ability ofthe state to solve such crises has oorresp ondin gly dimini shs¿. With financial deregulation, ttre internal relations between financial institutions (trading and savings banks and stock firms) and farm borrowers were stripped of their concessional aqpects. For the first time in nearþ 50 years, banks and stock firms oould provide credit to farmers on firlly commeroial terms, with the market conditions for the various farm commodities, the price of funds and the lender's ability to choose investments that would retum t.he average rate ofprofit unfxed by the nation- or regional-state. Such conditions obviously required new levels of expertise, placing new reqponsibilities upon the actors within the relation and introducing newvulnerabilities. The majs¡ trading and savings banks competed fierceþ for market position in the immediate wake ofthe deregulation, particularþ in the face of tle proqpect ofthe establishment of 16 foreþ banks in the Australian banking system after 1985. Farming, for the first time in decades, stood on its oum merits alongside all other sectors ofthe eoonomy as an investment site. In the more competitive environment following deregulation, banks t73 ß\g. 7 .2. The Globalised Australi an A gricul ture. Fi nance Rel ati on 1983-The Present Farm Families Groups Creation of Surplus Inlercst iz 6 Central Banls Bank Stock F¡r¡rrç 3 State I Shareholders/ lnvestors Depositors Relations that weakened relative to higbly-regulated agriculture-finance relation - Relations that have maintainecl strength relative to highly-regulated agnculture-tìn¿ulce relatir ------. National ecouomy and hnancial system now open to intemational and glonal capital 1 : Minimal controls over capital ci¡culation disasterrelief 2 =Funds for adjustrrent andnatural administered solely by interest rates 3 = Monetary policy policy ad¡ninistered solely by interest rates 4 = Monetary 5 = Free from state intervention complete rela,'Gtion of regulation 6 = Enhanced by t74 have bee,n forced to become more autonomous in their management oftheir balance sheets, manifested a tre,nd which has itself in: increased fees and charges for ba¡k services as part of a sector-wide shift towards a fül "cost-recovery" philosophy; an equally general push for worþlace "flexibility" as part of a campaig to provide customer services outside ofnorm¿l bank \¡¡slking hows (Barlow, Junor and Patterson, 1993, a3-46');and attempts to rationalise the exising branch network (House ofRepresentatives Standing Committee on Finance and Public Administration, 1991, 271;'Boyd and Mobbs, lgg3,35). while a wholesale abandonment of farm and rural business and retail banking would have made little sense, the evidence suggests that farm lending would proceed on purely commercial grounds, largely r¡nmediated by nation- or regional-state directives or assistance. With the remova! privatisation or commercialisation ofthe wide array ofpublic farm lending institutions and programmes, the maje¡ trading and savings þanks dweloped their oum financial products for the farm sector, seeking to meet the particular needs of farmers and agribusiness. In one sense, this could be seen as a ooncili atory act on ttre behalf of the þanks in aiding farm businesses to manage their finances in an increasingly complex environment. Some banks established qpecialist "rural finance teams", regional ce,lrtres for farm finance and the like (HRSCFÐA, W9l, Z7Z) With interest rates and farm inoomes zubstantially influenced by the complex interactions of intemational commodity and money markets, and with tle tlreat of foreþ competition in the banking sector (at this stage still largeþ unrealised), the banks' room for error would have increased dramatically. Their disastrous experience with foreþ cwrency loans demonstrates the responsibilities and vulnerabilities inherent to this new structure. This episode displayed emphatically the inadequate lwel of knowledge and e4pertise of both bank managers, officers and farmers in the new era. The emphasis since, for banks and agricultural extension services, has been on lifting farmers' financial mânagement ability. The altered social relations and organisational composition of production that resulted from the credit-based expansion of the farm sector can, at best, be said to have had rather ambivalent effects on rural tornms and communities. The credit-based zubstitution of t75 capital goods for labour that began during the earþ 1950s gradualty eroded local farm labour markets, while the inoreased concentration of farm oumership also reduced the size of meny toums' potential clientele. As noted in Chapter Four, many small towns declined relative to the grorvth of regional ce,ntres druing the 1950s and 1960s. These tre,nds also exacerbated social divisions and tensions within local class and status systems (Lawre,nce, t987,4I-42). 7.2.5The Globalised Agriculture-Finance Relation in New Zealand Essentially, the New Zealand post-deregulation agriculture-finance relation strongly resembled the Australian model ofthe same period (Fig. 7.2). Howwer, as disoussed in Chapter Si¿ the change towards a market-oriented regulatory regime was more dramatic in New Zealand than in Australia. The cessation of concessional interest rates on farm lending fundame'ntaþ changed the rules for farmers who had bonowed to expand their holdings in accordance with the prwious policy stance. For all the financial institutions, the freedom to souroe fi¡nds from oËshore money markets, charge market interest rates and manage their or¡m loan portfolios (the RARS was abandoned in 1984) provided a much-desired level of autonomy and profit-making potential. As in the Australian situation, these new opportunities also imfosed new responsibilities, and hence, newvulnerabilities for all entities in this structure. For exaryle, foreign crurency loans were offered to apparently secure and well-placed farmers to enable them to expand their holdings and the like. A number of farm familiss lost vast amor¡nts of capital. One of Campbell's (1994,245) interviewed farmers lost NZ$350 000 on a loan de,lromin¿1sd in Swiss francs. It is helpful to analyse the regulatory change from two lwels: firstly, by looking at 1þs imf act ofthese reforms upon the operation of the New Zealand agriculture-finance relation; and secondly, by examining the concrete impacts ofthe post-1984 reforms on farm ¡¿milies. The following discussion deals with these facets in tum. In New Zealand, as in Australia, the switch to a pureþ market-oriented form of credit allocation was thought to correct the distortions that had occurred under the previous regulatory regime. Walker and Bell (1994,39) discuss the in-fluence of concessional finance t76 prior to deregulation in artificially raising and m¿intaining land prices - and thus making it rlitrcult more for young farmers to enter farming - stimulating over-production, directing land dwelopment into e,lrvironmentally-unsuitable areas and "crowding-out,'the private benks in the farm lending market. With the gradual commercialisation and wentual privatisation of the Rural Bank, agriculture for the first time would be assessed as a site for investment on similar criteria to all other sectors. Eviderce suggests that traditional modes of farming were not attractive to institutional investors. In ttre immediate post-deregulation period, banks shifted their focus to share market and urban propertyventures and away from agriculture. Simultaneously, loan repa)mxexrt criteria came to depend on cash flow, instead of security. This is not to say that investment interest in farming dried up completely, though. As Le Heron (1993a,162-163)notes, the share-market boom ofthe mid-1980s included - apart from a boom in the number of financial servioes companies - a qpate ofnew company listings centred on the less mainstream agricultural industries, including goat and deer farming and horticulture. Significantly, ten out ofthe 33 new company listings were placed under receivership following the stock market collapse of October 1987, undertining the lack of discretion that characterised many investment decisions ofthis era - a further parallel with Australian e4periences. The sienificance of these trends for the globalised New Zealand agriculture-finance relation lies not only in thei¡ illustration of the vast complexity of financing mechanisms and linkages that are now possible. They also display the relative (un)attractiveness of farm lending in the radically-different financial climate in which family farming was zuddenly located. In this context, the commercialisation and privatisation ofthe Rural Bank cannot be over-emphasised. Following the dictates ofthe new order, the Rural Bank became fundamentally involved in delivering the new policy approach. The Rural Bank Discounting Scheme, introduced in July 1986 in the wake of the rapid and politically-embarrassing debt crisis (see Chapter Six), was vital to the restructuring of the Bank's loan (and bad debt) portfolio prior 177 to its privatisation just as much as it was socially necessary for the New Zealand Government to be see¡r 1o 6s ds¿ling with the farm debt problem (Le Heron, 1993a, 160). Ofthe NZ$229 million written-ofby all banks and stock fi¡ms from earþ 1986 to mid- 1987, the Rural Bank'¡¡¡s1e-offNZ$209 million (Carybelt l9g4,Z4O). The privateþoumed banks and stock firms adopted a range of strategies to mediate their oiposure to the post-1984 reform farm debt crisis. Accorrling to Campbell (lgg4, 241), institutional creditors oould be olassified as either'benign" or "aggressive". Most farm debt was held, fornrnately, by'benign" creditors: Rural Bank, AMP Insurance, PGG and National Benk. These creditors, realising the entre,nched nature of the debt and income crisis and the problems posed by the 'piecemeal' nature of many farmers' borrowings, realised that the best strategy to ensure some retum from these loans was to be patient and wait for ¿n imfrovement in the wider farm economy. Aggressive creditors, like Benk New Zealand (BNZ) and Wrightsons, on the other hand, wanted all bad and doubtful debts erased from their books. Scale relations \ilere an imPortant influence in the belligerent approach taken by these institutions to their farm debtors. BNZ's stance was partly attributable to its rlifficulties with foreþ exchange loans. Wrightsons, part ofthe influential conglomerate, Fletcher Challenge, became strongly influenced by its pare'lrt's disdain for farming in the post-deregulation period. Following its acquisition of Dalgety Croum in 1986, Fletcher Challenge sought to reduce its entire exposure to the farm sector by retrieving its outstanding bad debts (Campbel\ 1994,242- 243). Farm families responded to the switch to a globalised agriculnue-finance relation by employing a bewiltlering alray of survival strategies. Table 7.2 summarises the tactics used by creditors to retrieve farm debt and some farm family and farm organisation reqponses. While most of these resistance strategies were, admittedly, fs¡sst¿lling the inevitable, cumtrlative and collective farmer resistance did occasionally transform the power relations between institutional creditors and farm debtors. The New ZealandFederated Farmers rallied to the support of tlreatened farm families by picketing and blookading mortgagee 178 _ auctions. The bad publicþ that attached to the banks and stock firms tlrough continued 'his action of tlpe forced we,n the 'bggressive cred.itors" to use more subtle and, at times, conciliatory approaches (Campbelt 1994, 259-260). As noted in Chapter SB the choice of strategy/ies, and evelr if a survival strategy was considered necessary or not, was influenced by a range offactors. These included the life-cycle stage ofthe family, the family's debt load and ability to access extra fgnding, extended family support, the ability of family members to 'tap in' to local labour markets, among other factors. The important point to note is that New Zealandfarm families activeþ resisted the zudden change in policy and its impacts on farm incomes. Where þanks and/or stock firms have pressured indebted farm families, these familiss, too, have contested, and occasionally outsmarted, these creditors. It is possible, in short, to talk of the structuration of the agriculture-finance relation. With regard to the altered frrnotioning ofthe agricultue-finance relation, New Zealand, farmers are confronted by an institutional setting no longer consciously ¿iming to maintain the family farm structure. It seems inevitable then that farm lending will proceed on a qualitatively (and probably quantitativeþ) different way to what it did in the pre- deregulation period. Fairweather (1992), following tle "shake-out" of many of the most seriousþindebted farmers, has found that while fumily oumership ¿¡1d man¿gement of farms is on the increase, there has been a trend towards concentration of farm oumership, with a decline in mid-sized farms and an increase in large and small farms. As Le Heron (1993a, 163-164) has observed, the presewation ofthe family farm structure of New Zealand agriculture may, in a functional sense, act in the interests ofnon-farm capitals, removing from this latter group the need to be involved in the naturally-risþ agricultural production process. However, Campbell (1994,139-190) demonstrated that real subsumption increased only marginally in his interviewed Ashburton County farm families from 1986 to 1992. Formal subzumption levels were high tlroughout the period, emphasising the hign degree of dependence of capitalist farming on oËfarm inputs. t79 Table 7.2. úeditor Tactics and Farm Responses Creditor Tactics Some tr'arm Responses Refusal to extend seasonal finance Input reduotion, personal austerity, seek oft farm sources of income, black economy - selling over the fence. Management approval of all spending Transfer input purchasing to ATSf Pe,naþ rates Attempts to reduoe core debt, 'freeze' repalments. 'Fteeze' cheque books or dishonour 'Freeze' mortgage repalments, use ATS, cheques. eam oÊfarm cash, black economy and bartering. Demand re-prioritisation of mortgages or Co-operate in order to bargain for better increased stock securiw or crop liens. capitulate, or refuse. Demand sale of diqposable assets to reduce Hide savings, insurance,legacies, etc. from core debt. bank Demand budgets. Generally co-operated. Demand sale of farm produce. Refirse or accept. Visits from bank ofrcers. Refuse entry to the farm or 'disappear' whe,n officers arrive. Harassing calls and letters. Stop answering telephone, 'lose' mail. Issue PLAf notice. Picket auction of farm- T ATS = local farm zupplies co-operative. t A PLA notice is a Property Law Notice issued by a creditor to notify a mortgage holder that legal action is about to commetrce to recover outstanding debt owed to the creditor. Source: Campbe[ 1994, 251. 180 New Zealand's rural commr¡nities suffered badly from the impacts of agricultural deregulation through a combination of sharply declining farm incomes, the gradual loss of a large number of farm families and the withdrawal of the state social service infrastructure (Wilson, 1995). Changing scale relations were also an imFortant aqpect of the local community and business responses to the crisis (see Chapter Six). Nevertheless, ifthe trend towards the encouragement oflarger farms and more global corporate involvement in New Zealand's agro-commodity chains continues, rural commr¡nities are likely to be differentiated by their relative comparative advantage across a range of ecologica! geographica! infrastructural and labour market attributes. 7.3 Conclusion: Global-National-Regional-Local: A Hypothetical Argument Concerning the rmPact of Financial Deregulation on Farm Families and Rural Communities From the foregoing it can be seen ttrat, while it is problematic to qpeci$ the effects of a globalised agriculture-finanoe relation on farm families and rural communities outside ofthe spatial and historical qpecificity in which these effects are observed, it is possible to identify some important basic principles and tendencies inhs¡sn1to this relation. Hence, it is possible to h¡pothesise about a range of effects that may be expected from the operation of this relation in another location, gven certain conditions. The astonishingly strong similarities between New Zealand and Australia's political and economic development and experiences ofthe deregulation process make the establishment of zuch a framework for the following case study of agricultural and rural restructuring in Kangaroo Island a less qpeculative exercise. This and the previous two Chapters have shown how the shift to a globalised agriculture-finance relation institutes a thorough-going reformulation of scale relations within societies and economies, as well as subverting previousþ established norms and expectations regarding farm planning, farm lending and borrowing. The new regulatory regime creates the possibility that farm investment will be viewed in a totally different way 181 than heretofore oiperienoed. The introduction ofmore global imperatives in the assessment ofthe relative attractive,ness ofvarious investment avenues potentially places agricultue (particularþ family farming) on a new footing in credit relations. In this new milieu, it can be safely predicted that farm businesses will be differentiated by financial institutions aocording to their relative ability to produce retums at least oommensurate with other sectors ofthe economy (i.e. the average rate ofprofiÐ. In these circumstaûces, large4 more highly capitalised ventures are likeþ to be favoured because of their sheer presence in the market place. This is not to say that smaller farmers are unlikely to be able to acoess zuitable financs, but that large farmers and agribusiness will increasingly become the "benchmark" against which all other farmers will be assessed. Farm businesses that cannot demonstrate this same capacity to deliver the average retum to capital will pay extra for their finance needs ("risk marsins"). All this points to a radical 1s¿ligîment of the traditional causal powers and liabilities inherent to the agriculture-finance relation, with financial institutions now much more able to direct the structure along purely commercial lines. fu this situation, increased financialvulnerability seems likely for many farm families, as they struggle to attain the economies of soale required to remain competitive, neoessarily involving more borrowing. As noted above, there are likely to be penalties for farmers unable to adequateþ demonstrate this competitiveness. For many farmers tlough, increased indebtedness will result from the transition from a regulated to a deregulated agriculture- fnance relation, as the economic vulnerability tlat stems from a reliance on concessional credit and other forms of state zupport is exposed. As Campbelt's (199a) case shrdy demonstrated, the stance adopted by institutional creditors to e,lrtrenched farm debt was strongly influenced by the hierarchical nature of the institution and its broader scale relations. Institutions that were subsidiaries of larger corporations were very much govemed in their negotiations with indebted farm families by the parent company's attitude to farming and broader investment strategies. Howwer, New Zealand farm familis5 atr¿ 182 farm organisations have been adept at actively resisting, contesting, sometimes slightly altering, and finally, adapting to the new regime. These are ttre basic tendencies ofthe globalised agriculture-finance relation. It should not be interpreted to mean that all farmers will be subject to all of the stresses discussed above or that they will reqpond in uniform ways to these stresses. Indeed, it is the uneven impact ofthese credit relations that gives the structure its continual motion. Farmer-creditor relations will not, however, be a virtual lay-doum mesaire for financial institutions, for it is possible that political conflict may help resofue some enduring points of tension. It is now necessary fs s¡¿mins these claims in the concrete setting ofthe following case study ofKangaroo Island, which forms part Three ofthe thesis. 183 PART THREE CHAPTER EIGHT: KAIIGAROO ISLAND - THE REGIONAL SETTING 8.1 Introduction Part Three ofthis thesis is a case study ofthe changing national agricultrue-finance relation's impact upon Kangaroo Island farm families and nual society, and how these entities have reflexively interpreted, resisted and/or adapted to these changed relations. This chapter begins tlis case study by examining the historical development of Kangaroo Island as a site for community and economic activity and as a local scale for broader scale politica! social and eoonomic processes over time. As zuch, this chapter sets the context for the case study of the regulated and deregulated agriculture-finance relations contained in the following chapters. A long-term historical perqpective is necessary to graqp all of the relevant influe,lrces upon Kangaroo Island's settlement pattem, the lwel and nature of economic development, the evolution of a particular Island "culture" and its settlers' development of a plaoe-bound identity. In this sense, the past oan be interpreted as a set of continuaþ evolving mora! legal and economic rules and mores that have interwoven with each other, to be carried into the present and projected into the fttue. Consistent with the transformational model of social activity (TMSA) outlined in Chapter Three, these remarks higùlight the problematic, conflictual and "dialogical" character ofthis reproduction process (Thrift, 1991,461). These nonns "... are not brought into being by social actors but continually recreated by the4 via the very means whereþ they express ttremsehes as actors" (Giddens, 1985, 2).In a variation of the Manrian aphorism, it oan be said that people make their own geography and history, but not always in the manner oftheir own choosing. What this brief cultural and economic geography of Kangaroo Island hopes to convey, then, is not just ¿ simple description ofthe natural setting and historical 184 dwelopment ofthe social and economic structure ofthe case study area. It aims to analyse tle ways in which the Island community has dweloped its own set of rules and mores over time and accorditg to its or¡m needs, and how its political and economic relations with broader scales have wotved. The Island's biophysical environment has been a central element in this 'culture- building'process, not least because oftle Island community's economic dependence on its agricultural resource base. As Frawley (1992,230) notes, "a people's cultual identþ is forged and evolves in part through the interactions with the environment(,) part ofwhich becomes existential or 'lived in space' ... In a circular process, the cultural identþ so established contributes to newvisions which influence future environmental interactions,,. The earþ French regional geographers' suggestion that places become a medal struck in the likeness of a people is an important and relevant point, providing that it is also recognised that cultural processes of conflict, resistance and adaptation heþ make the mould and pour the metal. The following section describes briefly then, the physical geography of the Island before analysing the cumulative human-induced and controlled processes which have transformed it. 8.2 The Physical Geography of Kangaroo Island Kangaroo Island (Figs. 8.1 and 8.2) is the largest island offthe South Australian coastline, and in size is second only to Tasmania in the entire southem Australian island system (Northcote, 1979,39; South Australian Department of Environment and planning (SADEP), 1991, no page numbers). Lþg approximately 140 km south-west fromAdelaide at its nearest point to the State capital it is about 60 km wide at its broadest point and 145 km long (Northcote, 1979,39; SADEP, l99l). Its distance from the mainland at its nearest point is only 13 km, however (Australian Bureau of Statistics (ABS), 1994,313). Its total area is approximately 3890km'z (Northcote,1979,39; SADEP, l99l). Geomorphologically, the Island is a "high plain or plateau that has been incised by rivers and streams on botl its northem and southem flenks" (Daily, Milnes, Twidale and Boume , lg7g,l). Geologically, it is part of the Mt. Lofty Ranges unit, comprising part of the thick sedimental wedge 185 known as t.he Adelaide Geos¡arcline (Daily, et al., 1979,l). These sediments were deposited over 500 million years ago and were "subsequentþ folded by movements in the Earth's Crust and extruded (sic) by granite. Sinoe that time the rocks have been eroded by various weathering agents inoluding glaciation" (ABS, 1994,313). It is now separated ûom its geological kin by Backstairs Passage (Fig. S.l). During the Mid-Miocene the Island was tilted towards the south-east by block faulting and compressive movements that affected the e,ntire Adelaide region (Daily, et al., 1979,29). Burrows (1979,63) conoludes tlat Kangaroo Island's climate is tlpical of smaller islands, being predominantly cool and temperate and with a reliable rainfa[ "but with a distinct winter maximum". Its climate, theû, is distinctly "of a Mediterranean tlpe', (Northcote, 1979,39). The Island enjoys a more reliable clim¿te for pastoral production than many otler areas ofthe South Australian mainlard. Howwer, by far the most important physical influence on the Island's social and economic dwelopment has been its soils: the medium for agricultural production. The Island's soil geography has acted as a qpatially selective constraint upon tle agricultural developme,lrt ofthe Island since European settleme,lrt. Ten broad soil-landsoapes cover Kangaroo Island, but two - the Seddon and Gosse plateau unitsl - comprise around three-quarters of the Island's total area. At a broader level of anaþsis, Northcote (lg7g, 44- 45) identifies four major particular soil-environne,nts: l) alkaline sodic complex soils; 2) cracking clays; 3) shallow, red-brown sandy soils; and 4) acid duplex soils (found in tle Seddon and Gosse soil-landscapes). The main characteristics of these soil types and their locations are given in Fig. 8.3 and Table 8.1. ft will prove useful to bear this rough soil geography in mintl in the following analysis ofthe cultual and economic geography of Kangaroo Island. I The extent of these two soil units marks the physical expanse of the plateau, a prominent geomorphological and cultural feature of the Island. The plateau, refered to locally as 'The Kohinoor', rises between 100 metres and 300 metres above present sea level, and is tilted f¡om the north to the south (Northcote, 1979,42). 186 X'igure 8.1. Kangaroo Island NT. I ord. I WA. t- SA i-'-'-' i ¡¡,s.w. E 5 PtNCf I GUI,F î 0 ( GUI,F OF OE \ 5 T VINC€NT \ r NyEsilc¡foR Sf¡^lt ngsco O O 20 3OXm neshaw o Parndana 187 X'igure 8.2.1961Cadastral Map of Kangaroo Island oIA z o M CN-¡ 4 o L< M t, È Y O o o. () z s¡ o = 4 E F q I ¿ ic t rÊ ú iz I 188 On a balanced assessment of its bare natural and physical attributes, Bauer (1959, 258) stated that "...it is clear that Kangaroo Island \¡/as not a particularþ amenable site for human activity". These physical limitations did not hinder some ofthe more imaginative and optimistic plans for the commercial e>çloitation ofthe Island, howwer. Since white settleme,nt, the Island's history has bee,n domin¿1s¿ by the efforts of zuccessive entrepreneurs and speculators, both public and private, large and small, to profitably hamess the natural features ofthe Island and/or establish a sociaþ and economicallyviable society in the image of the mainland yeomanry. These ambitious plans were, at least until the earþ to mid-¡ventieth century, conceived in ignorance oftwo vital factors: l) the physical capacities of the soils on which they were based; and 2) the effects of ttre small but significant "tyranny of distance" between Kangaroo Island and mainland markets and commr¡nities of interest. Nwertheless, this sequence of ambitious attempts and disappointments formed a cumulative knowledge base for the later successfrrl domestication of the Kangaroo Island environment. Simultaneously, the wave pattem of adventure and failure wove a rich and complex sooial and eoonomic tapestry of Island dwelopmelrt. 8.3. uncertain Beginnings: The Cultural and Economic Geography of Kangaroo Island to 1900. 8.3.1 Discovery and Unofficial Settlement prior to 1g36 Kangaroo Island's history ofwhite European colonisation does not, like that of most other frontiers of Australian settlement, mingle bloodily with the history of Aboriginal occupation. The Island \¡/as apparently unoccupied when it was discovered by Matthew Flinders in 1802. The first signs ofAboriginal occupation on the Island were uncovered in 1903. The Kartan people (taken from the Ramindjeri name for Kangaroo Island, Karta) are estimated to have existed on the Island from around I I 000 years before present (8.p.) - at least prior to the Island's isolation from the mainland by rising seas around 9 500 B.p. - until 189 Table 8.1 Soil-Environments of Kangaroo Island Soil-Environment Major Characteristics Geographic Locations Alkaline sodic duplex Sandy and hardsetting, most har¡e grey sands Menzies hills, Wisanger, soils to sandy loams overþing white subsurface Penneshaw hills and ranges, sands to sandy loams, which werlay coarsely Cygnet and MacGillirnay structured clay subsoils. These clays contain plains. sodium, which leads to the lateral dispersion of water from the soil profile in late winter and spring. This depletes subsoil moisture, thus shortening the season and reducing plant productivity. Parent clays derived f¡om basalt. Great Wisanger plateau, Menzies Cracking Clays shrinking and swelling capacities during hills. wetting and drying cycles. The soils best supplied with plant nutrients in the Island. Red-Brown Sandy Mostly shallow sandy soils derived from Linois plains - western pofion Soils parent material of calca¡enite. Animals of Dudley Peninsula, extensive grazed on the natural pastures ofthese soils areas ofthe South Coast and suffered from "coast disease", due to copper MacGilliway. and cobalt deficiencies. Characteristic ofthe Gosse and Seddon soil- Seddon and Gosse plateau, Acid Duplex Soils landscapes. These soils, particularly those Penneshaw hills and ridges. with ironstone gravel, ditricult to work - especially in combination with their accompanying suite of dense, low stringúark woodlands. Prone to winter-spring waterlogging due to impermeable clay subsoils which hinder the establishment of prevailing pasture species. Under conventional agronomic practices, these soils are prone to salinity. Source: Northcote, 1979, 39, 44-46 fal Cape Cassini Pt. Marsden úcl 0 5 10 20 30kms æ Cape (, (n KINGSCOTE o Nepean Bay I Penneshaw Þ Cape Borda River êút) t9 15 (D FUNDERS CHASE (n Cape otrà Willoughby t¡AT PARK X À? 0e D'Estrees Bay Þ|.l o l-l Vivonne o Maupertius Bay Bay Þt Area of earliest settlement È Cape du Couedic Cape Gantheaume (A o UNIT I-ANDSCAPE DOMINANT SOILS (l f? Seddon plateau undulating upland with valley sideslopes, swamps, lakes duplex soils containing ironstone gravels: Dy3.6, DyS.g4 z Gosse plateau o hilly upland with valley sideslopes, swamps, lakes acid duplex soils: Dy5.41 ,Dy3.41 plus soils of unit Seddon plateau t McDonnellhills steep hilly upland (l shallow grey-brown sandy soils: Uc6.11 with some duplex soils +o Linois plains rough, (D broken calcarenite lowlands pockets of shallow red-brown sandy soils: Uc6.13 Gantheaume dunes hilly uplands deep calcareous sands: Uc1.1 1 \o \o\¡ Wisanger plateau upland plains cracking clays: U95.2, .3 and alkaline duplex soils: Dy3.43 UJ Menzies hills undulating uplands and plains \o alkaline duplex soils: Dy5.43, Dy5.B3, Dy3.43 and cracking clays UgS.2 Penneshaw hills & ridges hilly uplands with lateritic remains alkaline duplex soils: Dy5.43, Dy3.43 and acid duplex soils: Dy5.61, Dy3.61 Cygnet plains subcoastal, riverine lowlands alkaline duplex soils: Dy5.43 Macgillivray plains subcoastal lowlands with swamps; lagoons, lunettes alkaline duplex soils: Dy5.43 and leached sands: Uc2.2 \o O ãr Cape Ft. Marsden oa 20 æ 0510 30kms (¿) Cape KINGSCOTE (t I Nepean Bay Penneshaw Þ¡ Cape Borda River çr) ?) À? rt(D FUNDERS CHASE Cape lil Willoughby X NAT. PARK Þ¡ oa â? D'Estrees Bay ¡l (u Vivonne - Maupertius Bay Þ Bay Area of earliest settlement (t) Cape du Couedic Cape Gantheaume o E UNIT LANDSCAPE DOMINANT SOILS (l ft Seddon plateau undulating upland with valley sideslopes, swamps, lakes duplex soils containing ironstone gravels: Dy3.6, Dy5.84 z Bo Gosse plateau hilly upland with valley sideslopes, swamps, lakes acid duplex soils: Dy5.41 ,Dy3.41 plus soils of unit Seddon plateau (l McDonnell hills steep hilly upland shallow grey-brown sandy Uc6.11 with soils: some duplex soils (+o (D Linois plains rough, broken calcarenite lowlands pockets of shallow red-brown sandy soils: Uc6.13 \o Gantheaume dunes hilly uplands deep calcareous sands: Uc1.11 \o{ Wisanger plateau upland plains cracking clays: U95.2, .3 and alkaline duplex soils: Dy3.43 (JJ \o Menzies hills undulating uplands and plains alkaline duplex soils: Dy5.43, DyS.83, Dy3.43 and cracking clays U95.2 Penneshaw hills & ridges hilly uplands with lateritic remains alkaline duplex soils: Dy5.43, Dy3.43 and acid duplex soils: Dy5.61 , Dy3.61 Cygnet plains subcoastal, riverine lowlands alkaline duplex soils: Dy5.43 Macgillivray plains subcoastal lowlands with swamps; lagoons, lunettes alkaline duplex soils: Dy5.43 and leached sands: Uc2.2 \o 192 from Sydney n 1827 to "round up the worst offenders" (sADEp, 1991, no page no.). The core ofthe permanent (but nwertheless scattered) settlers remained however, including Nat and Betfy Thomas at Anteohamber Bay, "Govemor" Wallen at Cygnet River and the nomadic George "Fireball" Bates, who lived temporarilywith the Cape Jervis Aboriginals (Nunn, 1989; SADEP, l99l). 8.3.2. The Rise and Fall of the south Australian company: 1g36-1g3s The landing and zubsequent (albeit short-lived) establishment ofthe South Australian Company at Reeves Point on Kangaroo Island in l336 is now recognised as marking the (still)birth ofthe colony of South Australia2. In hindsight, the failure ofthe South Australian Coryany's first settlement in the new colony of South Australia stemmed from a combination of ignorance and miqplaced optimism - itself a product ofthe either outrightly false or mereþ misleading reports ofKangaroo Island's physical attributes given to the South Australian Association (the group formed in 1833 to further the cause of South Australia's colonisation according to Wakefield's philosophy3 ) by the Island's various explorers (Ntrnn, 1989). The fate of the South Australian Company's settlement at Reeves Point was effeotively sealed when the Surveyor-Generat William Light, first saw the Island's ooastline in August 1836 (Nunn, 1989, 55). Although Light felt Nepean Bay was well suited for the Company's proposed whaling activities, he thought it an unattractive site for a colony. It lacked readily available fresh water (the nearest fresh water was four milss ¿\ /¿y by boat), while the rest ofthe Island was considered unsuitable for farming because of its extensive and dense scrub. Light also noted that the Island's coast was entirely oçosed to the soutlem ocean (Nunn, 1989, 55, 58). 2 Glenelg had formerly claimed this honourable position. 3 The main principles of Wakefield's philosophy of colonisation @riefly stated) were influenced strongly by the political and economic discontent prevailing in Britain during the early nineteenth century and the perceived failures of the early years of colonisation in the easte¡n colonies of Australia. Ideologically opposed to the moral impediment that both squatter occupation and convict transportation presented, V/akefield proposed a system of settlement based on survey prior to selection and the encouragement of family colonisation, although the large-scale capitalist interests of the South Australian Company's financial backers were also supported. 193 Hampered by the poor physical conditions of the Reeves Point site and its surroundings, most ofthe colonists followed Light to the capital ofthe new colony on the eastenr shore ofthe Gulf of St. Vincent (Nunn, 1989,55, 57).Latein 1838, the South Australian Company withdrew its investment in the Island and moved its headquarters to Adelaide, drawing most of the remaining coloniss with it. With the Kingscote-Reeves Point settleme,lrt effectiveþ abandoned, its population declined from around 400 in 1838 (SADEP, l99l) to 90 in l84l (Nunn, 1989, 74;Fig.8.3). The Company continued with its whaling operations during the earþ 1840s, but these too were short-lived (SADEP, l99l). No longer the focus ofthe colony's afairs, Kangaroo Island resumed its prior identþ as a loneþ, rugged have,n for equally lonely and rugged individuals attempting to eke out a predomin¿¡1ly illicit existence. Smugglers were able to bring tobacco and qpirits into the new colonyvia Kangaroo Island, prompting numerous sorties during the 1840s to the Island by Police Inqpector Tolmer (Nunn, 1989, 8l-85). Th. Island proved not to be a jewel in the crown ofthe British Empire and slþped back into relative obscurity for the rest ofthe century. 8.3.3 Island Settlement to 1900 Althougb nomin¿lly a full member of the South Austraüan colony, Islanders felt little affinity with mainland society. Various acts of commission and omission by the new colonial govemment helped create tle Islanders' sense of 'othemess'. While ttre needs ofthe Island's growing population (see Fig. 8.4) were acknowledged as public schools opened at Hog Bay in 1867 and at Kingscote and Cygnet River in 1870 (Bauer, 1959,347;Nunn, 1989, 124), Islanders went without regular medioal and religious services (Nunn, 1989, 123-124), and were only effectively eligible to vote in 1875, when ballot boxes were provided on the Island for the first time. For all preceding elections the Island's closest polling booth was on the mainland at Yankalilla (Nunn,1989,126)l Islanders must have considered themsetves as fringe dwellers: living on the environmentaf economic and social margin of the mainland. Nunn (1989, 126), herself a long-standing Island resident, elaborated on this theme: t94 ...their isolation was accentuated by their total dependence on sea transport and commr¡nication. This probably stre,ngthened the bonds between islanders, and reinforced their sense of differenoe from other South Australians. Islanders thought that mainlanders received more favourable official recognition than they. Such sssming neglect strengthened islanders' notions that the concems of thei¡ small society, set apart from the rest of Soutl Australia, were of little account. Islanders maintained t,he guarded attitudes to govenrment agencies which had developed during the earþ days of settlement. Such attitudes have been handed dor¡m to the present time. The Island's position on the new colony's ûont entrance allowed it to play a vital if passive role in the colony's intemational trade links. Its importance to the southem Australian úipping trade was recoenised in the 1850s with the erection of the colony's füst lighthouse at Cape Willoughby in January 1852 (Nunn, 1989, 104). It later acted as the transfer point for mail from England to the South Australian colony from earþ1858 to mid- 1860. The small Island community industriously exploited its links with the resoruce- hungry mainland. By 1843, Islanders were shipping large quantities ef high quality salt, onions, potatoes, wheat, large quantities ofwallaþ skins, wattle bark, pigs, seal oil and skins and hens' eggs to the South Australian mainland (Nunn, lg8g,74).Ytccagum, a vital ingredient in gelignite, \¡/as a valuable part of this export trade. (Bauer, lg5g,3Zg). A timber mill was established at Cygnet River during the mid-1850s to supply the Gawler and Port Adelaide railways. During 1858-59, 120,000 sleepers were out and shipped to Adelaide for this pulpose (Nunn, 1989, 103). A briok kiln, þl¿sfts¡ift and carpenter also established themssþs5 at Cygnet River during this time (Nunn, 1989, l0l, 103). In retum, Islanders bought grocery provisions, whaling gear and a few sheep (Nunn, lgïg,74). The Island's development for the rest of the century would oontinue to depend upon basic resource extraction, its nascent pastoral economy and, perhaps to the chagrin of Island settlers, on its proximity to the mainland. Its fortunes could not, therefore, be completely 195 Fig. 8.4. Kangaroo Island, Total Population, 1838-1991 4500 4000 3500 3000 I 2500 ß Fr 2000 1500 1000 s00 0 1838 l85l 1866 1876 1891 1911 1933 ts54 tg66 tg76 1986 Source: Bauer, L959; Nunn, 1989; ABS, 1961; 1966; I97l; 1976; 1986; 1991. 196 divorced from mainland affairs. For example, when the gold strike-induced South Australian land boom foundered during the 1860s upon the bulwark ofthe pastoralist, "with his,long pnrse' and massive purchases" (Williams, 1974,36), a sm¿ll wave of mainland settlers moved to the Island and established themselves on the better farming country in the Hog Bay (later Penneshaw) (Nunn, 1989, ll3). This in-migration heþed establish the Island's pastoral industry and the earþ dominance ofthe Dudley Peninsula in ttre Island's affairs. The 1860s also heralded a period of land settlement reform in Souttr Australia that would more tightty integrate Kangaroo Island into wider-scale, mainland affai¡s. The reform process was driven largely by the need to address the mainland settlers' frustration at being hemmed in by the pastoralists' massive runs. The settlers felt that the prwailing system ofland settleme,nt was excessiveþ prescriptive and bureaucratic, and in the face of the squatters' prior claims on large areas of the State, impotent. The State Government's2 solution to this dilemma was to proolaim the Scrub LandsAct (1866) (Williams, 1974,39). Thepassing ofthe Scrub LandsAct in 1866 led to a pre-emptive move by mainland pastoralists in the earþ 1870s to occupy the vast r¡nclaimed areas ofKangaroo Island in anticþation ofbeing granted a lease to their chosen land at some later stage. Just as their compatriots on the mainland blocked the northerþ expansion ofthe small settler, tlese Island squatters prwented small settlers from establishing a foothold on Island soils. "In 1874 there were l8 such leases in force on Kangaroo Island, totalling 201 square miles" (Nunn, 1989, 133). Nevertheless, ttre Island pastoralists complained bitterþ about the conditions of the leases, particularþ the minimum stocking and annual land clearance rates, which seemed inappropriate given the Island's soil capabilities and hieû scrub densþ. Most desired the independe,nce of a freehold title (Nunn, 1989, 133). The failure of the Scrub Lands Act to advanoe settlement saw it superseded by the Waste Lands Amendment Act of 1869 (knoram popularþ as the Strangways Act3 (Williams, 7974,39). 2 South Australia attained selÊgovernment in 1856 (Wiltiams, Ig74,32). 3 The Strangways Act allowed land to be purchased on credit for the first time. The successful bidder paid a 20 per cent deposit on the fall of the hammer, with the balance due in four years' time. The new lands that t97 The qpectacular rise and fall of Stockdale and the Taylor Brothers' attempt to establish a large pastoral nm on the South Coast (Bauer, 1959) provides a good example of the rtiffis¿t1ies facing new settlers - pastoralists and small settlers alike - on this unproven frontier. Robert Stockdale and Benjamin and William Taylor were large graziers in the Soutl-East of South Australia, but were attracted to Kangaroo Island by the apparent rough but vigorous feed that resulted from the scrub regrowth after bushfres. Stockdale and the Taylors' stock zuffered from "ooast sickness" in the South-East, and they felt that Kangaroo Island would be a suitable place to relocate. "Between 1879 and 1884 Stookdale and Taylor (sic) took up 14 leases comprising 715 square miles of leasehold land in the soutl and west of Kangaroo Island. This was approximateþ one third of the island" (Nunn, 1989, 155). They brought over approximately 30 000 sheep and some cattle from ttreir South-East properties and tumed them out into the still r¡nsurveyed scrub. However, the deficiencies that caused "coast sickness"3 were at least as bad, ifnot worse, on Kangaroo Island as in the South-East. With little feed, many of Stockdale and the Taylors' stock starved to death (Bauer, 1959). The actual and latent demand for Island land was given official recognition during the decade ofthe mid-1870s to the mid-1880s. Kangaroo Island was gazetted as a county ("Camavon") in August 1874. This was followed by the proclamation of the Hundred of Dudley in January 1875, the proclamation ofthe Hundred of Menzies in April 1878 (Nunn, 1989, 137), Haines in 1883 and Cassiniin l8S4 (Bauer, 1959, 385; see Fig. S.2). The Hundred of Dudley was surveyed according to the Scrub Lands Act (see'Williams, 1974, Fig. 40, 145), offering to selectors agricultural sections of 350 to 634 acres. The Hundred were available for alienation were termed "Agricultural Areas" and surveyed into sizes ranglng up to 320 acres (129.5 ha). To prevent the customary problems associated with speculation and large-scale pastoralism, settlers had to prove their commitment to their property by residing on it within six months of purchase and remaining on it until the purchase was completed. This Act allowed the renewal of settlement expansion, as settler farmers vaulted over the pastoralists' runs (and Goyder's Line) and moved into the Northern areas, Mt. Gambier area and towards Eyre Peninsula (Williams, 1974,38-39). 3 "Coast sickness or disease" was the term given to the widespread ill-thrifr that stock grazingon coastal areas appeared to suffer. Sheep often became so weak and malnourished that they died. The condition was eventually properly diagnosed as a soil trace element deficienry in calcareous and aeolianate country (prevalent in coastal areas) which could be corrected by minute applications of copper and cobalt to the pasture. The actual discovery of the causes and cure of "coast sickness" is an important part of the Island's agricultural and economic history (see section 7.4. l. above). 198 of Menzies was surveyed in similar fashion, offering for freehold blocks of a maximum size of 640 acres (see Figure S.2). This earþ survey process assiduously avoided the problem soils and flora ofthe 'Kohinoor' (see Fig. g.3). The last half of the lgth Century saw the firm establishment ofpastoralism as the main economic aotivity on the Island, deqpite some affempts to 'cash-in' on the mainland wheat boom ofthe late 1870s (Williams, 1974,44). Farming, in whatever form, though, was continually hampered by the ecological barriers posed by the Island's poor soils and low, dogged scrub. Technological and agronomic advances and political processes during the first half ofthe 20th Century enabled the Island's fi¡rther social and economic development but also underscored the Island community's dependence on mainland society 8.4. The "Opening Up" of Kangaroo Island: Settlement, Agricultural and Economic Development: 1900-The Present Butlin, et al.'s ( 1982) 'colonial socialism' thesis (discussed in Section 4. l, Chapter Four) highlighted the entrepreneurial role played by Australian colonial govemments in dweloping public infrastructure prior to ttre 20th Century. Given South Australia,s contemporary relianoe on agriculture and the ideological significance attached to closer and yeoman settlement, it is no surprise that South Australian colonial and State Govemments adopted a higny interventionary stance towards agricultural and rural development during the l9th and earþ 20th Centuries. For example, at the end of the lgth Century, the South Australian colonial govemment fimded a number of research projects which would initiate an agricultural renaissance in South Australia - still the nation's ganary. Among these innovations were: l) the recognition that superphoqphate was needed to redress the long-term decline in the State's wheat yields; 2)the zuccessfi¡l use of fallowing to conserve soil moistwe, oontrol weeds and prepare seed beds; 3) the introduction of improved varieties ofwheat, which allowed cereal growing to successfully extend to drier areas of the State; and 4) the 199 recognition of Mt. Barker subterranean clover as a valuable pastue plant (Williums,l974, 49-50). Although the first and last of these disooveries were most applicable to Kangaroo Island's pastoral economy, all four dwelopme,nts, officials thought, formed the necessary agronomic package for the successfirl opening up ofthe mallee lands and the problem soils and flora of Kangaroo Island. These agronomic initiatives were complemented by a zuite of "closer settlement" legislation and projects. These schemes, including the closer settlement ofthe mallee lands around Pinnaroo and the Eyre Peninsula, depended in no small part upon the State Govemment's use of the railways as a tool of development. This was employed to lure as many pioneers as possible into these new lands (Williams, 1974,51-53). The closer settlement scheme desþed for Kangaroo Island, titled the ""concession block" land policy", was the brainchild of Suweyor-Ge,neral Strawbridge. Pastoral lessees on Kangaroo Island saw in this scheme the potential to rid themselves ofwhat were, in tle Island's difficult environment, constrictive and punitive leasing conditions. Three pastoral lessees offered "to surrender their leases ifthey were paid the sum of 2s. 6d. per acre and given preference in the selection of the closer settlement blocks which could be made from their holdings" in February 1905 (Bauer, 1959, 395). This offer was initially refused by the perhaps appropriately named Strawbridge, but after the Land Boarda apparently convinced him that the Island's lateritic plateau was zuitable for wheat growings : ...the Govemment took over the country under lease, and granted the lessees the free-hold of approximately 100 acres per square mile held for the nominal paynent of 6d. per acre. Furthermore, the lessees were free to pick their freehold land from any portion ofthe lease as long as it was in one block. It was this decision which set the stage for tle greatest fiasoo the Island has wer known (Bauer, 1959,395). a tnis body was created in 1886 and was responsible for the administration of perpetual leases, including the fixing of rents and the allotments of leases (Ì.{unn, 1989,164). 5 The Land Board must have produced some remarkable evidence to sway Straufuridge, considering that he had signed a map of Kangaroo Island in 1900 "which plainly described most of the plateau country as poor pastoral country" @auer, 1959, 369). 200 This policy change caused many Island graziers to surrender their leases in the hope of gaining freehold title to the best portion oftheir lands. The Govenrment created 72 0gO acres offreehold land out of 775 square miles of surrendered lease country and proclaimed sixnew Hr¡ndreds by l9l0 (MacGilliway, 1906; Seddon, l90g; Newland, 1909; Duncan, 1909; Ritchie, 1909 and McDonald, l9l0) (Bauer, 1959,396;see Figure g.2). In anticipation ofbeing included in tle scheme, Islanders talked û"eþ about ttre ssming ofthe railway as earþ as 1907. With official assurances that Kangaroo Island was zuitable cereal-growing country demand for ooncession blocks exceeded supply. New settlers came primarily from the Eyre and Yorke Peninsulas and the more marginal areas of the Lower and Upper North, lured by more assured rainfall and vermin-free country (Bauer, 1959,399). Invoking the metaphor of "the cart being put before the horse", the Railway Commissisn visited the Island in 1909 to conduct scientific assessments of the soils and to ,'Their rule on the futrue ofthe h¡'pothetical Island railway. terse comment: ...Kangaroo Island is not a poor man's country and...a settler with moderate capital would be better offin districts where the retums come more quickly... brought tle boom to an end" (Bauer, 1959, 400). Islanders probably felt that ttrey had been misled and frustrated by distant govemment authorities and bureaucrats yet again. In oontrast to the flurry of activity during the füst l5 years oftle new century, the following 30 years to lg44 on the Island were marked by a remarkable stability in land tenure and population. The Island sent men to the First World War and welcomed tle survivors back without incident. The economic prosperity on tle mainland during the 1920s b¡passed the Island. Its economy now relied primarity on wool and barley, and prices for tlese remained relatively stable throughout this decade. The population level also remained stable until 1921, whence it declined by 12 per oent to a total of I 185 in 1933. This decline followed a slump in barley, yacca gum and eucaþtus oil prices n lgzl. The 1930s Depression and the lack of opportunity for farm expansion after the failures of the 1905- l9l0 period also enforced this general malaise. The increased mechanisation of farm operations would have also reduced the demend for farm labour. 201 Norwithstanding this overlying iryression of gradual regression and tranquillity, this inter-war period brought ge6s highly significant scientific and technological advances in agricultrue and stock health to the Island. In 1930, tle Council for Scientific and Industrial Research's (now CSIRO) began researoh into "coast disease", locating its principal experime,ntal site at Hawks Nest Station in the Hundred of MacGilliway. This was an acknowledgment ofboth tle extent ofthe problem on Kangaroo Island and the pioneering work of local graziers in attempting to find a solution to the problem Some graziers had noted that the ill thdft so characteristio of "coast sickness" was relieved when sheep were grazed, on the ironstone plateau country. After three years of research, this "coast sickness" was identified as copper and cobalt deficiency, which could be cured and prevented by copper and cobalt drenches or "bullets". The overcoming of coast disease, the increased use of superphosphate and new exotic pasture qpecies caused sheep numbers and the wool clip to rise steadily from about 1920 onwards. The quality ofthe Kangaroo Island wool clip also improved dramatically from 1938 (Bauer, 19591'Fig. 8.5 and 3.6). These developments brought the Island's agronomic potential to the notice of the State Govemment yet again. A joint Department of Lands and Department of Agriculture trial plot was established in the Hd. of Seddon in 1939 and later used by the Crown Lands Dwelopment Committee in its investigations of "'... the possibilities of and plans for, the settlement of Crown Lands in the assured rainfall areas ofthe State"' (Ntrnn, 1981, l3). The trial plot on the plateau soils was "...an unqualified success" (Bauer, 1959, 466). Gradual but sure increases in stocking rates were achieved through the application of relatively minute amounts6 of copper sulphate (bluestone) to the plot. In hindsight, it is difficult to overstate the significance of these experiments. They provided the keys to more zuccessful and profitable agricultural development on Kangaroo Island and many otler regions across Australia that had previousþ suffered from "trace element deficiency": an expression that has become a byword in Australian agriculture. 6 Approximately 2.3 kilograms of copper sulphate to 51 kilograms of superphosphate @auer, 1959,466). 202 As noted in Chapter Fout, the South Australian Govenrment received approval for a soldier settlement scheme on Kangaroo Island n 1947. From the outset, the repatriation of ex-servicemen on the largely untouched soils of Kangaroo Island's plateau region (the Kohinoor) was invested \ /ith considerable moral, political and economis importance. Although conscious oftheir "'sacred obligation"' (Nunn, 1981, 9) to tlese ex-servicemen, and ofthe need to avoid the failrues ofthe post-World War I soldier sefflement scheme, the South Australian Government also saw that this primarily Commonwealth-fi¡nded scheme would confer on South Australia "...a great benefit...quite apart from the repatriation aspect, because it will mean increased dwelopment ofthe State" (Nunn, l9gl, 9). The Land Settlement Bill of 1944 (whioh enshrined the State's commitment to closer settlement via repatriation of retumed World War tr soldiers and was later given force by the passing of the war service Land settlement Agreement Act in lg45)l received bipartisan support, although for markedly different reasons. Liberal Country League members embraced the notion ofthe full economic development of South Australia's "waste lands". Their Labor colleagues, also appreciating the need for greater economic developmelrt, also saw in a scheme that involved the use ofpublic money and resources to develop Crown Land (some ofwhich had reoently been aoquired from large pastoralists) for the creation of a network of small settlers, the closest thing yet to the attainment of socialism in South Australia (South Australian Govemment, lg44). Either way, with the establishment of an air service to the Island in 1936, the Island's connection to the mainland telephone network n 1929, and the Island's existing ketch trade, the soldier settlement soheme would flrrther bind the Island into the State's economy and sooiety, whether tle Islanders wished it or not. The Kangaroo Island War Service Land Settlement Scheme (amounting to a total of about 93 100 ha (230 000 acres)) was one of the nation's largest, second only to the 7 This latter Act ratified the agreement between the Commonwealth and the States regarding the funding and administration of soldier settlement schemes. This agreement was necessary because of the States, constitutional responsibility for land management policy but their lack of financial po\¡/ers, relative to the Commonwealth Government's power to lery taxes, including land taxes and estate duties (Campbell and Dumsday, 1990). 203 Fig. 8.5. Kangaroo Island, Sheep Numbers, 1S60 - 1992 ('000s). 1600 1400 t200 1000 â o 800 600 400 200 0 o o O o o o O o o o o o \o r- 00 o\ o ôl c.ì s rñ \o c\ æ o\ oo oê æ oo o\ o\ o\ o\ o\ o\ o\ o\ o\ o\ Fig. 8.6. Kangaroo Island, Total Wool CIip, 1925 - 1992 ('000 kgs). 7000 6000 5000 q è.0 4000 o 3000 2000 1000 0 rñ O lrl tat O rô o rtl o iat o o c.ì ô¡ (fì cl :f s \o \o t- t- æ oo o\ o\ o\ o\ o\ o\ o\ o\ o, o\ o\ Or Oì o\ Or o\ o\ Source: Bauer, 1959; ABS,'1964-65;1969-70; t974-75:1979-80; 1984-8.5; 1989-90; 1994. o\t c.¡ (l¡ E(¡) ¡I (t) q¡É E c¡ d¡¡ c) (t) KA NG AROO I SLAND 'tt Á 6¡ Fì q¡ c) í)L çt) Stolcs Bay ¡r É Þ KINCSCOTE É ñ(xì 8rY PETINESHAW GI an Capc -o o r- ¡r I cll èo I É FLINDERS CrrIrSE I c¡ I j' t----.r - ._ I o v NeÌ vc¡ Fruæ I X €) I o 'c, ¡ t-0 .e É md Flor¡ e {" d) at I È o M DO I È Ê I c¡ tl I REfTRTNCE Å I 00 \o I Áno.¡ Se¿y'cd .-.- þ:r-À.¡.:l.l o\ tn ¿ogt cd W.:El a F--ì É ¿ogg.d ttd bciry trglrcd - . É Cry dt h be bggcd ..... a \ lî..¡-m z a ¡ppnfl¡t^Tt bt cøat o1 søl tuntlr ... . .t¡ sc^t-t :.:J--J- ¡c4¡ ffi L ^nE¡s ¡^ ^rtGo5¡aoo ()ö c r ¡¡4¡ C ôr r 53 á a æ r(f¡ o tor to ào :.- Iraat 1956 o tu taa¡Ja - aatL Sî¡n*¡ u) 205 Gairdner River scheme in Westem Australia which involved the creation of 132 farms over 194 250 ha (HofÊnan, 1970). The actual total number of holdings in the l(angaroo Island scheme (174) appears to have bee,n worked out by the Land Dwelopme,lrt Executive (LDE)8 as it proceeded with soil surveys in each Hr¡ndred. To ensure dwelopment proceeded in a systematic fashion, the LDE divided tle scheme into five areas, A to E (Nunn, 1981, 19; Fig. 8.7). Given the nature of the terrain, soils and flora of the plateau, it is not surprising that the LDE s operations were continuousþ checked by nagging problems. Although clearing proceeded quickly in the lighter timbered country in MacGilliway, it was impeded by steeper terrain, taller and more vigorous scrub and extremely wet conditions in the higher rainfall areas in the Hr¡ndreds of Duncan, Gosse, Newland and Ritchie. pasture establishment in some areas was poor, causing further delays and, wentually, a change of strategy. These problems - and the LDE s solutions to them - had profound implications for the settlers and the overall cost of the scheme. The rliffiqfties e>iperienced by the LDE in establishing pastures in the virgin scrub soils led to the adoption of a new approach to pasture establishment in 1956. This included the use of Yarloop sub clover, a high oestrogen clover that established well in wet conditions. For the LDE, this new strategy qped up tle process of development and shortened the time that prospective settlers had to wait until allotment. Rapid progress was important for the LDE, not least because the Commonwealth assumed financial reqponsibility for the scheme as soon as the LDE's development work was completed (Nunn, 1981, 64). Despite concern about the possible effect ofYarloop and Dwalgenup clover on stock health and performance as earþ as 196210, the Land Development Branch (which zuperseded the LDE in 1956) continued to use these clovers in their reseedirg programme from 196l untilthe scheme's ssmrletionnlg64 (Nunn, 1981,63-64). 8 the body responsible for the investigation for the investigation ofthe potential for, and planning of, closer settlement on Crown Lands in assured rainfall areas of South Australia (Nunn, 1981, l3). l0 The Kangaroo Island Research Centre in this year warned that "'Yarloop ha(d) been suspected of causing infertility and lambing difrculties among ewes and ... milk production among wethers grazingYarloop and Dwalgenup "' (Nunn, 1981, 63). 206 Bauer (1959) estimates that the costs ofthe LDE's operations per block blew out from f4 000 in 1945 (Area "A") to f7 440 in 1948 (Area "8"), f8 080 in 1950 (Area "C"), f 13 500 n 1952 (Area "D") and il7 rcO in 1954 (Area "E"). These increases resulted from tle increased meohanisation of the clearing operations as more machinery became available, the effects of more difficult terrain and inflation. For the Government, the cost of establishing blocks in Area "E" was about five times the cost of similar development in Area "4" (Bauer, 1959, 492). T\e increasing debt was largely passed on to the settlers, many of whom had few financial resotuces of their oum. For those allocated Area '8" blocks, and for those whose pastures were effectively toxic, there was little time to get established before the pincer ofthe cost-price squeeze ofthe late 1960s, and eqpecially the wool slump of 1970, set in (see Chapter Four). Outside ofthe LDE's activities on and beyond the Kohinoor, established Island farmers md graaers expanded and oonsolidated their holdings, backed by buoyant wool prices following the conclusion ofWorld War tr and the boom of 1950-51 (see Chapter Four). From 1945 to 1955 these farmers oleared 433 kmz of scrub compared to the 469 fuz cleared by the LDE (Bauer, 1959,493). Private clearing (as opposed to the publicly-funded operations ofthe LDE) was performed on a much more selective basis and relied on more primitive methods than the W.S.L.S. scheme. Rather than attempting to cut great swathes through the scrub, the established Island farmers and graziers "picked the eyes" out ofthe uncleared land, conoe,lrtrating their efforts in the more easiþ cleared narrowleaf mallee country in the Hundreds of MacGilliway and Haines. Duting this same period, sheep numbers on the Island grew from 87 100 to 203 700 (Fig. 8.5). This increase was mainly due to the rise in flock size on the part of established graziers, with the greatest growth occuring in the Hundreds of Dudley, Haines, MacGilliway and Menzies. This is not surprising, gi ren that the first allocations of soldier settler blocks occurred in 1954. Nwertheless, significant increases in sheep numbers over this I I year period also occurred in the Hundreds of Seddon (+39 000) and Duncan (+8400) which were at rhe centre ofLDE activity (Fig. B.B). 207 Fig. 8.8. Sheep Numbers by Eundred, Kangaroo Island, 1945 - 1975. 160000 140000 120000 100000 Ê g soooo .À u) 60000 .Å ^-' 40000 .â--¿" ¿ 20000 :.-Ê 0 rñorñoìñoìôoiñorôoìñ Ê ô¡ N cl (1 S $ rñ ìô \O \O t- lr O\ O\ O\ O\ O\ O\ O\ or Oì O\ O\ O\ Or ÊÊÊÊÊÈÊÊdÊÈÊ Cassini Dudley +Gosse '- o..Haines -'À - Menzies ----o-Newland Seddon -Duncan- - e -.Rest of County -x-Ritchie -MacGillivray Source: Bauer, 1959; ABS, 1959-60; 1964-65; 1969-70: 1974-7 5. 208 These contrasting trends in land development and settlement caused an appreoiable divide in the Island community. The Dudley Peninsula, home to the "real Kangaroo Islanders" (Bauer, 1959,525) had little contact with the hubbub occurring at the westem end of the Island and became a peaceful backrvater (Bauer, L959, 525-6). The established community on the eastem end of the Island apparently regarded the new settlers with some ambivalence. Given the sheer scale and size ofthe soldier settlement scheme, these sentiments were perhaps r¡nderstandable. Nr¡nn (1981, 53), herself a part of this new wave, describes the divisions that existed, and how they gradually dissþated, thus: Early settlers in the Cary qpeak ofwarm individual welcomes and valuable zupport while they were adjusting to their new life, but most old Islanders were wary of changes which could disrupt their old ways. They saw this large-scale 'invasion as a great tlreat...Settlers'participation in district qport heþed to break down some ofthe intangible barriers and acceptance, respect and mutual understanding gradually developed. Before reaching allocation stage - when they could begn to live in their or¡m house on their own block - a settler and his family usually had to endure camp conditions for three or four years (Nunn, 1981, 46). Men and women from a variety ofbaokgrounds, and their children, were forced together into cramped and primitive conditions: a situation which undoubtedly tested the mettle of the settlers and their families while simultaneousþ creating strong bonds between them- Eqpecially strong bonds developed between tle women of the scheme. Many had small children and were forced to perform the daily rituals ef slsaning, cooking and caring amidst the oamp's open drains, comrgated iron huts and open yards. \ryfth tleir men away from the camp for several days at a time, these conditions dissolved any barriers between the women. The camp's squalor, the illnesses that it produced and the lack of medical services to deal with these, forced women to work together. While their men formed bonds out oftheir common task to clear the wildemess and create a new productive landscape, 'women and children in the camp, and later in their or¡m houses, established ties out oftheir 209 equally common task of struSgling to raise children in strange and relatively primitive surrounrlings, establish a desirable domestic environment and work on the demanding physical chores of developing the farm" Under the War Service Land Settlement Agreement Act of 1945 the Departme,lrt of Lands was responsible for all advances for stock and plant and held bills of sale or stock mortgages as security. In retum for the Department's financial baoking, settlers were compelled to zubmit annual budgets to the Department for approval. These budgets were often refused or amended by officers in Adelaide for no explicable reason. Settlers felt that their rents were too hieh, given the problems in trying to extract a living from their holdings. This situation caused tension between soldier settlers and the Department, and as earþ as 1954 - one year after the first allotments - representations were made to the Pamdana RS.L. (Retumed Servicemen's League). Local farmers combined to formthe "Gosse Committee" in 1969. This group, in manyways a predecessor of similar local action groups to form in funue crises, aimed to "work for recognition of existing problems, to identify their causes and to suggest corective measures to enable settlers to carry on profitably" (Nunn, 1981, 70). In reqponse to settlers' complaints of the systemic problems ofthe scheme, the Department of Lands maintained that any financial rlifficulties experienced by the settlers were ofttreir own making. Yet Kangaroo Island soldier settlers were overrepresented in the total number of South Australian soldier settlers tlat were under the Department's budgetary system- Although Kangaroo Island contained only 25 per cent (1741690) ofthe State's \V.S.L.S. holdings, n 1963-64, 68 per cent (1181174) "of the Kangaroo Island settlers were under the budgetary system- In 1965-66,600/o (ll3/ll8) (sic) and by l97l-72, 74o/o (62184) of those under budgetary control in South Australia were Kangaroo Island settlers" (Nunn, 1981, 70). A 1976 survey conducted by the Gosse Kangaroo Island Lands Committee found that while 69 per cent of all soldier settlers had invested their own oapital in their properties, for 65 per cent of these settlers this investment amounted to less than $5 000 (Nunn, 1981, 62). T\e impact of clover disease upon stock productivity and settlers' 210 incomes caused such looal discontent that a Commonwealth Department ofPrimary Industries investigation into the problemwas held m l97l-72 and led to 74 settlers with high levels ofYarloop clover in their pastures being granted partial rent remissions over tle following five years (Nunn, 1981, 7l). Despite this concession, financial troubles continued to dog nuny settlers in the westem sector of the scheme, particularþ those under budgetary control and whose holdings had been sown with Yarloop and Dwalgenup clovers. Partly as a result of local pressure, a State Parliamentary Committee on Land Settlement (PCLS) was established in 1976to settlethematterof "'thefinancialviabilityof certain settlers"'(Nunn, lg9l,77). Tabled in earþ 1977 , the PCLS Report led to the eventual eviction of seven soldier settlers. As compensation, the Department wrote offthese settlers' debts and allowed them to remain in their homes with 5 ha of land for a small annual rent. For the Department, this act was as a gerierous parting gesture, but it ignored the grief and humiliation caused to the long-zuffering settlers, forced to watch their ornm farms being worked by someone else - in some cases by other settlers in the scheme (Nunn, 1981, 94). At the conclusion ofthe Land Developme,nt Branch's operations on Kangaroo Island n 1962 (although reseeding continued into 1964) 174 W.S.L.S. holdings had been developed (Nunn, 1981, 34). At the end ofthe Scheme: ...103,477 hectares were held under war service Perpetual Lease of which 57,754 hectares were developed to pasture by the Land Development Branch. In addition, 168 houses had been erected, 2,450 kilometres offencing laid doum and 550 dams excavated with a total storage oapacity of 682 megalitres (ABS, 1994,3t9). In 1981, nearþ 15 years ago, only 65 of the original 174 holdings were still being farmed by the original settlers or their families. Ten of these 65 properties were being farmed by deceased settlers' sons. Only 20 settlers remaiasfl as sole operators oftheir farms, while another 15 had retired and left their sons to take over their leases. In the same year, only 2tt eight of the 2l settlers initially targeted by the Department of Lands to leave their properties remains6 farming their leases. Fow had died since Jr¡ne 1976, six leases had been cancelled, while the remainder had sold up. The average age ofthe ¡smaining settlers in l98l was 60 years (Nunn, 1981, 102). This rather inglorious episode in the W.S.L.S. scheme on Kangaroo Island highlights a number ofimportant issues. The uncompromising attitude taken by the Department of Lands to the eviction of the seven settlers and tle termination of their leases reflected a wider dissatisfaction with, and rejection ofthese programmes at virtually all levels of Government. While the W.S.L.S. scheme may have been originally conceived out of genuine gratitude to the nation's servicemen and women, as the settlers became established they would receive no concessions or consideration deqpite the fact that many of their problems were not directly attributable to their mânagement abilities. In many ways, these more disadvantaged settlers were perhaps more harshty judged by the Department than they would have been by commeroial financial institutions. Participation in this scheme did not shelter the settlers from the need to conform to oontemporary standards of financial management. With the gradual 'invasion' ofthe soldier settlers, the Island became a cleft communiry spatially and socially. While the families and communities 'on the Kohinoor' became acoepted by established Islanders, the crisis ofthe seven soldier settlers emphatically diqplayed the limits of that solidarity and the binds oflocal conservatism. In the earþ stages of the soldier settlers' crisis, settlers pooled their resources and experience to combat the 'common foe' oftle Department of Lands. However, with the Department of Lands' initial identification of 2l financially-embattled settlers, and the PCLS' judgement on the final unfornrnate seven, it became easier for some financially-independent settlers to retract their zupport. Some abandoned the Gosse Committee and openly questioned the wisdom of fighti"g the bureaucracy for the 2L settlers: 212 They began to tlink about the possibility of publicþ accompanþg the debacle of 1976 lowering the value oftheir own properties and to look askanõe at 'the 2l'. Perhaps the Department was right? Perhaps they (the 2l) were bad man¿gs¡s? Perhaps their problems wefe their or¡m fautt? After all, the rest had zurvivid. tt suited their selÊimage to beliwe that they were a bit smarter than 1he 2l' (N'nn, 1981, 9l). "Closer settlement" policies instituted in the post-WWII period perpetuated earlier notions that agricultural development and population and social balance was best fostered tlrough the diqpersal of large holdings into a patchwork of smaller farms, senred by a network of economic centres. However, given the capital-intensive nature of agricultural expansion after 1952, an inhs¡snl policy conflict emerged. It was not r¡ntil the cost-price squeeze ofthe late 1960s and earþ 1970s that this inherent conflid was officially recognised. Deqpite the overall success ofthe post-second World War W.S.L.S. scheme, policies of this nature soon became unpopular as it was gradually realised that the deliberate encouragement of a network of small farms was contrary to the natural tendency for farm expansion, especially given Australia's generally poor soils and harsh crimate. As Campbell and Dumsday (1990, 166) have stated: ..'the important restraints to rising productivity were not land and labour, as this policy implied, but capital and management. To continue to attempt to put more people on smaller-sized farms was to fly in the face of historical tendencies for the rural workforce to decline and the size of farms to increase. This conflicting tendency is discernible in average farm size trends on the Island (Fig.8.9). While private and publicþ ftnded clearing greatly expanded the overall area of farmland, the average size of Island farm holdings declined from ttreir 1945 figure trntil the earþ 1990s (with some fluctuations). It was only in I99l-92 that average farm size passed its 1945 level. This trend could only be maintained under conditions of rising and./or relatively high prices and lower costs. The wool market crash of 1970 (evident in Fþre 8.10) exposed the vulnerabilities of these farmers, particularþ those settlers who had been unable to free themselves financially from the Department of Lands. The level of economic 2t3 Figure 8.9 Kangaroo Island Farm Holdings and Average Size: 194* 199il92 500 FarmNos. 900 450 800 400 700 G 350 Avge.Farm SÞe 6) ø 600 N o 300 .A z 500 250 E E cl (ll 200 400 ¡¡r ¡¡{ G) à0 ls0 300 (c ú) 100 200 50 100 0 0 1945 1955 1965 r975 1985 t99t-92 Source: Bauer, 1959;ABS, 1949-5A;1954-55;1959-60; 1964-65;1960-70;1974-75; 1979-80;1984-85; 1994 Fig. 8.10. south Australian Avernge Greasy wool prices, lg73l74 - 1993194 (clkg, 1990 values). 800 700 600 500 b¡ 4oo {o 300 200 100 0 \f tÕ \O ¡\ oO O\ O Ê N q ì+ rô \O F- OO O\ O Ê ô¡ al rt \\\\\\\l\ t\ F r\ t\ ìr oo oo oC oê go ù õ òê 9o eo q\ c¡\ c¡r (t\ c¡\ (vì s r, \c t\ gc c\ o F ot-< c.i s- qì \o- Fi æ- d' ö ñ ¡à Þ \ Ì- t\ r\ l- Ì- æ oê oo F oò rË õ €o ø oo ó o,'ì Oì i¡i ÊÊÊ-ÉÊÊÉÊÈÉÊ;ÉÊÊÊÊÈÉO\ O\ O\ O\ O\ O\ O\ O\ O\ O\ O\ O\ ô O\ O\ gl, ô ö ói ói ói Source: ABS, 1964-65; 1970-7 l; 1975-76; 1979-80; 1989 214 pressure on Island farmers and, graners to physically oçand their holdings is evident from the fact ttrat out of the 32 soldier settler farms that had bee,n sold up to 1966-67, most of these were bought by established Island farmers (usually neighbours) ( State Bank, 1967). ImFortantþ, given that the Island soldier settlers were all of a similar age and took up their holdings at a similar time, it was natural that a number of these properties would also come onto the market around the same time as these settlers reached retirement age or became r¡nable fs men¿gs their farms due to ill health. This appeared to have occurred in a period from the mid- to late- 1980s: a period of rising wool prices prior to the reserve price scheme for wool collapsed in 1990-91. This had an important in-fluence on the cause and spatial distribution ofthe recent rural crisis on the Island, which will be dealt witl in subsequent chapters. It would be difficult to overstats ths impact of these post-second World War years on the physical and cultural landscape of Kangaroo Island. In 1945, after over a century of European settlement, only 163 201 hectares of Kangaroo Island (approximately 12.2 per cent of the Island's area) had been cleared (Bauer, 1959, 474). By 1976, the area of farm land had increased by 89 per cent to 308 970 hectares (ABS, 1994,328). Between 1947 and 1954 the Kangaroo Island human population increased by 70.5 per cent from I 479 to 2 522 persons (ABS, 1994,320;Fig. 8.4), while tle sheep population grew ten-fold from 1945 to 1970 from 87 100 to 875 000. At August 1991, the Island's human population stoodat390l(ABS, 1994,320).Bylgg2,sheepnumbersonKangaroolslandwerealnost l5 times highsl than their 1945 figure (Fig. 8.5). The growth of the human population, in combination with ongoing technological innovation, allowed Island residents to enjoy many ofthe services and amenities tlat were taken for granted in most other country communities. An area school was built in Kingscote n 1944, while another was built at the LDE Settlement Camp (which was later to become Pamdana) in 1951. The Island had a permanent doctor from 1938. The rapid influx of suitably-aged men and women into the western end of the Island enhanced the range of sports that could be sustained, while no doubt helping to define and sort out local rivalries. 2L5 Its transport and telecommunication links with the mainland were upgraded throughout the post-\¡/ar years, although the Island's main towns were only connected to mains electricity n 1967 (State Bank, 1968). Today, Kangaroo Island enjoys a wide range of medical and health services and has access to the full range of social welfare services, although the Department of Social Security onlyvisits the Island occasionally. Given the Island's general lack ofnatural endowments suitable for economio exploitation - a factor which inTeded the continual affemlts to establish agricultural sefflement on t,he Island - it is almost inevitable that it would become economically reliant on a few primary industries from an earþ date. Little or no manufacturing sector established itself on Kangaroo Island over its entire history while tourism - now vital to the Island's economy - has only dweloped slowly over the last 50 years. The Island's economic forhrnes have been tightly bor¡nd to those oftle pastoral economy - particularþ woo! sheep and cattle - for most ofthe last 150 years. In l99l-92 Kangaroo Island farmers contributed 532.4 million to the local economy. Of this amount, wool provided $20.9 million and sheepmeat $4.8 million. Cereal crops and hay comprised the remainder (ABS, 1994,329). 8.5 Conclusion Islanders have long believed that the Island's small population and its isolation as an island have frequently led to the allocation of government resources in ways which have neglected Kangaroo Island's qpecial needs. Yet, while this view has remained in their consciousness, it was nwer so strong that islanders sought separation in every way from other Australians, or contemplated severance of the r.ooo6is links with the old societies. Economically, islanders have always been a dependent community, producing essentially for export, and relying for comfort, ifnot for survivaf on imports (Nunn, 1989,7). A number of salient themes emerge from this examination of the Island's social and economic development. First, deqpite its inhospitable physical environment, Kangaroo Island has been continually targeted throughout its European history as an appropriate site 2I6 for yeoman settlement. There have been maûy failures. The sub-optimal performance of conventional farm enterprises until at least the 1940s led many to resort to the scrub for subsistence yacca gumming, eucaþtus sil distilling and hunting wallabies for their skins and meat. The qpatial and historical sequence of settlement of the Island is evident not only in the cadastral map (Fig. 8.2), but also in the relatively impermeable but contested boundaries between the Island's oommunities of interest. Even today, with the Island more tightly integrated with the mainland and the mainstream of society, an undercurrent of parochialism and partisanship divides "true" Islanders and "new chums" or transients and helps maintain the intemal community divisions. Island residents ofmore than 30 years can still be termed "outsiders" (Nunn, pers. comm ). Island society operates now very much within wider geo- political and administrative scales, via farm commodity trade, tourism, native vegetation clearanoe legislation and the like, but at the local scale Islanders activeþ 'regulate, the membership of its community. Governments have played vital roles throughout the Island's history. From the aborted attempt to establish the first settlement of the South Australian colony at Reeves Point to the creation of a soldier settlement scheme on the plateau region, State and Federal Govemments have not only set the regulatory parameters within which Islanders have lived and attempted to prosper, but have deliberately guided and facilitated the process of economic and social development on the Island. As the crisis ofthe soldier settlement scheme shows, this facilitation and guidance was not a unilinear prooess and was often activeþ interpreted, mediated and resisted by Islanders, individually and collectively, with varying levels of success. In this, it is possible to see parallels between the Islanders' struggles against authority and the campaign of resistance waged by the "Coasters" (the collective name given to the residents ofthe West Coast ofthe South Island ofNew Zealand) against the deregulatory reforms of the New Zealand Labour Government, discussed in Chapter Six. 2t7 Islanders have often perceived extemal authority as a challenge to their livelihoods and oultwal attachment to their plaoe. Yet, as Nunn (1989, 7) above notes, while it has, for often good reason, exercised a healthy suspicion of forces for local change eman¡1fug fr6¡ broader scales, Island society has also relied on the mainland and the State Govenrment for many goods and servioes. Given the above considerations, the question needs to be asked: how did the Island farm sector and its rural commr¡nities reqpond to the scale-jumping effects of financial deregulation? This research question is fully addressed in Chapters Ten, Eleven and Twelve. As an introduction to this local case ffidy, however, Chapter \i¡1s s¡¿mines the workings of the regional-scale (South Australian) agriculture-finance relation in both its regulated and deregulated forms and its influenoe upon farm and community dwelopment. This Chapter focuses particularþ upon how financial institutions interpreted ¿¡d imFlemented tle reforms resulting from the deregulation ofthe Australian financial system 2r8 CEAPTER I\ü\E: 'OTffiR PEOPLE'S MOltlEY': SOUTH AUSTRALIAN FARIVI FINANCnVG nV I D ERE GT]LATE D EIYVIROI\IMENT 9.1. Introduction Chapter Five e>çlored the broad origins of the global financial system and anaþsed how the forces for financial liberalisation and economic restructuring, operatin g at a global lwel were transmitted to and interpreted by the Australian nation-state. It also considered the general implioations of the deregulation of the Australian financial system for ttre farm credit market and farming familiss. The present chapter fetums to the scale dlmamics of financial restructruing disoussed in Chapter Five by s¡¿mining ùow the deregulation of Australia's financial system was transmitted to and interpreted by the South Australian Govemment and key financial institutions invotved in farm tending. This Chapter is comprised oftwo main sections. The first section uses State-level data to analyse how finanoial institutions viewed farm lending in a deregulated credit market. The second section oompleme,nts this generalview ofthe farm credit market by examining how particular public and private financial institutions adapted to ttre new regulatory milieu after 1984. This analysis focuses on the financial products and services dweloped for the farm sector after deregulation. Both parts seek to address some ofthe hSpotheses developed in Chapter Seven concenring fte imlract offnancial deregulation on national agricultural sectors, farm families and rural communities, as well as setting the context for r¡nderstanding the Kangaroo Island farm orisis. 9.2. The Globalised South Australian Agriculture-Finance Relation: A Broad Outline It was noted in Chapter Seve,n that financial deregulation offered both new reqponsibilities and opportunities for all the central agents and institutions involved in the agriculture-finance relation. However, due to the Australian farming sector's historical 2t9 dependence upon conoessional finance, these opporn¡nities and reqponsibilities would be slanted very much in the finanoial institutions' favour. Deregulation allowed the majsl trading and savings þanks to compete for lending in all sectors on conditions whioh would also be subject to coryetition, rather than government fiat. This section seeks to ascertain the exte,lrt, if aoy, to which institutional lending was directed away from the farm sector following deregulation and on-lent to more attractive economic sectors. Figs. 9. I and 9.2 show the lwels of new approved fixed tending commitments (e.g. term loans, property mortgages, etc.) and revolving credit facilities (i.e. overdrafts) to the farming, forestry, fishing and hunting sector relative to two other sectors which, according to the literature (see Chapter Five), experienced buoyant conditions in the post-deregulation period: the finance, investment and insurance and the property and business services sectors. These figures do not indicate the overall accumulated debt - including that portion attributable to interest costs - for each industry seotor. Fixed lending to the property and business services sector escalated after 1987, as investor interest shifted to real property after the collapse ofthe share market in October 1987. The lwel ofnew approvals to this sector increased in real terms almost four-fold between 1986 and 1990, whe,n they reached their highsst point. Fixed lending to the finaûco: investment and insurance sector grew sienificantly, but in more volatile fashion, as the globalisation of the Australian economy created ideal conditions for the establishment of a market for professional finanoial man¿g.-*t and advice. Outþs to this sector almost doubled between 1986 and their peak in 1988. By contrast, farm and related industry fixed lending remained relatively constant throughout the period, but interestingly, was at higher levels than the other two sectors at the end of the period under consideration. The boom for the property and business services and finance, investment and insurance seotors collapsed in the wake of the rapid decline in property values þarticularþ for CBD property) and descent of the wider economy into recession in the earþ 1990s. This pattem is partially replicated in revolving credit facility approval trends over the same period (Fig. 9.2). Overdraft lending to the South Australian farm, forestry, fishing and 220 Fig. 9.1. Fixed r,oan Facilities, All Lenders, selected rndustries, south Aushalia, 1985 - 1994 ($ mill.) (constant $: base =1990). 1600 I 1400 , I t 1200 t t t t 1000 t I t t E 800 I O I 600 ì \ / I 400 ì a 200 0 \o t\ æ o\ o ô¡ :f æ æ 00 æ c 6 o\ c ô o\ Oì o\ o\ o\ o\ a 6 o\ Agriculture, forestry, fishing and hunting --....Ð_ Finance, investment and insurance and business services . Fig. 9.2. Revolving Credit Facilities, All Lenders, Selected Industries, South Australia, 1985 - 1994 ($ nilt) (constant $: base = 1990). 1400 1200 1000 Ë 800 Ê i. 600 -"\"-.' 400 200 0 €€ææS,OìOiOiO,\S¡-oOo\AÊô¡(rì-t ÉÊÉ-ÊÊro\ o\ o\ o\ o\ õi ói o, ói and hunting and Source: ABS, Cat. 5643.0, various issues 221 hunting sector continued in a relatively buoyant but stable fashion tlrough the late 1980s as the demend for carry-on finance remained high, but declined in the depressed year of l99l when the full effect ofthe collapse ofwool prioes, together with a doumtum in grain prices, saw many farmers, particularþ in the Eyre Peninzula grain belt, refused carry-on finance from the major trading and savings þanks (Smailes, 1993, l0). Non-fixed lending to the property and business services sector almost trebled in real terms between 1986 and the peak year of l99l; and over doubled to the finatrcê: investment and insurance sector over the 1985-1989 period. Again, overdraft lending to the farm and related industries sector was above that allocated to the otler sectors at the end ofthe period considered above. These trends do not indicate that financial institutions, freed from govemment directives to lend to the farm sector and at concessional interest rates, sought to direct their lending away from the farm sector and towards more ostensibly lucrative industries. Fig. 9.3 shows ttrat even while the maj6¡ trading and savings banks were seeking to increase their share ofthe finance, investment and insurance and property and business services sectors, tleir share ofthe fixed lending to the farming and related industries sector was gradually increasing. South Australian bank lenrting strategies in the earþ post-deregulation period appear then to have involved an aggressive campaig to gain and hold market share in the corporate and industrial sector,l while ¡¿ia1¿ining a strong presence in the primary industries sector. This latter trend could be attributed to non-bank financial institutions jettisoning their farm lending for more apparently affractive retums in other sectors. Given the South Australian economy's strong reliance upon agriculture (Scott, 1992, 73), it would have made little sense for the banks to completely shun farm lending. However, it is evident that the major trading and savings banks attempted to outcompete the new (and not-so-new) entrants into the financial system in areas where they - the banks - had, hitherto, comparatively little expozure, while simultaneousþ consolidating their lWhile fixed lending to the property and business services sector by all lenders increased by 53s per cent between 1985 and 1990, total bank fixed lending to this sector increased by 2 647 per cent (26.5 times). Bank lending to the South Australian finance, investment and insurance sector grew over five-fold between 1985 and its peak in 1991, while total fixed lending to this sector grewby less than four-and-a-half times during the same period. 222 Fig. 9.3. Bank Lending as a Proportion of AII Fixed Lendingr Selected Industries, South Australia, 1985 - 1994 (Vù. 100 90 80 :!l^-- ,' I ¡r\ 70 , \t t 60 \ s 50 \ \ 40 , 30 20 10 0 rô \o ì- æ o\ o N î1 ç æ 00 æ oo 00 o\ o\ o\ o\ o\ o\ o\ o\ o\ o\ o\ o\ o\ O, o\ Agriculture, forestry, fishing and hunting Finance, investment and insurance Propedy and business services Source: ABS, Cat. 5643.0, various issues Fig.9.4. Aggregate Cash Operating Surplus and Gross Indebtedness of South Ausûalian Farms, l97ll72 - 1992193 (1990 dollars). I I 800 1600 1400 1200 1000 O 800 600 400 200 0 19 19 t9 19 t9 19 19 t9 19 19 t9 19 19 L9 19 77- 72- 73- 7+ ?5- 76- 77- 80- 86- 87- 88- 89- 90- 9r- 92- 72 73 74 75 76 77 78 81 81 88 89 90 91 92 93 Cash Operating Surplus Gross Indebtedness - Source: ABS, Cat. 7507.0, various issues 223 dominant mârket share in the nual economy. This strategy contained new risks, as le'nding patterns after 1992 show (Figs. 9.1 and 9.2). Baúk lending returned to more zubdued lwels following the cul¡nination ofthe speculative investment spree ofthe late 1980s in a qpectacular collàpse of property and stock markets - together with many of the e,ntre,preneurs who fed on and fuelled them - and the rapid escalation of bad debts for Íuny institutions. Nwertheless, it is also appare,nt from Fig. 9.3 ttrat the major trading and savings property ba¡ks have been zuccessful in maintaining their costly gains in market share in the anaþsis and business services and finance, investme,nt and insuranoe sectots. Howwer, this provides a limited perspective on the pre- and post-deregulation farm credit market. South Ausrralian farm debt trends (Fig. 9.a) have broadly replicated those ofthe national farm sector, discussed in Chapters Four and Five. Gross farm indebtedness2 gradually inoreased tlrough ttre 1970s, jumped slightly in the relativeþ proçperous years of 1979-81 as farmers e>çanded their borrowings, and the,n escalated to 1986-87. Perhaps tle most noticeable and sienificant feature of this figure is the rapid widening of the gap between gross farm debt and cash operating zurplus3 since the earþ 1980s. Given that farm lending {uring this periotl - essentially the post-deregulation period ' was relatively stable around some short-term fluctuations (see Figs. 9.1 and 9.2), there were obviousþ more oomplex processes in operation to cause this trend. Table 9.I and Fig. 9.5 show average South Australian prices for a number of selected broadacre farm products and the broader terms of farm trade for the 1980s and earþ 1990s reqpeotiveþ. Despite some short-term fluctuations whe,n farmprices and the terms of trade increased, the period under consideration was a time ofvariable production volumes and comparatively low farm incomes for the broadacre farm sector (Heathcote, discountedbythevalue of 2 Gross farm indebtedness is defined as the total arnount owingto all lenders, not deposits held by farm businesses with lenders. 'Cash value of increase 3 op"ruti'ng surplus is "the estimate of gross operating surplus less an estimate of the rent received". in livestoch less estimates of interest and land rent paid, plus estimates of interest and land and income ta'x (ABS, 1975, 50). Cash operating surplus is not equivalent to profit because depreciation payments have not been deducted. 224 Fig. 9.5. Terms of Tiade for Aushalian Agriculture, 1952/53 - 1994195 (1987-88=100). 2s0 200 Io G' 150 lrG Er o 0 EI L 100 IU t'i 50 0 1952153 1958/59 1964165 t970l7t t976t77 t982t83 1983/89 t994t95 * Ratio of index ofprices received by farmers to index of prices paid by farmers. Source: ABARE, 1995, 18. Table 9.1. Average hices of Selected South Australian Broadacre Fam Commodities, 1982 -1994 ($ nominal). Year \Uheat Barley Wool ($/tonne) ($/tonne) (cents/kg) 1982 159.61 I39.47 262.85 1983 177.54 155.35 260.24 1984 164.86 153.95 28L.t 1985 173.72 136.06 281.83 1986 t70.63 r22.58 304.92 1987 t49.69 115.85 343.44 1988 t69.07 t23.36 493.03 1989 2t5.62 168.65 540.61 1990 L99.39 167.63 469.6 1991 136.03 t28.77 347.07 1992 201.05 I4T.4 303.59 1993 I80.22 133.46 285.69 t994 t72.19 120.99 255.72 Soruce: ABS, 1995, 318 225 Fig. 9.6. Profit Margins for All south Australian Farm rndustries, 1977178 - 1992193 (Vo) 50 45 40 35 30 ès 25 20 15 10 5 0 t9 T9 19 t9 t9 19 t9 t9 19 77- 80- 86- 87- 88- 89- 90- 91- 92- 78 81 87 88 89 90 9t 92 93 Fig. 9.7. Profït Margins for South Australian Broadacre Farm Industries: Sheep, l977l7t - lgg2lgj (Vo) 50 40 30 BS 20 10 0 l9 19 19 19 19 19 19 -10 80- 86- 87- 88- 89- 90- 9l- 92- 78 81 87 88 89 90 9T y2 93 Source: ABS, Cat.7507 .0, various issues 226 Fig. 9.8. Profït Margins for south australian Broadacre Farm Industries: Sheep/Beef Cattle, lg77t7t - l9gàlg3 (Vo) 50 40 30 ès 20 10 0 t9 L9 t9 19 l9 t9 t9 -10 80- 86- 87- 88- 89- 90- 91- 92- 78 81 87 88 89 90 9l 92 93 Fig. 9.9. Profit Margins for South Australian Broadacre Fam Industries: Beef Cattle, 1977l7B - L992193 (Vo) 50 45 40 35 30 Ès 25 20 15 10 5 0 1977-78 1980-81 1986-87 1987-88 1988-89 1989-90 1990-91 t99L-92 1992-93 Source: ABS, Cat.7507 .0, various issues 227 Fig. 9.10. Profit Margins for South Australian Broadacre Farm Industries: Sheep/Cereal Grain, lg77l7g - 1992193 (Vo) 50 45 40 35 30 ès 25 20 15 10 5 0 t977-78 1980-81 1986-81 1987-88 1988-89 1989-90 t99o-91 ts91-92 tgg2-93 Fig. 9.11. Profit Margins for South Australian Broadacre Farming Industries: Cereal Grains/Oilseeds, 1977175 - Igg2l93 (%) 50 45 40 35 30 ès 25 20 15 10 5 0 t9 l9 L9 19 t9 19 T9 19 t9 77- 80- 86- 87- 88- 89- 90- 9t- 92- 78 81 87 88 89 90 9t 92 93 Source: ABS, Cat.7507 .0, various issues 228 Fig.9.12 lnterest rate trends (1981 - 1993) 25 20 I 15 \ 10 5 82/83 83/84 84/85 85/86 86187 87188 88/89 89/90 90/91 91/92 92/93 - 90 day BAB ''- Real lnterest o/o - - Overdraft Source: Kondinon Group, 1993,2I. Fig. 9,13. Interest Coverage Ratio for All South Australian Farm Businesses ,1971-72 - 1992-93 0 tâo t4 U û (u t2 ¡i tlJ É l0 L(u o 8 I L \ 6 ti !r â0 I o 4 q e 2 o 0 G ú t97t-72 1973-74 t97s-76 1977-78 1986-87 1988-89 l99o-91 1992-93 Source: ABS, Cat.7507.0, various issues 229 1992, 174). Profit marginsa for all South Australian broadacre farm industries (Fig. 9.ó) declined sharply in the late 1980s and earþ 1990s, with sheep (Fig. 9.7), sheep/beef cattle (Fig. 9.8) and beef caffle enterprises (Fig. 9.9) particularþ affected. Other broadacre industries diqplay this trend to a lesser but still significant extent (Figs. 9.10 and 9.1l). The removal of concessional interest rates for farm lending with financial deregulation affected this statistical portrait of the South Australian farm sector by increasing farm business costs as well as farm debt. The high interest rates of the late 1980s and earþ 1990s (Fig. 9.12) reduced farm cash operating surpluses and profit maryþs and compounded debt problems. Fig. 9.135 shows that while the interest bill on South Australian farm debt has absorbed an increasingly large proportion of cash operating surplus since ttre earþ 1970s, from the mid- to late- l98Qs this trend bottomed out, with aggregate farm cash operating surplus covering the interest bilt at best, nearþ six times; at worst, r¡nder three times. That is, in the swerely depressed year of 1990-91, over a third of South Australian aggregate farm cash operating surplus needed to be directed to paying ofthat year's interest bill6. Retunring to Figs. 9.1 and 9.2, and, comparing them with the trends in gross farm indebtedness in Fig. 9.4 and the moveme,nts in interest rates in Fig. 9.12 andlþsir impact on the farm business in Fig. 9.13, it is possible to see that one of the main contributing factors to the increase in gross South Australian farm indebtedness over the last ten years has been increased interest rates. While it would be inappropriate to consider the influence of this factor in isolation from other factors, the increased cost of servicing the growing sectoral debt - itself fed by fluctuating but generally depressed broadacre commodity prices - can be seen as a si8nificant contributing factor to its growth. Furthermore, the rapid and sustained a Profit margins are calculated by dividing cash operating surplus by farm turnover and converting this figure to a per cent figure. A 30 per cent profit margin indicates that for every $l ofturnover, 30 cents could be allocated to profit (ABS, 1975, 50). 5 Interest coverage ratio is calculated by adding interest costs to cash operating surplus and dividing this sum by total interest costs. The resultant figures are expressed as a ratio, and show how many times the farminterestbillcouldbepaidoutofcashoperatingsurplusbeforethedeductionofinterest(48S,1975, 5 l). 6 It is apparently a general rule in rural banking circles that farm viability reaches a c¡itical level once financial costs (interest and principal repayments, fees) accounts for 30 per cent ot more ofgross farm income @ank Interview 1.4). 230 Fig. 9.14. Ratio of Business Tu:rover to Debt for All South Australian Farm Industries, 1977178 - l992l9} 0.9 î o.t b 0.7 a a o.u a Ê a Ë o.s 0 8 0.4 '= 0.3 É¡ z 0.2 E 0.t 0 1977-78 1980-81 1986-87 1987-88 1988-89 1989-90 1990-91 t99L-92 tgg2-93 Source: ABS, Cat.7507.0, various issues 23t rise in interest rates through the mid-1980s to earþ1990s (Fig. 9.12) arethemsehes substantially attributable to the effects of financial deregulation on monetary policy (Chapter Five). Fig. 9.14 shows trends in the ratio of business tuinover to total debt for all South Australian broadacre farm industries ûom 1977178 to 19921937. While this ratio worsened for South Australian broadacre farms in aggregate (i.e. the ratio trended towards l:l) over t,he period, t,he hardest hit sectors were the ú..p, sheep/beef cattle and beef cattle enterprises. These commodity sectors descended into crisis in the l99Ol9L - lggllg2years, when debt greatly exceeded tumover. The significance of these trends lies in their possible geographical expression. The farm debt crisis can be assumed to be at least substantially influenced by a particular region's farm commodity mix and comparative advantage in particular farm industries, as well as the terms oftrade and demand for these commodities. The Kangaroo Island community's economic reliance on its pastoral industries, particularþ wool growing and fat lambs, beef cattle and cereal grains, takes on eqpecial simificance in the light of the farm financial trends discussed above. In summary then, the post-deregulation South Australian farm credit market broadly followed national trends. While farm debt had been on the increase since the 1960s, it acorued at faster rates following financial deregulation at both the South Australian and national level. Equity levels for tle national and South Australian farm seotors have not deteriorated sienificantly (see Fig 9.15 for South Australian trends). Fig. 9.16 shows that deqpite zubstantial falls from the high points of ttre late 1970s, the asset backing of the growing South Australian farm debt remains at reasonable levels8. Nwertheless, these aggregate level figures disguise the widening of the expo$ue to financial vulnerability that has occurred within the South Australian farm sector due to regionally-specific climatic 7 The ratio of farm business turnover to debt is a measure of a farm's ability to service its debt. A ratio of l:l means that for every $ I of tu¡nover, there would be $ I of debt. This also means that if the farm debt were to be paid offin that year, all of the business turnover would have to be committed to debt redemption (ABS, t975,5t). 8 This apparently constant trend disguises the loss of many heavily-indebted farms ove¡ the period. 232 Fig.9.15. Aggregate Equity Levels for South Ausfralian Fams, 1974175 - teezt% ea 100 90 I 80 70 60 s 50 40 30 20 l0 0 197+75 t976-77 1980-81 1987-88 1989-90 t99t-92 Fig. 9.16. Debt to Asset Ratios for South Australian Farms, 1974175 - 1992193 t4 t2 â il l0 ¡ 8 €J e 6 o ú 4 2 0 19 t9 19 19 19 19 l9 l9 l9 19 19 t9 7+ 75- 76- 77- 80- 8G 87- 88- 89- 90- 91- 92- 75 76 77 78 8t 87 88 89 90 9l 92 93 Source: ABS, Cat.7507 .0, various issues 233 problems (droughts, floods, frosts, etc.) and oommodity-qpecific doumturns, together with more individual farmfactors. AIso, while this diagram shows that the tggregtte farm debt may be well-secwed, the most serious problem confronting farm families strugeúing to establish and maintain their farm's viability is their reduced cash flow and, hence, debt sewicing capacþ. This is a partioularþ acute problemwhen interest pa¡ments form a high proportion of farm oosts, as they did druing the late 1980s and earþ 1990s (see Figs. 9.4 and 9. l3). On this point, there is r greú deal of similarity between the Australian and South Australian and New Zealand farm sectors' experience of financial deregulation. While interest costs accounted for just over a third of South Australian cash operating zurplus in the worst year (1990191), it was noted in sub-section 6.3 in Chapter Six that interest costs comprised approximately one-quarter of total New Zealmd farm expenditrue n 1986187, whe,n interest rates were at their post-deregulation high. The removal ofvinually all remaining impediments to the circulation of global capital in ttre Australian economy with deregulation meant that agriculture was also likeþ to be judged by more global imperatives. However, r¡nlike tle previous regulatory regime, when quantitative restrictions on lending meant that tlere was uzually a relatively large unmet demend for farm finance, deregulation saw funds become much more readily available, but rationed according to price. That is, many more farmers could, theoretically, gain access to credit, but only by being prepared to pay an added premium for the additional risk their bonowing entailed for the lending institution. As Stretton (1987) has pointed out in relation to young homebuyers' access to the deregulated home lending market, tlere is no reason to expect that poorer (or younger) farmers could afford the new rates. This sub-section has provided a provisional analysis ofhow major South Australian financial institutions interpreted financial deregulation, particularþ in relation to the farm sector's fluctuating fortunes over the last deoade. The next section focuses more closeþ on how selected financial institutions translated their new-found freedom into actual business strategies appropriate for the competitive environment which deregulation promised. This 234 anaþsis concentrates on the State Benk of South Australia (State Baúk) in both its pre- and post-deregulation forms but also considers the post-deregulation business strategies of the Australia and New ZeúandBanking Group (AI.IZ Bank), two pastoral finance ssmpaniss; Elders and Wesfarmers Dalgetys (Dalgetys), as well as the Commonwealth Development Baxk (CDB) and the Rural Finance and Developme,lrt Division of the South Australian Department of Primary Industries (RF&DD). 9.3. Linking the Global, the Regional and the Local: South Australian Financial Institutions in the Global Economy 9.3.1. The Emergence, Rise and Fall of the State Bank of South Australia This section's focus on the State Bank is important for a number ofreasons. First, a longitudinal study of the State Bank and its role in fostering the rural, and wider social and economic, development of South Australia provides a valuable case study of how a relatively strong regional bank interpreted the new financial environment following deregulation, and its fi¡nctions in it, including farm lending. Second, tle Bank's spectacular rise and fall provides an illustration ofthe commercial oppornrnities, reqponsibilities and pres$ues which all financial institutions faced after deregulation. Thirdly, while the deregulation of the Australian financial system was essentiaþ a Federal initiative, the decision to create the new State Bank by merger and to launch it with a ne\¡/ charter, yet retain it in public hands, was primarily a State-level reqponsibility. This case study, then, not only reveals the political and eoonomic oomplexity ofthe Federal system, but also the strategic thinking behind these attempts to link South Australia into the global economy. Finally, the State Bank is one of only two banks with a physical preseroe on Kangaroo Island, and comprises approximateþ one-half of all the Island's banking services and customers (Bank Interview l.l) The State Bank of South Australia was the product of a 1984 merger between two longstanding South Australian þanks: The Savings Bank of South Australia and The State Bank of South Australia. The Savings Bank of South Australia (SBSA) first oommenced 235 business on March 11, 1848 (Jacobs, 1992). Atthough primarily a savings bank for most of its independent existenoe, it also le,nt small amountse to its established depositors for home building or purchase and provided farm mortgage finance for its rural clients. The State Benk ef $suth Australia (State Bank) began its operations on February l, 1896 (Jacobs, 1992). Up until 1926, its lending activity was restricted to long-term loans "and to the administration of certain Acts ofparliament, the princþal one being the Advances for Homes Act of 1910" (State Bank file). T\e 1925 State Bank Act significantly expanded the Bank's qphere of activity by allowing it to conduct general banking business (BAE, 1972; Jacobs, 1992; State Bank file). The predomin¿a1ly rural flavour ofthe State B¡nk's lending developed after this time, as it became responsible - via legislation - for facilitating the expansion and development of South Australia's primary industries.lo Following the 1925 Act, the State Bank administered ttre Loans to Producers Acts, l9l7 to 1924;the Vermin Act, l9l4; and the Fencing Act of l9l9 (State Bank file). Under the Loans to Producers Act, advances were made to the fishing industry and to co- operatives engaged in the processing and marketing of primary commodities, as well as to ûeehold landholders and Crolrm leaseholders for necessary capital expenditure (e.g. silos, fruit grading equipment, general land improvemenQ (BAE, 1972). The Advances to Settlers Act allowed the Bank to lend to farmers on crown Lands for land improvements, mortgage repalments and the like (State Bank file; BAE, 1972). These Acts - and the Bank's frmction in adminis¡ering them - filled gaps in the farm credit market, as the major private banks were reluctant to lend on a long-term basis to co-operatives and Croum Land leaseholders. In their reqpective roles, the SBSA and the State Bank essentially acted in accordance with the regulatory constraints and demands ofthe highly regulated agriculture- finance relation outlined in Chapter Swen (Fig 7.1) and the general tenor of agricultural and rural regional policy pertaining r¡ntil the earþ 1970s. Bottr Sanks held considerable reqponsibility for promoting the social and economic dwelopment of South Australia. e No more than two-thirds of the Bank's total ñ¡nds were allowed to be lent (SBSA 194s). l0 It nevertheless maintained its role as a large home lender via its participation in the Commonwealth- State Housing Agreements (State Bank frle). 236 The creation of the larger and nominally independent State Bank was influenced by two main factors: l) the gradual reoognition on the part ofthe State's political and banking elite that both banks had come to effectiveþ duplicate each othet's fr¡nctions and services; nd'2) with financial deregulation a looming proqpect, these same decision-makers felt the need to create one large competitive regional bank out ofthe two institutions (Jacob s,1992; MacPherson, 1993)11. These concems for commercial strength, oompetitiveness and independence were carried into the merged Bank's charter. Although ttre Bank's objectives, as stated in zubsections 15 (l) and (2) ofthe State Bank of South Australia Amendment Act (1984), were a blend of commerciall2 and sociall3 goals, the te,nor ofthe Bank's charter was domin¿1s¿ by commercial objectives (MacPherson, 1993). These goals were not thought to be contradictory. Indeed, the State Govenrme,nt (to which the Bank was ultimateþ reqponsible) and the Bank itself regarded the pursuit of the Ba¡k's sooial objectives to be best served by an aggressive commercial charter. The Bank expressed the complementary nature of its objeotives in its 1989 Annual Report (paraphrased by MacPherson, lgg3, Z- 2t): ,'regional The expansion and diversification of the Ba¡k to become a bank in Australasia", pwsuing "profitable oppornrnities in global markets by developing as a niche player in key financial centres such as New York and London", was perceived as important to providing the Bank with the capaoþ to meet its social obligations. Its qpecific capability to provide low-cost housing loans was only possible: 11 Tentative moves towards the c¡eation of a single regional bank for South Australia had begun as earþ as 1975. This venture failed mainly due to widespread public suspicion that the newbank would act as little more than a conduit of private fïnancial resources to fund government projects of dubious quality or utility (Jacobs, 1992). 12 The Bank's Board of Directors were instructed "to administer the Bank's afrairs "with a view to achieving a t"" (MacPherson, 1993, 2-19, orig¡nal emphasis). 13-proJì The Board of Directors \ilas also charged with ttre responsibility for "promoting "the bqlanced development of the State's economy" and the "maximum advantage to the people of the State,',paying"due regard" to the importance to each of the availabitity of housing loans"" (MacPherson , lgg3,2-L9, orig¡nal emphasis). 237 because of the great financial strength it possesses from pruzuing a commercial charter. Under it's (sic) constitution, the Bank has generated grorvth and profits from a wide range of operations in many different markets. Activities by the bank and it subsidiaries, such as corporate lending, merchant þanking and funds managemelrt, provide the strength to mafts home lending decisions which, in periods of hign interest rates, are ofte,n more social then commercial in nature (State þnnk, 1989, in MacPherson,1993, 2-Zl). The creation ofttre Bank, and its adoption of a primarily commeroial charter received bipartisan political support in the South Australian Parliament. The Labor hemier and Treasurer ofthe time, John lanns¡¡ in reading the Act which established the merged Bank, envisaged the Bank's role as ""an engine of economic growth""(MacPherson, 1993, 2-20; Jaaobs, 1992,33). The then Leader of the Opposition, John Olsen, endorsed the Act, and foresaw the expansion of the Bank's activities into a range of financial and business services and sectors (MacPherson, 1993, 2-20). As MacPherson (1993, 3-l l) notes, the Ba¡k's adoption of a new charter and a more independent relationship with its owner and overseer - the Govenrment - effectively amounted to the Bank,s oum deregulation. Like most ottrer banks, the State Bank began an aggressive campaþ to both establish a domin¿¡l position in its oum regional market, and to create niches for itself in important foreþ markets. Like most other majs¡ banks, it also expanded its range of financial products and services (HRSCFP,! 1991). In pursuing this stratery, the Bank was fr¡ndamentally disadvantaged by its location within South Australia. The State's longstanding economic reliance upon agriculture and manufacturing (Scott, 1992,73) and the paucity of majs¡ Australian and intemational fi¡ms within the State forced the Bank's expansion into the eastem Australian states and overseas. Its hitherto relative isolation in Souttr Australia - where its clie,lrt base consisted predominantly of retai! housing and small business creditors and debtors - also meant that the Bank was virtually devoid of the experienced corporate leaders necessary to support and execute tlis aggressive strategy (MacPherson, I 993, 3- l4). The new Bank began its activities on July l, 1984 with total assets of $2.7 billion, and $165.6 million of capital fi:nds: 238 The Bank's portfolio of business loans was $404.6 million, representing about 23 per cent of its total loan portfolio. On the liabilities side, retail deposits accounted for 85 per cent of total deposits ... at the time of its formation, the Bank can fairly be described as essentially a thrifr institution whose business was largely limited to retail banking activities and some smaller commercial lending within South Australia (MacPherson, 1993, 3- l0). The six-and-a-half year period from the Bank's lar¡nch have been tle subject of inte,nse public scrutiny following the rwelation in February,l99l by the Premier of South Australia, John Bannon, ttrat the Bank had accumulated approximately $l billion in bad debts, with the likelihood that this figu.e could reach $2.5 billiontr (MacPherson, 1993,2- l4). This nnnouncement led directly to the establishment of the South Australian Auditor- Generals investigation (MacPherson, 1993) and the Jacobs Royal çsmmission (Jacobs, 1992) into the reasons for the Bank Group's descent into near financial collapse.15 The following section contains a brief and selective summary ofthe rise and fall ofthe State Bank, drar¡m primarily fromthe Auditor-Generals Report (MacPherson, 1993). 9.3.2. The Rise and Fall of the State Bank: The Demise of a Global Strategy To better understand the Bank's adoption of a particular strategic direotion following financial deregulation, it is necessary to look in more detail at the broad context in which it operated. Table 9.2 shows the main economic and regulatory trends and events of the post-deregulation era until l99l whioh influenoed bank lending strategies. The unprecedentedly competitive environment in which the Ba¡k sought to fulfil its new Charter placed a huge strain upon its planning procedures and intemal regulatory and prudential meohanisms. MacPherson (1993, 4-49, ongsnal emphasis) asserts that ttre "Bank's sfiategic planning processes ... \üere largely irrelevant to the Bank's actual business development". In faimess, MacPherson (1993, 3-20, original emphasis) also observes that, la By June, 1991, the Bank's total losses had amounted to $2,2 billion. On a per capita basis, this debt far exceeded that ofthe Bank ofVictoria's collapse (Scott, 1992, 88). ls The Bank's $5.75 billion of non-performing loans and impaired assets were transferred from the Søte Bank to the Group Asset Management Division (GAMD), also known as the "bad bank", in July 1992. By February 1993, $2.41 billion of these loans had been written ofl recovered or transferred back to the so- called "good" bank @rown, 1993,22). 239 given the increased volatility and competitiveness of the general macro-economic environment from 1984, "the challenge faced by the Board of lDirectors and the management of the Bank could hardly have been more daunting and diffìcult". The State Bank's attenryt to become a major b¡nk e¡ the Australian and intemational stage saw it assume an identþthat was difficult to reconcile with its form and fr¡notions prior to deregulation and the Ba¡k's merger: "The most sûiking feature of the Bank after its formation in JuIy 1984 is its rapid growth and diversification from a locally-based, essentially @ut not wholly) retail bank to a diversifïed fïnancial services group with very signifÏcant Australia-wide and international operations" (MacPherson, 1993, 3-20, original emphasis). 1Xs þank's rampant and hydra-headed expansion is evident from a brief statistical sttrnnary of its perfornunce. The value ofthe Bank's assets grew by 543 per cent between July 1, 1984 and Jt¡ne 30, 1990 from $2.7 billion to $17.3 billion. The Bank Group's (i.e. the Bank and its subsidiaries, including Beneficial Finance) nominal asset growth over the same period grew nearþ seven-fold, from $3.I billion to $21.1 billion (MacPherson, 1993, 4-5). This asset growth was attributed overwhelmingly to the oipansion ofthe Bank's loan portfolio from $1.2 billion in July I,1984 to $11.1 billion in June 30, 1990: an increase of 825 per cent. This growth rate exceeded that of all other major banks, including all other state banks. The Bank's actual asset growth from 1986 to 1990 exceeded planned growth by 63.2 per cent (MacPherson, 1993, 4-48). MacPherson (1993, 8-15 - S-17) attributes this 'overperformance'to important sectors of the Bank's hierarcþ placing greater emphasis on t.he annual Profit Plans - which could only be met through aggressive lending - rather than the rolling 5-year Strategic Plans. Prudential considerations were effectively þored in the scramble to achieve these ambitious goals. While most other major þanks and other financial institutions have experienced at least a modicum offinancial difficulty due to the collapse of propertyvalues - and a number of highly-lweraged entrepreneurs with them - the near collapse of the State Bank from similar problems provides a salutary lesson of the necessþ Table 9.2. Australian Post-Financial Deregulation Economic Trends Affecting Bank Decision-Making, 1984-1991 Years Economic 1984 -latel987 late1987 - 1990 Trends and Stimuli General General expectations of continued Speculation via debt Deregulation saw exchange Stock ma¡ket crash forced Business decisions Features high inflation into late 1980s - advantaged by ta:ration rates and interest rates those companies that basic on anticipated ensured rise in asset prices and laws become more volatile. traditionally sourced their continuing increases in reduced cost of borrowing Monetarypolicy funds from the stock market asset values increasingly ¡lifñ cult to to the banls. implement Specific Asset price inflation well abor¡e Capital gains tax free prior Very high real interest rates Property becomes a greater Escalation of private Aspects general inflation frorn late 1983 - to Sept. 1985 throughout this period target because ofits ready business debt - many most rapid growth in shares and causing increased leverage acceptance as a form of becoming extremely real property. Share prices of many businesses security. Record high values high-geared. Onset of increased four-fold between March for commerciat property by recession exposed 1983 and Sept. 1987 late 1988 many such businesses and banks Bank Increased competition saw loan Rapid growth in credit from Despite historically high Continued general abundance Responses margins between lenders "pared to 198+mid 1989, mainly to interest ¡ates, credit of credit and willingness to the bone" (MacPherson, 1993, 3- business sector and mainly continued to grow, for the lend. This trend fuelled 15) bD' 1985. Higher risk clients for purchase of assets above reasons propertyvalues accepted for higher premiums on loans Source: MacPherson, 1993. ì.J o5 241 for strict prudential control including the menagement ofbalanced industry exposures. MaoPherson (1993, 8-13 - 14) summarises the processes that led to the Bank's near demise: In the years between 1984 and 1990 the Bank lent heavily to commercial property investors and entreprener[s. Those loans were at the higù end of a bank's acceptable scale of risks. That lwel of risk was aggfavated by the faot that the Bank did not have other zubstantial good quality corporate exposures (not dependent on changes in propertyvalues) with which to "dilute" its exposures to qpeculators and property investors. The Bank's aggressive corporate lending on commercial property created an imbalance in its portfolio. The zubseque,nt recession has also proven problematic for borrowers lacking reliable cash flow, who became accustomed to selling assets in order to service or re,pay debts, and who were thus dependent for their eoonomic survival upon the mainte,nance of inflationary expectations and the upward movement in asset values. Table 9.3 menifegly diqplays the Bank's movement away from its traditional business focus and its attempt to coryete with the major national benks. Relative to the lending of the major þenks, the loan portfolio of the $1¿1s lank is extremely r¡nbalanced. The dominance of lending to the property and business services and finance, investment and insurance sectors, both in relation to the major banks' lending as well as to its own loan portfolio, is wident. Also apparent is the overrepresentation ofproperty and business services and construction sector loans in the overall composition ofthe Bank's non-aocrual loans. Corporate-type lending domin¿1sd the Bank's lending, and comprised al¡nost all of the Bank Group's non-performing ard non-accrual exposures (Table 9.4).It is impofant to note, however, that almost all banks suffered significant bad debt exposures during this time. The total amount ofnon-performing loans across the entire banking sector grew from approximately "$16 billion in mid-1990 to $29 billion in mid-1991" (HRSCFPA' 1991,82). Banks'provisioning for bad debts has increased dramatically since deregulation (HRSCFPA t99r,83-86). Corporate loans comprised 38 per cent of the Bank's total portfolio, but accounted for over 60 per cent oftle Bank's non-performing loans (MacPherson, 1993, 4-6) and almost 84 per cent of the total Bank Group's non-performing loans (Table 9.4) 242 (MacPherson, 1993, 2-15). The Bank's sourcing of its loan funds equaþ shows how far it moved from its traditional roles and functions. Wholesale funds (i.e. sourced ûom money markets and the like) formed l5 per cent ofthe Bank's total funds in 1984, but by lgg} 82 per cent of its total loan ftnds originated from wholesale sources (MacPherson, 1993, 4-6). Table 9.3. Total Exposures for Major Australian Banks and the State Bank and Total Non-Accrual Exposures for the State Bank, June-July l99l (Vù Industry Total Exposures- Total Exposures- Total Non-Accrual Banks State Bank osures-State Bank Aericulture. eto. 6.6 4.2 3.6 Minine 1.9 1.2 1.0 Manufacturine 12.9 8.9 2.0 Construction 5.5 7.7 t2.5 Wholesale trade 4.5 1.8 t.2 Retail trade 8.4 2.5 2.0 Transport 3.2 1.3 0.4 Finance, invest., ins. t7.4 25.8 12.8 Prop. and bus. serv. 9.5 22.4 51.9 Rec. and pers. sery 5.7 4.7 6.3 Other 6.8 5.1 4.4 Total Businesses 82.2 85.7 98.3 Persons 17.8 14.3 1.7 Total 100.0 100.0 100.0 Souroe: MacPherson, 1993, 5-30 ; Scott, 1993, 9 1. Table 9.4. State Bank Loan Portfolio and Proportion of Non-Performing Loans, December 3l,l99O (Vù Loan Portfolio Proportion ofloan Portfolio proportion ofNon- Loans Australia: Housing 14.7 2.0 Retail, Personal Business 13.0 13.0 Corporate 37.6 60.4 New Zealand: Housing 7.6 t.2 Corporate 9.9 I1.6 Other International: Housing 0.5 Corporate 16.8 11.9 Total 100.0 100.0 Source: MacPherson, 1993, 2-15. 243 It would be difficult to overstate the political, economic and social importance of the State Bank's near collapse. The rwelations emanating fromthe Auditor-Generals and Jacobs Royal Commission's investigations ooncenring the rapidity ofthe Bank's spatial and quantitative growth; its sometimes reokless and ill-advised approach to attracting large clie'lrts; the inability ofthe Bank's Board to meaningfully control the pace and direction of the Bank's dwelopme,nt or oonstrain its Managing Director, Tim Marcus Clark; tle relationship between the Bank and the Govenrme,nt; these, amongst other iszues, shocked the South Australian public. The desce,nt of one of the State's most significant and symbolic institutions into massive debt, which only large injections of capital from the State Government could remedy, led to the resignation ofthe then Premier, John Bannon, in September, 1992 (Parkin, 1992, 2l). It also played a major (if not the major) role in the election of the Brown Liberal Government in Decembe4 1993 and their controversial menagement ofthe State's debt reduction, which included the sale ofthe Bank to the New South'Wales-based Advance þank for $730 million on June 2, 1995 (Kirby, 1995, 38). As noted in the introduction to this zub-section, MacPherson's (1993) investigation of the State Bank did not deal with the retail sector ofthe Bank's business (including its farm lending policies) because: l) ofthe overwhehning predominance of co¡porate loans in the Bank's bad debt exposure; nd 2) "... the Bank having dweloped from two retail þanks, its retail lending policies and processes were relatively well-dweloped" (MacPherson, 1993, 8-54). Nevertheless, for the purpose ofthis thesis, the questions that need to be asked are: To what extent did the Bank's aggressive competitive strategy for corporate lending also color¡¡ its farm credit management policies? How were the Bank's competitive strategies influenced by other competitors? What strategies did other financial institutions employ during this period to gain or simply maintain m¿rket share? The following zub-sections attempt to provide answers to these questions. 9.3.3. Business and Regulatory Infrastructure Changes All banks and stock firms which operate branch networks by necessity rely on a hierarchical management and supervisory structtue. Branch managers are reqponsible for the 244 general mânagement ofthe bank branch, including the assessment of lending proposals from prospeotive borrowers. Each branoh manager (and any lending officer attached to a branch or a regional or district office) has a delegated credit authorfty.ro Both the former State Benk sf Ssuth Australia and the Savings Bank of South Australia, prior to their merger into the State Benk in 1984, relied on zuch a tiered branch-regional (or district/division)- head office organisation. For example, the former Savings Bank of Souttr Australia arlministered its branch operations via ten regions (one containing the Central Business District ofAdelaide, five metropolitan and four country regions). Branch- and district-lwel delegated credit authorities prior to 1984 were set at relativeþ low levels, although District Managers would have had much higher authorities than branch mânagers (Bank Interview 1.3). The downgraded importance of rural banking and the branch network relative to the Benk Group's e4pansion into corporate finance was wident in the Bank's retail credit management and supervision. While the general hierarchical management structure of the Bank'5 retail activities changed little until earþ 1991, the lwel of supervision given to both the regional and branch lwels was not suffioient to match the coryetitive pressures of the time. Following the revelation ofthe State Bank's losses in February 1991, the retail bank's structure was changed, with ten districts formed to cover the metropolitan region and eight districts overseeing the rural region. Each district supervised approximately eight to ten branches (HRSCFPA¡ Transcrþt, 1502). The intensþ ofbranch and district supervision has been increased significantly by tle introduction of more sophisicated credit management and reporting systems based on computer technology (Bank Interview L l). Perhaps surprisingly, the delegated credit authorities of the Ba¡k's branch managers and key lending offioers (who operated from regional offices) did not change dramatically from 1984 to earþ 1991. Up until about mid-1988 these authorities were set at fixed levels according to the position of the lending officer. For example, all branch mânagers would 16 These authorities refer to the maximum loan that any manager/officer can approve. Loan proposals that exceed a branch manager's delegated credit authority are referred to a regional or district lending manager prior to their processing at head office level. 245 have had tle same delegated credit authority. Senior Lending mânagers at the regional lwel would have had hieùer authorities than branch mânagers, but these too would have bee,n fixed for that position. From mid-1988 howwer, the delegated credit authorities were adjusted according to the particular branch menager's or lending officet's experience and ability as a lender. These authorities were also adjusted for the geographical arca in which the man¿ge¡ or officer was situated, i.e. some areas had a greater flsmand for large loans than others, depending on the industry mix ofthe local economy. Following this reform, some personnel were allocated greatly increased authorities, while others received reduced authorities (Ba¡k Interview 1.1). Both maje¡ stock firms - Elders and Dalgetys - manage hierarchical branch-region- head ofEce structu¡es. The geographical delineations ofthese hierarchies for both firms have changed over time and are of little importance to this discussion. What is of interest, howwer, is the actual relative apportionme,nt offinancial decision-making among these tiers. Neither pastoral house allocated delegated credit authorities to their branch mânagers prior to financial deregulation. Following deregulation, howwer, both Elders and Dalgetys reversed this policy, ganting their branch managers low authorities. With the onset ofthe rural crisis (not only in South Australia) and the realisation of serious non-performing loan problems in both bank and stock firmportfolios, Elders and Dalgetys again retracted their reqpective branch-level credit autlorities, authorising regional officers only to appraise and approve loans (Stock Firm Interview 1.1; Stook Firm Interview 2.1). Both firms rejected any suggestion that this strategic reversal was a response to poor branch lending decisions. Both Elders and Dalgetys do acknowledge, though, that this reform was necessary to allow gteater head office control over quickly deteriorating portfolios in the wake oftle wool Reserve Price Scheme collapse and other factors. In the late 1990s, Elders removed all inrlividual delegated oredit authorities, granting joint authorities at the regional level only. These joint authorities were set (and remain) below the individual branch authorities which pertained prior to 1990, but after 1984 (Stock Firm 246 Interview 2.1). Dalgetys' regional mrnagers still retain individual credit autlorities, but these were haþed upon Wesfarmers' acquisition of the company (Stock Firm Interview l.l). 9.3.4. Lending Policies The former State Bank of South Australia (i.e. prior to 1984) was widely acknowledged as a conservative le,nder. Its lending policy approved credit facilities up to a maximum of 60 per cent of the Bank's or¡m valuation of any lending proposal. This ultimateþ resulted in the Bank lending up to a maximum of 46-47 per cent of fair m¿rket value (Baxk Interview 1.1). The chief criterion in assessing a proposal was, therefore, the proqpective client's level of security, or equiry in backing tle proposed borrowings, although the client's ability to service the necessary repalments ofthe loan (interest plus a oompone,lrt for principal reduction) was obviousþ important. The newly-merged State Bank's approach tofarm lending was caught between the old State Bank's role as a significant financial supporter of South Australia's primary industries, and the perceived need by the Bank's new hierarcþ to compete aggressively on foreign m¿rkets and establish a strong position in the corporate lending market: (Senior Bank administrator) really saw ttrat the nuts and bolts ofwhat makes BankSA (ttren State Brok) today as a hindrance, whereas the big dollars were to be made in the corporate sector. Y'know, ifyou could lend $100 million to Westem Mining ... you only had to do one review, you only had to deal with one lot of people, whereas with a $100 million, you might be dealing with l0 000 farmers. Now, (senior Bank administrator's) theory was at least the gUys from Westem Mining are very professional whereas the whole range of those ... well, who the hell knows? ... It's far more costly to run a branch network, and that's where he was seming from (Bank Interview l.l). Nwertheless, given the Battk's extensive branch network and prwious history, it was well placed to consolidate, and perhaps expand, its share oftle farm credit market. Although farm lending quickly became part ofthe rump ofthe Bank's portfolio as its corporate 247 invofueme,lrt grew almost exponentiall¡ key þank personnel fought to maintain the Bank's strong presetrce in rural South AustralialT (Bank Interview 1.1; Bank Interview 1.5). To place itself on a more coryetitive footing relative to other le,nders, the Bank, soon after merger, adjusted its farm tending polioy to approve credit facilities up to a maximum of 70 per ce,lrt ofthe fair market value of any loan proposal. This policy change also appears to have been accompanied by the Bank's shift to aocept and approve interest- only credit facilitiesrs (Bank Interview 1.2; Bank Interview 1.4). Such a policywo¡ld have obviousþ allowed the Bank to potentiaþ take on many more clie,nts than the prwious policy. The adoption of this competitive stance reflected a wideqpread view withh financial circles (discussed in zub-section9.2.2 and Table 9.1) that, in an inflationary economic environment, the overall cost of borrowing is effectively reducedle while asset values (including farm property) will increase. As noted above, these expectations heþed fuel the zustained property boom of the late 1980s and earþ 1990s. In the words of a former Bank officer: the deregulation, the push for market share, the inflating propertyvalues, said, "she'll be right, lend it to them- Ifyou're short on tending value, don,t worryr. Next year the property will be worth another half a million dollars - plenty of lending value - so you can lend them some more money!". Because, y'know, what theywere looking to do was cover their debts with the security, ratler than saþg, "How much debt can they afford to repay?" (Bank Interview 1.4). It is important to note that despite the State Benk's adoption of a more relaxed approach to farm lending, the major trading þanks were perceived, by the State Bank and other industry observers, to be more aggressive competitors. Senior officers with both tle 17 The State Bank has advertised frequently and prominently in many South Australian country newspapers since 1984, marketing almost all of its financial products to n¡ral people. 18 lvhere loan repayments are calculated so that only the interest õosti of the loan is met, with no provision for principal reduction. le This (rccurs via the imputed capital gains from the increasing value of assets and prwiding real interest rates remain low. 248 CDB and Dalgetys noted that t.he NationalAustralia Bank (NAB) and Westpac were the most vigorous and liberal rural lenders in the earþ post-deregulation period (Baúk Interview 2.1; Stock Firm Interview 2.1). These perce,ptions were also confirmed by a senior ex-State Bank sffies¡' Neil: So, it's fair to say that the State Bank's approach to rural lenrting was entireþ consistent with the Bank's approaoh to lending in genera! particularþ the corporate sector? Bank officer: In rural yes. And that was across the board. And can I just say, we were still being outdone by more liberal lending policies by our major operating benks (Bank Interview l.l). The stock firms witnessed the increased competition for farm lending by the þenks. Both Elders and Dalgetys lost business to the benks due to their inability to compete with the banks'lower interest rates on carry-on tlpe finance (Stock Firm Interview 2.1). However, Elders and Dalgetys also observed that the banksr overconcentration on security lending caused the banks problems when the farm debt crisis hit in 1990 -lggl. Because of their position as seasonal lenders through the provision of stock mortgages and farm overdrafts, stock firms have almost always been primarily conoemed with tle cash-flow of the farm business, rather than equity per se (Stock Firm Interview 1.l; Stock Firm Interview 2.r). The State lank gradually abandoned seourity-based lending dwing tle late 1980s following the recognition ofthe development of significant debt problems amongst its Eyre Peninsula farm clients in the wake ofpoor grains prioes and regional droughts (see zub- section 9,2.2 above) (Bank Interview 1.2). Interestingly, a very similar reform of lending policies was noted in the UK (Marsde,n, et al. (1990) and New Zealand cortext (see Chapter Six), also due to the build-up of debt under security-based lending (see Chapter Three). Perhaps one ofthe most significant and contentious changes to bank lending following financial deregulation has been tle gradual imflementation of risk margins and 249 penalty rates on all loans across the entire þanking sector. In the absence of quantitative controls on lelrding (thus allowing banks to lend more) and the removal ofinterest rate ssilings (thus allowing the banks to simultaneousþ price for the perceived increased risk), credit risk rating has seen a gap emerge between the most 'sound' and most 'risky' clients of¡uo-and-a-halfto three per ce,nt interest. This policy can be seen to be irylicated in the rapid rise in interest costs for farm businesses. Financial institutions have rece¡rtly attempted to hone their farm mrnagement abilities to decide the relative credit worthiness ofindividual farmers. For example, Benkg{ (formerþ the state Bank of south Australia) has embraced farm property man¿gs6en1 planning as a tool for differe,ntiating its farm clie,nts on the basis ofbusiness man¿gspenf ability. Farmers who take part in their property man¿gs6en1 planning workshops have been informed ttrat they will be in a favor¡¡able position to negotiate risk margins on their loans (Gale, 1995,47;Mitchelt 1995, 13). Suchamovewouldconformwiththeagriculnral scientification prooess identified byvan der Ploeg (1986) and the increased penetration of the farm production cirouit by finance capitals (Marsden, l99l; Marsden, et al., 1990) discussed in Chapter Three. A more detailed analysis of the implementation and irrpact of this policy at a farm lwel follows in the next chapter. 9.3.5. Financial hoducts and Marketing Strategies As noted in Section 9.2,the major trading and savings benks consolidated their farm lending amidst a corporate lending qpree during the late 1980s and earþ 1990s. Reacting to the strong competition in the rural credit market2o, the State Bank attempted a more innovative approach to farm lending by establishing the Rural Banking Unit in earþ 1990. Essentially, the Unit acted as an advisory body to ttre Bank's nral branches and lending officers. It also provided advice to its farmer clients on farm commodity tre,nds, farm financial mnnagement and the financial products and services that the Baúk - ttrrough the 20 The Bank saw the n¡ral credit market in an all-emb¡acing fashion, including not only primary production, but also rural'based manufacturing, retailing and service industries. Nevertheless, the concentration ofthe Unit's strategies appeared to fall on the farm sector (State Bank file). 250 Unit - oould offer. In this se'nse, the Rural Benking Unit was a unique service among the major trading and savings banks. The Unit set itself ambitious goú, qiming to "attract the high profile, profit- orientated primary producer to State Bank"; to "increase the Bank's profit from an expanded rural customer base and an increase in m¿rket share" and to " have expanded the interstate market and dweloped strategies for overseas expansion, particularþ into New Zealand" (State Bank file). To heþ fulfil the Unit's goals, the Bank reoruited a number of stafffrom specialist agriculnual exte,nsion and business fields, some ofwhomhad þenking experie,nce. These staffhelped provide the professional expertise for the Unit's operations, providing it with a gteater knowledge base offarm economics and financial menagement, os well as highlighting which farm areas and sectors should be targeted. They also raised the Benk's public profile by giving farm seminars and talks across the State, as well as dweloping specialis updates on farm oommodity tre,nds and the like (Bank Interview 1.4; Bank Interview 1.5). The Bank's atteryt to become the rvtalþenker for South Australia was supported by the adoption of qpeoialissfl ü¿ining for its rural lending staff The Farm Loan Assessme'lrt Programme, dweloped by tle Bank, was aû exaryle ofthis (Bank Interview l. l). From 1990, the Bank's competitive stance towards the farm credit market intensified as senior members ofthe Rural B¡nking Unit caryaþedvigorousþto ensure market objectives were met. Extreme pressure ofte,n came to bear on branch lwel stafl as an ex- Bank officer recalled: I went to a couple of regional meetings of bank managers where these personalities ... were there, and the psychological intimidation of these managers to do the job, or else, was r¡nbeliwable. I couldn't believe what I was seeing or hearing. It really was. And they were tle words I used when I came back to (oolleague). I said, "Now what I sa\il was psyohological intimidation. Threats. Yknow, "Ifyou don't do it, you won't have a job"". To get market share, to build lwels for performance... (Bank Interview 1.4). 351 ßig.l2.4.Island Seaway Superphosphnte Cargo Volumes, Adelaide to Kingscote, 1988 - 1993 (cubic metres) 20000 18000 16000 14000 q 6) 12000 4,7fr7,ar71t Vhlvrnritrll ltilr:îft{,Ftl €J 10000 Fl:,W,tgAl Wrl./,/Íf,.,1 .J Ê 8000 IJ 6000 4000 2000 0 I lf ¡t 1988 1989 1990 1991 1992 t993 Sonrce: KPMG, Rust PPI! 1994,39 Fig. 12.5. Kangaroo Island 1994 Farm Family Sample: Average l(ey Farm fnFut Expenditure and Gross Fam Income, 1984/85 - l99Zl9S (S 1990) 6000000 500000 450000 5000000 400000 4000000 350000 ê 300000 ê o\ o\ o\ 3000000 250000 a Y' G 200000 2000000 t*iiiiiiiiiiiil 150000 100000 1000000 |:,:,l{ 50000 0 [i:iiiill- 0 1984/8s 1988/89 1992193 EE Gross Farm Income @Fuel Expenditure +StockT'ment -E-Fertiliser Soruoe: Kangaroo Island 1994 Farm Family Suwey 352 fertiliser - deqpite the good super history oftheir farm - would have bee,n a counter productive move. They regarded the extra $100 000 they borrowed after the collapse of tle wool market as an investment in the ftttre improvement of the wool market, allowing themto maintain their flock improvement and fertiliser prograrnme. Both Gary and Anne felt that if they had deliberately let the productive base of their farm run doum, they would not be able to capitalise on any fr¡tue market iryrovement (Farm Interview 3). Fig.12.5 shows the tre,nds in fertiliser expendinue for tle 1994 sample relative to two otler key farm inputs - fuel and stock treatments - from 1984/85 to 1992193. These figures fiuúer emphasise the pastoral nature ofthe Island's farm sector, with fuel absorbing a relativeþ small proportion of the saryle's aggregate farm running costs oompared to stock treatments (including suppleme,ntary feed) and fertiliser. The deoline in stock treatment spending after 1988/89 - less severe than the cut in fertiliser expe'ndinue - is partly a fi¡nction of declining drench prices over the period as well as a recent trend towards more sustainable drenching practices (i.e. worm egg counts in sheep faeces) to combat the nation-wide problem of drenoh resistanoe. Nevertheless, it was obvious in talking to Island farm families about this point that stooþ like most other parts ofthe fatm, were being forced to make do with onlywhat the farm could afford. This meant that, wen on some ofthe Island's úeep studs, crucial investment in the upgrading or mai¡lsaance of the Island's genetic pool was being deferred or foregone. The intractable footrot problem (particularþ in the wetter Westem end) takes on extra significance in the light ofthese trends. For alnost all the surveyed families, land sales formed no part oftheir survival strategies. Apart from Keith and Rhonda hiestley, who sold one of their scrub blocks in 1990 because of their need for extra capital (Farm Interview 10), no other family had liquefied farm land to reduce debt. The Cliftons were considering placing one portion of their farm on the market n 1994 to try and reduoe their debt to more menageable levels. As noted in Footnote 6, though, they sold the entire farm in 1995. Robin and Glenda 353 Cooper sold trvo scrub blocks as part of their 'superannuation fund', without altering the productive size ofthe farm (Farm Interview 9). Of course, one of the main barriers to this particular strategy was the swerely depressed condition ofthe local land market after the removal ofthe Reserve l¡rice Scheme - a profound,'Catah-22' for both farm families and anxious creditors discussed in Chapter I I (see zub-section I1.4). Andrew and Carol Pike voluntarily placed one oftheir farms on the market in 1990 in an atteryt to d¡amatically reduce their debt and interest load. For over a year, not one pote,ntial buyer inqpected the properfy. The pikes wentually took the farm offthe market and have subseque,ntly -anaged to keep the farm intact (Farm Interview 40). The Island's ¡smaining freehold scrubland also offered a potential avenue for farm families to retire debt. In Chapter Eight, a brief mention was made of the State Government's 1983 introduction of strict vegetation clearance controlsT. Deqpite the effective removal of the use and exchange values from these scrub lands due to the 1983 legislation, farm famities holding parcels of scrub have been able to capture its amenity value by sub-dividing and selling offsmall blocks to a growing sub-market of environmentalist in-migrants. On this point, we have an interesting contrast with the dwelopment of a cashless, use value farm labour economy among the Island farm community discussed earlier. Another affractive option for those farmers holding scrub country was to nominate ttrese parcels for heritage lising with the Native Vegetation Council. Heritage Agreements were established between the former South Australian Department of Environment and Pla¡ning (DEP) and farmers holding environme,ntally significant scrub areas. Farmers received compensation from the DEP for their loss of development tight. to that land. The State Government assisted in this process by palng for the fencing of 7 These controls were activeþ resisted on the Island for many years, particularly by those farmers who had purchased scrub blocks for development just prior to the introduction of the legislation. In many cases, these families were granted development apprwal within fixed time periods. Further scrub clearance was effectively ended on the Island by these controls, though. 354 any Heritage-listed areas. Five ofthe suweyed families held Heritage Agreeme,lrts for selected scrub parcels. The Lovetts and Max Christopher had approximately 100 ha each under protection (Farm Interviews 33;52). For the financially-troubled Pikes, their Heritage-lised scrub was a vital souroe of income. They reoeived $30 000 for one block in 1990. The Tor¡msends'Agreeme,nt provided enough capital for themto buy a 160 ha (400 acre) cleared property for cash in 1990 (Farm Interview 42). $imil¿¡[y, there were few attempts by the 1994 sample to dwelop new business ve,ntures (on- or oËfarm) to ge,lrerate extra income. In the few cases where families did establish non-farming e,lrterprises parallel to the farm, the conventional se>nral division of labour within the farm oommunity becomes wident. These examfles also, howwer, demonstrate the wide-rangng competencies of farmwome,n. John and Lorraine'Waters established an independent farm merchandise business with John's brothers in 1986. This became John's virtual firll-time job. Lorraine, on the other hand, supplemented the household income by looking after other children as part of the Family Day Care scheme. In large part, this suited Lorraine because she was already reqponsible for the care of their young baby. Having John away from the farm, howwer, meant that she also had to assume reqponsibility for major operations like shearing and crutching. Retunring $18 000 net in l992l93,the Waters' farmmerchandiseventure was instrumelrtal in their bank's decision to continue financing their farm- honically, perhaps, n 1994 the Waters also began to re,nt out tle vacant farm house on the new farm block that they acquired in 1989- the purchasiåfrn had got them into financial strife in rhe t first place (Farm Interview 3l). $imil¿rþ, the Myers' most dramatic response to their deqperate need for cash flow chiefly invohed Pamela stapling more tasks onto her already busy domestic and part-time teaching schedule. In 1991, in the immediate aftermath ofthe suqpension ofthe Reserve Price Scheme, the soldier settlement house in which Clive and Pamela were 355 living was converted into a tourist hostel. Clive and Pamela and their two young children (both r¡nder 3 years of age in 1994) and Pamela's younger brother and sister moved into a small farm shed with no intemal toilet and bathroom facilities 50 metres from the house. Because Clive was spending sweral months from autum to qpring shearing around the district, Pamela endured long days with her ohildren, relieved only by ocoasional part'time work. Pamela's isolation was magnified in 1993, however, when she was alone with a new baþ while Clive was on the mainland shearing for sweral months tryrng to raise enough money to save the farm (Farm Interview 2). Pamela had some relief from looking after childre,n in the swnmer months whe¡r she took over the running of the hostel and Clive and Pamela's brother and sister helped with childcare. The apparent poverty ofthe Myers' existence was requited to some degree by the cash flow generated by the hoste! which had retumed approximately $10 000 ($ nomin¿l) annually since ope,ning: the only new sideline to provide any real retum by 1994 (Farm Inteniew 2). Dienne Townsend also menaged a double workload, operating a zuccessfirl bed- and-breakfast venture alongside her domestic reqponsibilities. Dianns and her husband, Ale4 established this enterprise in 1990 by renovating one of their vacant farm houses - itself a poþant reminder ofthe afea's rece,lrt history ofpopulation decline and farm amalgamation (Farm Interview 42). Aside fiom reducing on-farm spellding and generating extra income from altemative ente¡prises, some Island families altered the finanoial man¿ge¡qr1 an¿ structure of their farms to reduce their exposure to pote,lrtially hostile creditors, as Fig. 12.6 diqplays. We have already seen in Chapter Eleven how the piecemeal nature of much farm finance caused particular problems for the State Benk in its 'workout' mode In 1992193, I I of the surveyed families had at least some portion of their debt witl the RF&DD. In the midst ofthe interest rate booms ofthe mid- to late-1980s and the earþ 1990s, Island farm clients found something of a refuge in the RF&DD, either 356 Fig.12.6. Kangaroo tc¡and 1994 Farm Family Sample: Aggregate Farm Debt by Financial Institution, 1984/85 - 1992t93 ($1990). 1200000 1000000 800000 ê 6ooooo Gå 400000 200000 0 rl 7tv) ô Tt È d:? ¡rK FÞrl T D¡< E'Þ' g Ë ! H B.q T! R. tD A' ,tË'o Hß F (D (D rñ' ËG U (D tD U Financial Institution/Cre ditor o øt98418s ¡ 1988/89 øt992t93 Fig.l2.7. Kangaroo rsland 1994 Farm Family sample: Totar Household Off-Farm Income, 1984/85 andt992l93 ($ 1990). 45000 40000 E 1984/85 Aß92t93 35000 30000 ê o 25000 Ë o IJ 20000 l-lEf 15000 10000 5000 0 N ('ì æ Ol Or -1 !n Ê ('l t- A Ei ç \O oO O ôl \O O\ ô¡ cn É Ê õl ôl ct1 m ('t ç :f + + + ñ r.i rõ ñ \O \O SamFle No. Souroe: IGngaroo Island 1994 Farm Family Suwey 357 via its commercial lending ann or througb its RAS funding. When the Myers've,ndor finance expired m l992,the RF&DD granted them a RAS loan for half oftheir outstanding debt after Clive had been refi¡sed by all major tradirg and savings banks and stook firms. Clive's family backed them for the rest oftheir finance needs. The RAS loan has at least allowed the Myers to reduce their outstanding debt to some degree (Farm Interview 2). The Lovetts were in a similar position in l99l to the Myers m lggl.In 1988, they borrowed over $200 000 on aû interest-only basis to build a new home to replace their run-down homestead. At the end oftle first three years, howwer, 1þs þlsking firm holding their loan refirsed to 'roll it over', foroing the Lovetts to search for a new creditor. The RF&DD agreed to refinanoe them- At the time of interviewing, all that the Lovetts had of their new house was a concrete slab. Virtually all ofthe $200 000 that they borrowed had bee,n used to maintain the farm in the absenoe of any farm profit (the same as the Nashes). This stratery has ensured that the Lovetts wilt be in a good position to take advantage of any sustained uptum in the wool market, but has left them in a financially precarious position because oftheir lack of income with which to service this debt. Because tley received an interest rate subsidy in 1993, and would probably not get one in 1994, Stuart Lovett felt that they would have to use part oftheir overdraft to meet tle 1994 repaSmrents oftle restnrctured RF&DD loan (Farm Interview 33). The Bartons also found a haven in the RF&DD. Long- term state Benk customers, the Bartons became heavily involved with the Rural Action Group with the onset of the Island's debt crisis. Given the subsequent tension betwee,lr the Island RAG and tÏe State Bank, Glen and Helen restructured their reasonably large debt by using a RAS reconstruction loan. This move dramaticaþ reduced their exposure to the Bank, effectively prwenting it taking punitive action against them. Simultaneousþ, they reduced their interest rate burden. Brian and Rebecca Smith also shifted their debt ûom the State Bank to the RF&DD in 1990 after the State Benk reneged on an earlier verbal agreement to accept 358 interest-only repa¡ments ûomthe Smiths ifthey got into financial difrculty (Farm Interview 26), T\e Bank's refi¡sal to honoru this promise is perhaps a reflection of its prwiousþ discussed problems with interest-only credit facilities (see Chapters Nine and Ten). It is also noticeable in Fig. 12.6 that trustee lending accounted for an increasing proportion of the surveyed families' farm debt throughout the period. This tre,nd was solely attributable to one family - ttre Priestleys. The Priestleys were attracted to Exeoutor Trustee, who were particularþ active on the Island during the mid- to lat+ 1980s, because oftheir comparativeþ lower interest rates. Given the size oftheir debt, and their relatively active support of the Rural Action Group, the hiestleys were glad to have changed lenders. Both Keith and Rhonda felt that theywould have been forced off their farm long ago if they had remained State Bank clients (Farm Interview l0). Private debt (family sourced) also accounted for a substantial share oftle sample's debt, althougb this declined following the wool market collapse. In almost all oases (five families in 1984/85; eight in 1988/89; swen tn 1992193), this arrangeme,nt involved parents, either still on the farm or retired, lelrding portions oftheir accrued savings to heþ out their childre,n on the farm- These loans could be quarantined from any institutionally-sourced debts. \Uhile tlis obviousþ helped the debtor 1¡t6 f¿milies concemed, for pare'lrtVcreditors these loans potentially represented a 'bad debt', as the example ofthe Forsythes (Chapter Elwen) emphasises. For long-established farm ¡¿milies, then, 'old money' was not only a valuable reserve to be called on in times of crisis to support the farm and/or family, but also a point of potential vulnerability and intra-family confli6s. *Off-Farm Labour Processes: Fig. 12.7 diqplays the lwel ofhousehold income derived from non- and oftfarm sources in 1984/85 and 1992193 for the surveyed Island families. This figrue only includes income received by both farm men and women (where relwant) 8 In contrast, Campbell (1994) states that those farm families in his case study who used extended family as mortgagors were almost all assured of survival. 359 this where money was used to support the farm and/or the household. For obvious reasons, 'in-kinfl' work ofthe tlpe disoussed above (i.e. the cash-less farm labour circuit) is not included. It is clear from Fig. 12.7 thttwhile pluriactivity has long bee,n a feature of Island farm and household menagemexrt, the sampled households'need for and sourcing of extra income has increased dramatically over the eight year periods.ln lg}4/85, elwen ofthe suweyed households received oñfarm income, ransng ûom $lOOO/household to $30 O00/household (avge. realvalue $15 O7l/household ($1990). However, n lgg2lg3 almost two-thirds (24) ofthe 37 fatmfamilissto surveyed relied to some degree on oft farm income (range $500 - $34 000; avge. realvalue $12 709/househokl ($1990)). Roughly equal numbers of farm women and me,n worked offthe farm and/or received oËfarm income, 17 and 12 reqpectivety. Five households received oÊfarm income from both household heads - four ofthese (the Myers, Dawsons, Waters and Whites) could be said to be in some form of financialvulnerability (see sub-section 10.3.2). Each ofthese four households received over $20 000 tn lggz/g3,the Waters and the Whites receiving over $30 000 in that financial year (Fig. I2.7). The cashless labour circuits used by a number of farmers (discussed above) would also have saved these households oonsiderable amounts ofmoney. To what extent, then, did this quite dramatic increase in oñfarmincome reflect a sudden need to find new income sources after the wool market crash and the onset of financial stress for many Istand farm families? It is not possible to provide a straightforward answer to this question. Fig. 12.8 shows that five farm men began working oËfarm between lg84lg5 and l99Z/93. In only two cases though (Sample Nos. 40 and 59), was ttris strategy a response to farm financial problems. In all ottrer cases, the performance of oËfarm paid tasks was a reqponse to a e Glen Barton encapsulated the financial stringency of the recent past, the high pre.existing level of pluriactivity and the patriarchal sexual division oflabour and related them to the late-1960s farm crisis thus: "In the 1960s there used to be a saying that the success of a farmer depended on whether his wife was a nurse or a teacher. In the 1980s (sic), this is exactly the same" (Farm Interview l). r0 There ate 22 cases in Fig. l2.7.The other two households acknowledged that they received ofr-farm income, but fefused to nominate the actual amount. 360 Fig. 12.8. Kangaroo Island Fam Family g¡mple: Male Off-Farm Income, 1984/8s - t9e2t93 ($ 1990). 45000 40000 35000 a 30000 o 25000 cE eJ 20000 15000 10000 5000 0 2t921313740414'/.465962 Sample No. @ 1984/8s at992t93 Fig.12.9. Kangaroo Island 1994 Farm Family sample: Female off-Farm Incone, 1984/85 - t992l9} ($ 1990). 30000 25000 20000 G o I 5000 eo r0000 5000 0 cl m æ ÊO :N - y1 È (1 ç \O æ O õt \O ô¡ (n õt ô¡ (ft aft :f =t $ rrì rñ v'ì \o \o Sample No. @1984/85 Aß92t93 Souroe: Kangaroo Islaud 1994 Fann Family Survey 361 general need for extra cash predating the onset ofthe Island's debt crisis, and probably would have ocourred regardless ofthe removal ofthe Reserve Price Scheme. This is not to understate 1þs inrFortance ofthis extra income to the farm households concemed. For example, although the waters estabrished tleir farm merchandise business in 1986 - prior to the peak of the wool boom and its subseque,nt demise - the income from this business virtually kept them on their farm whe,n tle wool market oollapsed (Farm Interview 3l). Clive Myers, perhaps overlooking pamela's contribution to the tourist hostel venture and her part-time teaohing, stated that his yacca gunming was "... a hell of a sideline. That's what kept me in the game, I reckon" (Farm Interview 2). The income that Andrew Pike eamed ûom his tourist coach driving in the post-wool market collapse years was sufficient to just sustain ttre household during the seasons whe,lr the farm provided little or no income. According to Andrew, ,lt kept us alive" (Farm Interview 40). The two cases in Fig. 12.8 where the 1992193 oÊfarm income was substantially lower than in l9S4/85 (Sample Nos. 19 and37 reqpectively) invoþed two earth moving oontractors. Clarry Gutlridge's paid bulldozing work had deolined over the period as he had conce'lrtrated increasingly on dweloping his and his wife's farm (Farm Intenriew l9). Angus Little's contracting to the local Council had similarþ deolined over the period, but because the Council was now better able to firlfil its or¡m earthmoving needs (Farm Interview 37). Fig. 12.9 reveals plainly that it has been the sunreyed farmwomen who have made by far the greatest contribution to the 1994 sample's dramatic aggregate increase in oÊfarm income. This figure includes all forms of paid oËfarm income, inotuding social welfare transfers. In 1984/85, ttre surveyed Island farmwomen contributed 26.5 per cent of the suweyed familiss total oËfarm income: n Igg}lg3 their total oËfarm eanrings were equivalent to 68 per cent of the s¿mple's aggregate oñfarm income. while the sampled farm men's total oñfarm eanrings grew by 23.4 per cent from 1984/85 to 1992/93, farm women's total remittances inoreased by over 625 per ce,nt. 362 This trend wor¡ld seemto support Glen Barton's rather understated aphorism (see Footnote 8). Again, the prooesses underlying these tre,nds u¡e ssmplex, and do not all necessarily represe,lrt a hastily erected financial defence of the farm and family. In some f¿milies' cases, howwer, the need for extra cash was indeed deqperate. One ofthe more obvious reasons for the dramatio increase in female oËfarm earnings is the increased workforce participation of the suweyed women. Ten ofthe l7 women with oÊfarm eanringsm 1992193 had begrrn their jobs after 1984185. For four of these wome,n - Pamela Myers, Anne Nash, Rhonda Priestley and Jane Lovett - their entranoe or re-entrance into the workforce was a direct result of their families' serious financial position. As we have already see,n, the Myers reqponded to ttre financial th¡eat facing them and tleir farmwith shotgun-like accruacy. Pamela's part-time teaching assistance was just another of these strategies, but one which provided a rcalnet retum. As with the rest of Pamela's work, this teaching had to fit in with her care ofher and Clive's two young children (Farm Interview 2). Anne Nash had hoped that her move to l(angaroo Island in 1986 would allow her, after over 20 years of teaching, to actively retire on the farm with her husband, Gary. Howwer, with the collapse ofthe wool market, Anne's ability to draw a zubstantial market-proofwage was seen by both her and Gary as too good to miss. Since 1991, Anne has taught at the local school for three days a week and worked on tle farm for two days a week. Anne's salary has bee,n the Nash's only real income (Gary and Anne's two children moved out oftle house a number ofyears ago) since mid-1991, and has also been used to support the farm (Farm Interview 3). Rhonda Priestley started a cleaning job at the local school in 19S8 to help bring some extra cash into the household. With the onset ofthe wool crisis though, Rhonda exploited one of the benefits oftheir trustee management structure by joining the De,partment of Social Security's New Start progtamme. Rhonda received $12 500 in 1994 alone fromthis scheme (Farm Intewiew l0). 363 Jane Lovett is another f¿1¡¡rysman who has been activeþ invoþed in the operation and management ofher and her husband's farm It was noted above that the Lovetts faced a major financial crisis in l99l when the broking firm that financed them in 1988 refused to roll-over their $200 000 loan. Already in a cash-flow crisis because of the wool market collapse, Jane took on a job as an assistant at the local kindergarte,lr in 1991. Jane's income not only provided invaluable support to the household (Jane and Stuart had three children r¡nder 12 years of age in 1994) but was a major influence in the RF&DD agreeing to refinance the Lovetts in 1992 (Farm Interview 33). For the remaia¡1s¡ of the suweyed farmwome,n, ttreir oñfarm workforce participation after 1984/85 had less to do with the dweloping debt crisis and more to do with the portability oftleir work skills, the availability of suitable jobs, their reqpective stage in the life-cycle and their desire to enter or re-enter the workforce. The money these women brought into their households was, howwer, no doubt welcome. For instance, Judy Carthew's nursing career has been punctuated by long periods of child- rearing (the Carthews have two children), but with both children e,ntering school Judy renewed her career at the Kingscote Hoqpital. Judy's income supported the household onl¡ removing the need to draw money from the farm (Farm Interview g). The movement of Ursula and Barry Norton's three children to the South Australian mainland for their private and Universþ education gave Ursula both the chance and the need to take up paid emplolment. Ursula's income from her clerical job was apportioned to füstly, the children's education expenses, and secondly, to Ursula and Barry's living elpenses. In most years, Ursula's income covered both, again freeing the farm from a financial contribution (Farm Interview l2). Raelene McPhie's began teaching part-time at a local school in 1989 as soon as her children began school. In hindsight, Raelene was glad to have taken the job whe,n she did, noting that such jobs had met increased competition from other farmwomen after l99l (Farm Interview 25). 364 Most ofthose farmwomen who began oñfarmwork prior to 1984/85 experie,nced substantial increases in this source of income by 1992/93 (Fig. 12.9). For Sarah Dawson and Sonja \Uhite (Saryle Nos. 2l and 44 reqpectively), tlis increase came from a gradual exte,lrsion oftheir working hours over the period. Given the precarious financial position ofboth families' farms, these women's increased contribution to the household was extremeþ important. Neither Sarah nor Sonja were able to negotiate a redistribution ofthe senral division of domestic labour deqpite their increased work hours outside ofthe home and farm" In l994,both wome,n were feeling the mental and physical strain of maintaining virtual full-time emplolment offthe farm and the domin¿ft share of domestic household responsibilities, all within the general milieu of financial uncertainty. Cassand¡a Senior (Sanple No. 62) was the highsst eaming farmwomen in 1992193 among the 1994 saryle. Cassandra recommenced her nursing career in 1984 after her three children had growr into adulthood. In 1991, thougb, she decided to pursue her career further and provide extra income for the household by nursing in a major Adelaide hoqpital three days a week. Like Sarah Dawson, Cassandra (who was away in Adelaide at the time of interview) was quite pessimistic about the short- and long-term economic viability ofthe farm, indicating on the questionnaire that in each of the tl¡ee years prior to 1994 she had received a net inoome 50 per esal hieûer more than the farm's net retums (Farm Interview 62). Cassandra was the only member of the surveyed families who had moved offttre Island to work, although tlroughout my Island fieldwork I heard ofnumerous cases of farm men and women working on the mainland to support the household and/or the farm" In this reqpect, the present generation of Island farm families e>çloited their close proximity to the Adelaide labour market in much tle same way as ttrose families hit by the 1970 wool market collapse (see zub-section 10.2.2, Chapter Ten). * Farm Household Strategies: The attempt to save the farm by cutting household/family expenditure represents the most drastic (and perhaps final) phase ofmost farming 365 families' survival strategies. Such strategies also underline what are conventionally held as the irrational (þ 'normal' oapitalist rational standards) lengths to which famities will go to preserve their culnual and economic link to their particular farm- As was discussed in Chapter Two, the notion of capitalist rationality relies on a questionable set of dualisms whioh can reifyvarious modes of economic and non-economic behavio¡r. The extent to which the surveyed families eryloyed household strategies (see Table 12.l) depended upon a oorylex of factors. Basioally though, households tended to fall into two main categories on this topio: those who had consciousþ deoided to separate the fortunes of the farm from the household, and those who had not. The household's level of oËfarm eanriugs and tife-cycle stage were crucial factors in this decision-making process. For s¡¿mFle, Anne Nash's, Sarah Dawson's, Jane Lovett's and sonja white's high oËfarm incomes (sample Nos. 3; 2l;33 md 44\ allowed themto maintain the living standards ofthei¡ otherwise financially-stressed households. Further, the scope for outting household budgets is substantially reduced where young children are involved, as in the case ofthe Dawson and the Loveff familiss. The Dawsons were already in receipt of a Health Care Card and an Income Supplement t\ lgg4 (Farm Interview 2l). Most families' habituat frugality left little room left for 'belt tightening' whe,n the debt crisis hit. Howwer, some ofthe most financially-troubled families aocepted an even more penurious existence in order to keep the farm- For example, ttre Myers began hunting native and exotic far¡na (e.g. wallabies, wild pigs) for their oum consumption, rather than eat their oum ration úeep (Farm Interview 2). Rhonda Priestley had always milked a house cow while she was rearing her and Keith's three sons, but had intended giving this time-consuming chore up in 1989/90. With the collapse ofthe wool market, though, Rhonda decided to keep the cow, and sell the milk around the neighbourhood for petty cashrr. Although Rhonda has always ensured that the household is basioaþ selÊ 11 It should be remembered from the abwe subsection on 'Ofr-Farm Labour Processes' that Rhonda was able to receive Job Start income support because of the farm's trustee management structure. 366 suffioie,nt (oum meat, milk, eggs and vegetables, made her oum bread and family's clothes), the depth oftheir finanoial problems forced her to tle local 'op-shop' to buy second-hand clothes when old clothes got beyond repair. Deqpite Lorraine and John Waters contributing both oftheir oÊfarm incomes to the farm and household, Lorraine still felt the need - amongst her paid childcare work and looking after her oun baþ - to market her home-made tom¿to sauce at local street stalls. This strategy qmbolised to the bank the lengths to which John and Lorraine would go to save their farm- The Waters'various survival strategies impressed the bank so much that they granted John and Lorraine a holiday in 1993 (Farm Interview 3l). Both the hiestleys and tle Waters had moved to a cash-only household economy, avoiding all forms of extra debt where possible. Both families felt that, for all the convsnience of credit facilities, the danger of more indebtedness was not worth the risk (Farm Interviews l0 and 3l). It would be fair to say for the remainder of the surveyed f¿miliss, notwithstanding the complexity ofthe individual household strategies eryloyed, that they were generally more oost-consoious and ooncemed to cut any'luxrry' expenditure (including holidays in many cases) to the bone. consistent with the point m¿de above, howwer, this depended to a degree on the household's ability to source oftfarm income and ttre presenoe ofyoung children in the family. From a community perqpective, one of the more disnubing trends to emerge from the Island's debt crisis was the wideqpread reduction of social and qporting activities among the farming f¿milies. Prior to tle crisis, Garry Nash used to go to the Pamdana pub every Friday night '1or a few'' and to get together with other friends at the end of the week. Where the front bar used to be "shoulder to shoulder" in pre-crisis times, Gary remarked that '!ou'd be lucþ to see ten, fifteen people in there now" (Farm Interview 3). 367 While in some quarters this may be see,n as a positive trend in the breaking doum of an entre,nched masculinist pub oulture, with its atte,ndant problems of drink-driving, viole,nce and the like, the decline ofthe local'watering hole' as a cultural meeting place duing the crisis was qmptomatic of broader, more unequivocally negative patterns of community interaction. For some seriousþindebted farm families, social interaction - whether that included drinking, spof s¡ ¡sligion - began to be treated as a luxury once the crisis bit. John and Lonaine Waters were one couple who had dramatically curtailed their social and qporting activities, including Friday nights at the pamdana pub: Lorraine: Welt the thing we have cut out on would be going out - dramatically. Like we both ... welt (John) used to coach basketbalt football ... and when you're going to that sort of thing you migbt as well say $50 a pop, sort of thing, when you both go out and you have tea or whatever. And I was plalng a couple of qports ... and petrol money as well. And that was one thing we've said, 'T-ook, we just can't afford to do this an5more". so weTe just cut sports out. And we would've saved $100 a weeþ I would hink, like from what we used to qpend. And, yeah, that was oru binge ... John: Pub night wery Friday night ... Lorraine: Friday nights was pub night. But in the e,nd, like you'd go in there, and everyone'd þs f¿lking about, y'know, doom and gloom, so it wasr't enjoyable to go there. So, I mean, now for a night out, you just go to a friend's place and that's howyou catch up with people (Farm Interview 3l). At the wider community lwet while Mark Paull had take,lr on more community organisation responsibilities sinoe tle crisis, Heather Tassel noted that, in about 1992, a nr¡mber of farm women prwiousþ active in community work had retracted from such invoþement because they couldn't aford the extra petrol to drive to and from meetings (Farm Interview 46). For others, like Barry Norton and Wa¡me Foster (who were not as badly affected by the wool market collapse as many others), sacrificing all qporting, social and community invotveme,lrts was not a sustainable way of menagng financial problems: 368 'You get to the stage where ]ou think, 'Bugger it". Ifyou oan't do a reasonable amognt ... a reasonable life, you might as wellþst get out" (Farm Interview 50). This is the way a number of other families felt about drastically cutting personalrexpenditue, especially if they had you¡rg children. For the Sweeneys, there is a limit to which any family should sensibly sacrifice its lifesryle to save the farm: Neil: Have you felt less inclined or unable to participate in the normal social things you do? Jessica: No. We still go to ... we're still invofued in wer¡hing the kids do, like the football - the football and the te,nnis. They'd be the 1¿st things I'd cut out, I think. Don:Yeah. Jessica: I'd still drive the kids an¡'rvhere for qport and music and stufflike that - everytling tley're invohed in. It's very important on an Island for them to get that sooial contact, eqpecially on a farm. So that's a real ... you have to do that. Y'know, tlat's something we wouldn't not do Don: ... we don't want the kids to ... I suppose, we want to follow them and keep them and point them in the right direction, and that's a commitment we have to mako, wen if it does cost us the back paddock ... (Farm Interview 4l). Although fnancial institutions obviousþ held the whip hand in any debt negotiations witl tleir farm olients, then, tlere were a number of explicitly - and irylicitly - erected obstacles placed in the path of impatient and aggressive creditors by individual farm families. But what of any collective action taken by the Island farm community? The following sub-section examines the role of the Kangaroo Island Rrual Aotion Group in defending the looal farm sector. 12.3. Tearing at the Fabric: Rural Action and the Island's Debt Crisis It is not often that farming familiss opt to form we,n moderately cohesive collectivities outside ofthe ofte,n large sectoral bodies ofwhich many are members. In times of severe crisis, however, like the recent South Australian past, Rural Action 369 Groups have germinated in reqponse to an almost bewildering array ofproblems, perceived or real. Predomin¿¡1ly, howwer, these goups have fooused on the immediate fnancial stress facing many farm families. The solid founding ofthe n¡ral ideology or 'traditional values' and individual achiweme,nt through struggle and self-help tends to generaþ preclude farm families' aotive participation in more radical political groupings (i.e. more politicaþ active and radical than most mainstream sectoral and political bodies). The Kangaroo Island Rrual Action Group r¡nderstandably, the,n, drove a wedge firmly into the local farming community, ofwhich each Group member was obviousþ a Parttz' Formed in late 1990, the Kangaroo Island Rural Action Group's main objectives were: l) to keep intact the fabric ofthe local community;2)to support farmers and small businesses through the crisis; and 3) to pressure financial institutions i¡1s implementing reqponsible lending policies to ensure community survival (Farm Interview l). Within this overarching agenda, the Group's predominant areas of concem were the banks, imposition of credit risk ratings (refened to pejorativeþ as 'þenalty interest rates" (Farm Interview l)) on struggling farm families and tle secrecy sr¡¡ror¡nding negotiations betwee,lr financial institutions and farm families. This stance struok at the heart of bank policy and necessarily led the Group into ope,n conflict with all financial institutions, but particularþ the State Bank. The Group had one major disadvantage in proseouting its campaþ. It was obviousþ not pril5, to the actual negotiations between financial institutions and their clielrts. It had to rel¡ the,lr, on the wideqpread zupport ofthe Island farming community for its information. This it did not have. The Group gamered reasonably strong support 12 The wife of a Rural Action Group member recalled the st¡ess and reproach that membership of the Group attracted: I found it very rlitrcult to cope with at first, because we'd never been involved in an upfront situation like that before, but because we felt it was necessary, you either bit the bulleior hid behind the bush somewhere. We chose to be upfront. It hasn't been entirely comfortable. ... But the wheels are turning, as (husband) said, now personally. But it was very prickly there for a while. There were people there that we thought were friends that suddenly weren't. It wasn't easy to live with (Farm Interview l). 370 from financially stressed farm fâmiliss,t: but was also equally strongly condemned by some high profile Island farm families and others. In this relative isolation, and within the Island's general climate ofuncertainty, the Group operated behind an externally-imposed veil ofhalf-truths and secrecy. The combination ofits limited information base, the anxiety ofmany ofthe people it supportedta and the Group's perceived need to pre-etryrt the State Bank's debt reduction strategies on the Island led it into controversy. With the State Bank at the height ofits 'workout and recovery' operations on the Island after 1990, the RAG atteryted to meet fire with fire. In late Novemb et 1991, members ofthe RAG served a 'hotice of action" on two State Bank representatives about to interview one of its farm family olients. The notice demanded ttrat any agteements entered into by the Benk and its clients be zubject to the Rural Cor¡nsellor's scrutiny and advice (The Islander, 5 December 1991, 2) - something which the Bank was already doing (Bank Interview 1.2; Misc. Interview l.l). In a contentious piece of reporting, The Advertiser, Adelaide's only metropolitan daily newqpaper, announced that Kangaroo Island farmers facing foreolosure were threatening to burn their farms as a last act of defiance. It was also reported that approximateþ 40 of the Island's farm families were about to be served with wiotion notices ¡s6 þenks (Tumer, 1992, 4). This nwer occurred. An influential member ofthe Kangaroo Island Rural Action Group was the sorrce of The Advertiser b information. The Group was particularþ active during 1993 as pressure on the Island grew. After defending itself against claims that its members were req)onsible for the vandalism of 40 km of fencing on a Duncan farm the subjeot of financial institution pressure (The Islander, I I March 1993,2), it protested on the steps of the Supreme Court in support 13 At the time of interviewing in 1994, there were approximately 14 members of the Island RAG. A former RAG member estimated that the Group was supported by about 70 per cent of the worst affected families (Farm Intendew l). This is, of course, impossible to substantiate. 14 The stress that these families were placed under was ofren transfe¡red to the Group's leaders, who were often woken up at 5 and 6 o'clock in the morning or kept up until after midnight by extremely anxious and emotionalþupset families fearing the loss of their farm. 371 of an Island farmer attempting to claim damages from the State Bank for its attempts to reconp its debts (The Islander, 17 Íune 1993, l). The tension between the Group and the Bank reached its apogee on 16 J¡ne 1993 when the State Bank evicted the Holman family fromtheir pamdana farm and home (The Islander,24 htne 1993, l). The RAG mounted alngepublic protest against tle Benk on the Holmans, farmwhich attracted a reasonably large media contingent, and a lot ofbad press for the Bank. Latet in the year, though, the Group was again forced to tlefend itself following the razing ofthe Holmans' former farmhouse in October 1993. The property from which the Holmans were wicted had been purchased just prior to the fire (The Islander, 28 October 1993, 1). Rural Action Group members have consistentþ denied any involvement in this inoident. Deqpite extensive police investigations, no cause for this fire has been found. The Group concluded a tumultuous year by announcing that 15 Island farm families wefe being targeted by financial institutions (The Islander, 26 November 1993,1). The Island RAG's fomenting offarmer dissent and resistance greatly complicated the operation ofthe State Bank's Asset Management Teams on the Island relative to the rest ofthe State: Gavin Brearley: Look, say 90 per cent ofthe people I saw - and this is all aror¡nd the place - even greater tlan 90 per cent, the only problems I had with people and clients has been on Kangaroo Island ... In myview it was just peer goup pressure from the Action Group. It was pushing these people: tle Bank had done this and the Bank had done that. In other distriots, never had any problem ... (Bank Interview 1.6). In spite of (or beoause of) its impassioned defence ofthe Island farm community, the local Rural Action Group divided the Island community. Towards tle end of the interviews with the 1994 sample, I asked each set of respondents their view of the Island RAG. Responses tended to fall into three main oategories: those who fully supported 372 theq those who despised theq and those who felt that the Group had done some good, but due to a few'radicals' in the Group, had become too extreme (Kangaroo Island 1994 Farm Family Sanple). The opinions ofthose surveyed families in financial trouble (see sub-section 10.3.2) were similarly divided. For Ken Priestley, a member ofthe Group, the Island communitywould have bee,n a 'lot worse of' and lost a great deal more farm families than it did ifnot for the actions ofthe Group (Farm Interview l0). Stuart Lovett, another active Group member, felt that: ... it's been good for the morale of the people that have really needed the zupport. Even a lot ofpeople who haven't had any real contact with the Action Group - haven't openly supported it - still think theyïe benefited from it. Someone or a gloup of people that are prepared to stand up and say openly things are wrong and people are,n't faihues ... (Farm Interview 33). These sentime,nts were echoed by Greg White. For him, the Rrual Action Group was 'Just a bunch of guys having a dip for those in trouble ... I reckon ifwe didn't have groups like that, they (the banks) just would've sold the joint up and gone on their merry way, without a worry" (Farm Interview 44). Other financially stressed f¿miliss, suoh as the Myers (Farm Interview 2),the Nashes (Farm Interview 3), the Dawsons (Farm Interview 21) and the Waters (Farm Interview 31), were more ambivalent about the Group's achiwements and methods, feeling that some members ofthe Group had become too extreme. The majority of the remainder of the surveyed f¿milies were less equivocal in their judgements. These men and women were primarily concened with the peroeived damage done to the Island's image (and land markets) by the RAG's higü profile campaign. For John Coggn, the Group's objectives and methods were firndamentally wrong, because it tried to save families who had got themseþes into trouble or were 'bad' farmers an) ¡/ay: "... I've got no time for ttrose bastards (the RAG), quite frankly. 373 They've done more harm to Kangaroo Island than they've ever done good', (Farm Interview 49). Ox5moronically, some measure ofthe Group's success oan be gained fromthe oriticisms levelled at it. GeoffCarthew, a relative newoomer to ttre Istand was dismayefl by the Group's extent and nature sf i1s imfact: I think they've done enormous harm ... to land prices ... it's just giving the Island a terrible reputation. I just get sick ofwherwer I go, wherwer I talk to people: Adelaide, interstate; they've all heard of Kangaroo Island for the wïong reasons. It's perceived as being a lousy place to farm, where people go broke. It,s not that bad (Farm Interview 8). Matthew McNam¿ra and Wes Se,nior were extremely qarical of some of the farmers that the Group fought on behalf o4 and of the Group's ability to defend the more embattled familiss. Both frugal farmers, and from long-established families from the oldest settled area ofthe Island, they eryloyed the metaphor ofthe farm ute as a socio- economic barometer in their oriticism ofthe Group. Both had packed sandwiches and driven their own nrsting vehicles to public RAG meetings and bee,n struck by the sight of Group members and supposedly financially strapped farmers arriving, and later leaving for the nearest pub for a counter ftrnch, in new large four-wheel-drive utes (Farm Interview 13; Farm Intenriew 62). A former member of the Rural Action Group, Alan Johnson, ì¡/as unrepentant about the Group's role during the crisis. For him, those who criticised the Group and labelled those farmers under siege ûom financial institutions as 'bad farmers' were in no position to judge: '"Those that are comfortable noq s[¿iming they are so wise, in fact probably had no guts and never borrowed it. They're certainly not the best farmers. Not by a long shot" (Misc. Interview 1.2). The Rural Aotion Group's greatest achievements, according to Johnson, was its creation of an atmoqphere in which stressed farm families could talk openly with each 374 other and approaoh the Rural Counsellor for assistance. No farm family suicides ocourred on the Island throughout the e,ntire crisis period. Johnson also cites the inorease in the Re-Establishment Grant (as part of the RAS package) from $30 000 to $45 000 as an Island Action Group achieveme,lrt. Johnson conceded though, that deqpite the Group's good intentions and achieveme,nts, it polarised the community. on this point he was unfazed: ... we're (the Action Group) no different to ... what, you might say the Greens movement in the earþ timber industry, or Save the Whale, or the girl (sic) dor¡rm at Bumie - Christine Mlne - with the pulpmill. Just a group ofpeople that beliwe that ... people are getting shafted, they sand up and do somettring about it. The rest of the community - London to a brick - will condemn them Let history be the judge. I'm quite oomfortable with that (Msc. Interview 1.2). Despite the alnost perpetual fear of a Bank campaign of foreclosure on the Island, by the end of 1995, only three Island farm families had been wicted. Overall, "at least 34 farmers have left the Island" since 1990 (KIRCS, 1995, 3). 6¡l rrnlcnovñr number have sold their farms but have remained on the Island. As noted earlier in Chapter Te,n, tle growing farmer militancy that dweloped on t,he Island as the debt crisis first broke also fostered local frustration with the main representative body, the then United Farmers and Stockowners. This dissatisfaction emenated in large part from the UF&S' answerability to all its members, financially sound and otherwise, and its need to continue to be regarded as a stable and conciliatory lobby goup by govenrments. Keith Priestley, a member of the Island Rural Action Group, remembered how the then vioe-president of the IJF&S justified the body's position at its Pamdana meeting with Island farmers by saying that it had members who 375 were in dire financial straits and members who weÍe "cashed up" and ready to buy up all the cheap land around (Farm Interview 10)1s. These were obviousþ stressfirl times for all parties involved in what was esselrtiaþ a diqpute over conflicting values and loyalties. The Rural Action Group, by no means a totally united or cohesive body, envisaged the complete dissolution of tleir surrounding community and witnessed tle loss ofvalued friends and neighbows, the occasional shabby and callous treatment of reqpected but stressed families by sometimes inexperienced and diqpassionate Bank offioers and the worsening ofthe wool and local land markets. Above a[ deqpite its struggles, the RAGwas witnessing the removal of entire, hard-working families from the community by the Bank tlat had lent - and subsequently unitten off- millions of dollars to entrepreneurs who had subsequently gone bankrupt. As we have already see,n, the Bank unote offsignificant sums on the Island, too. For some State Bank officets, tle task ofliaising between an unqmpathetic head office that lacked a proper appreciation of rural lending, and local farm families that were about to be told generaþ bad news was an invidious one: Neil: ... it must have been stressful for you to go baok on the Island and to also be involved in that pressure cooker situation with tle Rural Action Group taking such a high profile on the Island. Would you oare to oomment on tlat at all? Gavin Brearley: well, I believe that we were treating themfairly. So, fromthat point ofview, I didn't have a problem with how they wanted to carry on. I was employed by the Bank and paid by the Bank and if I didn't do that, what was I going to do? I was going to be unemployed. So, yeah... I had ... yeah, it was a pretty stressfirl time. No question. They tlought we were enjoying it, but they were totally offthe track ... (Bank Interview 1.6). 15 It should be remembered from Chapter Eight that the UF&S took a similar stance with regard to the Gosse Committee's attempts to defend the 2l soldier settlers threatened with eviction by the Department of Lands (see Chapter EiCht). 376 This was also a traumatic e,lrvironment for local bank stafl nrury ofwhom were established members ofthe local community. The RuralAction Group's constitution stated that no member of the local community was to be harassed in aoy way by the Group's actions. Nevertheless, Bank staffmembers oouldn't help but be affected by the looal turmoil and conflict. Although they were ultimately reqponsible to the State Bank head office in Adelaide, in such situations they must have felt their toyaþ divided. Ex- branoh mrnager, Warre,lr Baxter e,ncor¡ntered this conflict when he over-extended his delegated oredit authority in approving overdraft exte,nsions for a number ofhis olients at the height of the crisis. For this, he was swerely reprimanded by head office (Bank Interview 1.3). The wider local community also felt and reqponded to ttre Island's debt crisis. The following section considers the role ofkey community organisations in interpreting and mediating the worst imFacts ofthe debt crisis. l2.4.Hearing' Heþing' Holding: Island Institutions and Organisations Resisting Cultural and Economic Change 12.4.1The Role of the Churches In times of rural crises, tle church (regardless of de,nomination) takes on an added significance as a local insitution outside of its theological and spiritual roles and functions (Pfitzrer, 1992;ABC Ratlio National 1993). Throughout the orisis, and in an otherwise physically- and socially-isolated farming community, the chief ministers ofthe main churches have been uniqueþ placed to suney the plight of financially-stressed farm families. The status of the ohurch as one of the ce,ntral culnual institutions in rural areas has, with the close interaction of the various churches and their congregations, enabled all chr¡rches to playvital roles in the community's reqponse and resistance to the wider social and economic effects ofthe debt crisis. In an isolated community like Kangaroo Island, the local clerry tend to inherit extra dimensions of service to zupplement their 377 nonnal suite of ecclesiastical work. For exaryle, local clergy have played ¿¡r important role in the establishment and subseque,nt operation ofthe Kangaroo Island Rural Cor¡nselling Service, holding major office-bearing roles on both the Steering and Management Committees. The Rw. John Sabel has held the office of Chairman of tle Management committee since the service's ince,ption (KIRcs, 199l;1995). Because the Rural Counselling Servioe reoeives Federal funding for only 50 per cent of its annual budget (a $50 000 grant), the Island is heavily depe,ndent upon other funding sources both on and offthe Island. The South Australian Department of primary Industries provides a further 25 pet ce,nt ofthe KIRCS annual budget. The local community has, over the e,lrtire operating period ofthe Rural Çe¡¡¡lsslling Service, bee,n foroed to raise the remaining25 pet cent ($12 500) ofthe Service's annual budget. In a small community financially weake,ned by the wool crisis, tlis has proved to be, in the Sewice's words, a 'lnajor rliffisulty" (KIRCS, 1995). The local churches have played no small part in this fund-raising exercise Their finanoial and moral support for financially- stressed farm families has, howwer, extended far beyond mere rafles and fetes. The Island's Interchurch ReliefFund essentially emanated out of Mike Linscott's first consultations with cash-strapped farmfamilies in 1991. Mike found many families living in extreme poverty beoause the bank had taken away their cheque book and/or otherwise withdrar¡m their credit : Mike Linscott: ... farming people are esse,ntially proud, and ... they didn't want to declare their poverty to their neighbours and ... ah ... they closed the doors, pulled doum the blinds and wouldn't answer the 'phone in case it was the bank mânager. And, ... aaah ... I oame into that situation ... I we,nt to the Ministers' Fratemal here on Kangaroo Island and I said, 'r-ooþ we need to help these people. They need money and they need food". Now, a lot of people would say that a farming family's always got plenty offood ...well yes, they do knock over the odd ú..p, but you try living on lamb chops or muffon for 365 days a year. And it overlooks the fact that childre,n need clothes and so do adults - that cleaning materials in the kitchen and in the laundry, and ifyou have,n't got any money - no credit facilities - you can't go and buy these rhings ... (ABC Radio National 1993). 378 The Inter-Church Relief Fund, via Mike Linscott, has continued to deliver food parcels (or 'Farm Packs" as Linscott prefer to calls them) throughout the ongoing crisis, averaging two to tlree parcels a month (Mso. Interview 2.1). Although the worst phase ofthe crisis has essentially passed, parcels continue to be delivered, according to Pasto¡ John Sabel6, as more of a helping hand and an indication of moral support to recipient families (Misc. Interview 2.1). The Ministers' Fratental administers the Inter-Church Relief Fund into areas other than 'bread-and-buffer' needs. As banks and other financial institutions have retracted from farm lending - particularþ in the 'altematiVe enterprise' spectrum - the ReliefFr¡nd has ste'pped in to provide interest-free loans to four families (a total commitment of $6000) seeking to dwelop new avenues of cash flow. Consistent with the more philanthropic thrust ofthe Ministers' Fratemal's financial aid, the Fund has also helped financially-stressed families with immediate, short-term financial crises: I mean, someone rang up the other day, deqperateþ trying to save their farm, they'd been working, ringng werywhere - companies interstate and ... alright, the 'phone bill was 5422. And they just didn't have the money for ttrat. can't operate without a 'phone. Aldght, so that was paid. That account was paid ... so, it's been that sort of zupport that's been going on (Misc. Interview 2.l). The Inter-Church Relief Fr¡nd raised $28 000 over three years from a one-off campaign, deqpite the depressed character ofthe Island's economy since 1991. Ofthis total the Ministers' Fratemal had used $22 000 for its various aid schemes (i.e. food parcels, interest-free loans, etc.). At the time ofinterviewing in mid-1994, key church minìsts¡s were considering the need for anotler public appeal for more cash donations (Misc. Interviews 2.1; 2.2). 16 Pr John Sabel is a Minister of the local Lutheran Church and Chairman of the KIRC Management Committee. 379 Perhaps the churches' most difficult task tlroughout this period has bee,n the battle to break dor¡m rnany fnancially-embattled families' sense ofphysical and emotional isolation. As noted by Rw. Trwor Klar, most farmers are extremeþ proud people who uzuaþ don't confide in their friends and neighbours their financial position r¡ntil 'Tt is too late" (Misc. Interview 2.2). T\ß sense of isolation is ofren coryounded by bank pressure on individual clie,lrts and the use of secrecy agreeme,lrts to establish a 'work-out' (see Chapter Elwen): Yeah, so what happens is that people actually don't let the neighbour know that things aren't going well until it's reaþ at the point ofno retunl I guess. And when you get that allied with secrecy agreements that the bank's putting in place, it in fact works against the very nature of oommunity. It isolates people. They can't talk about what's happened and, yeah, they get very isolated because of that (Misc. Interview 2.2). Deqpite noting the loss of a number offamilies fromtheir congregations to the mainland due to financial stress, both the Uniting and Lutheran Church minists¡s felt that the overall size oftheir congregation had not changed over the duration of the crisis (Misc. Interviews 2.1;2.2). Relatedly, a selÊheþ, selÊinitiated broadly-based religious group had formed in the Gosse area since the onset ofthe orisis. This group acted as a community support and problem-sharing network in an otherwise isolated area. Although the Ministers' Fratental had thought of fostering a gleater qpread ofthese groups across the Island, it had decided against zuch intervention (Misc. Interview 2.1). A small Catholic prayer gloup was also active around Pamdana, served by a visiting Josephite sister (Misc. Interview 2.3). This apparent m¿intenance of the Island community's religiosþ is counterposed by the churches' own financial hardshiFs. The Catholic minists¡'s nearþ fuIl-time presence on the Island was scaled dor¡rm during the crisis to an oocasional weekend visit. As noted above, a visiting Josephite sister attempts to compensate for this loss of oontact to some degree (Misc. Interview 2.3). T\e Uniting and Lutheran Churches have also 380 suffered from the wider economio hardship, wen though they have had little trouble raising money for the Inter-Chruch Fund. Many families' lack of cash flow has forced them to choose betwee,n the Island's two major culturaVqpiritual institutions - the church and football (but not necessa.ily io that order!) - as they could not afford to travel long distances on bot.h weekend days. As Rw. Trevor Klarwryly observed, the churches appeared to be losing in this battle (Misc. Interviews 2.2;2.3). Althougb local donations to the church had all but dried up, tlere still seemed to be plenty of money available for footbalt with one football club receiving over $4000 in bar 1¿kings the weekend before my interview with Rw. Klar (Misc. Interview 2.2¡rt. Howwer, the more dwout financially-struggfing familiss decided to ration their churoh attendance. For example, the Lutheran church, with its one Island minisle¡, rotates its services around the Island. Some f¿miliss, instead ofjoining the travelling congregation each week, only attended services at their local church (Misc. Interview 2.1). The Island churches have adopted a relatively high public profile throughout the crisis. Aside from their organisation of relief fi¡nding, each congregation has arranged a number of free social wents (e.g. bush dances, quiz nights and ttre like) to try and bring ¡¿milies - seriousþ indebted or otherwise - together to maintain some semblance of community qpirit. As a oollectivity, the looal churches have been politicaþ active in defence of the Island community, rariting submissions to the South Australian House of Representatives Rural Poverty and R¡¡ral Debt Inquiries. Against the foreshadowed withdrawal of the local social worker, the churches were successful in having the social worker's presence scaled down to a part-time basis (Misc. Interview 2.2). Similarly, the Ministers' Fratemal successfully campaþed against the tl¡eatened removal ofthe Island's Rural Counselling Service by the Federal Department of Primary Industries and Energy (DPIE) in mid-1993. The DPIE felt that, relative to other nual areas, the Island 17 Rev. Kla¡ immediately qualified this viewby stating that football clubs had experienced a decline in numbers and related increase in the average age ofplayers through local depopulation and the effect of seriously-indebted farm families reducing their commitment to local sport (Misc. Interview 2.2). 381 laoked the oritical population threshold to justify a Rural Counselling Service ofits own (Misc. Interview 2.1). Through thei¡ active advocacy and srpport ofthe Island community during the ongoing orisis, the chr¡rches have witnessed both the positive and negativs impacts ofthe crisis fall unwenly across the different strata ofthe local society. The orisis polarised the community, yet also inqpired oooasional profound aots of individual and collective compassion and solidarity. Aside from the relatively anonlmous be,lrevolence ofthe food parcel deliveries, we have the exaryle ofthe'?enny-Pinching Days" (see Chapter Ten), the use of Relief Funds to give stressed farm families a cheap holiday and much needed break fromthe farm, and the almost community-wide determination to maintain social contact across the socio-economic qpeotnrm ofthe community through tle orgnnisation of cheap or free fr¡nctions. One ofthe more poignant exaryles ofthe strength of community compassion and solidarity to emerge during tle earþ days of the crisis concemed two farming neighbous. In late 1991, many graziers faced the unsavoury task of slaughtering portions oftheir flock as part ofthe Flock Reduction Scheme (see Chapter Ten). The following account begins with one farmer agonising over this gnresome duty: Mike Linscott: ... a neighbour noticed his neighbotu standing in the middle of the paddock with the ú"ep with a grrn in his hand and he (the neighbour) stopped his ute and walked over to see ifhe (the farmer with the gun) was a[ right. And he (the farmer with the gun) was standing there with tears streaming down his face and he just couldn't bring himsslfto shoot the animals. Aûd his friend took the rifle offhim and carried out the ... the grislv business ... (ABc Radio Nationa! lee3). I heard this story, in expanded forq numerous times while on the Island n 1994. As its equally numerous recounters emphasised, the significance sf ^his 'neighbourþ' act was its timely nature, potentially prwenting a deqperately depressed man from tuming the 382 rifle on himself Deqpite the internal divisiveness caused by the crisis, this act underlined the prwailing strength ofthe social bonds between Islanders. Nwertheless, with the protraction of the debt crisis past its first year, church ministers had also noticed a considerable Êaþg ofthe social fabrio. As both farm me,n and women have increased their workloads - on- and oË farm - family life has deteriorated. Health problems have increased due to stress and, in some cases, the recommenceme'lrt of strenuous jobs like shearing. The church ministers and the local doctor observed that marriage breakdoum appeared to be on tle rise. The Island has lobbied hard, but unsuccessfülly to this date, for the provision of a local ma¡¡i¿gs guidance service (Misc. Interviews 2.1;2.2;3.1). Childrenwithinthese stressed families have tended to be hidden victims of the crisis. Church ministers reported that many farm child¡en were visibly sutrering through neglect and had lost hope in a farming firtue. Youtl physical health and behavioural problems have increased. There has been no evidence to zuggest that child abuse (or domestic violence) has increased, howwer (KIRC, l99s). Other integral community organisations, like the CountryWomen's Association (C.W.A.) have been forced to adapt to the new economic stringency. The members of the Gosse branch, unlike the branches in the eastem end of the Island, are virtuaþ all farm women. Throughout the protracted debt crisis, Gosse branch meetings have bee,lr organised as informal social occasions for West End farm women to get together and have some time to tlemselves away from the farm and their husbands (Misc. Interview a.l). The activities of the branch are still guided by the annual theme decided at the State executive, but the active Gosse members have also shaped meetings around their or¡m needs. For example, a counsellor was invited to talk about stress management at one meeting, a women's health qpecialist at another. The Gosse branch fought successfully to get a mammography clinic to visit the Island n 1994 (Misc. Interview 4. r). Deqpite the general climate ofpenury in the Westem end oftle island, ttre Gosse branch had maintained a reasonably stable membership. The C.W.A. head office decision 383 to zubsidise the Gosse branoh's zubscrþtions - normally $10 - had heþed it gain some members as it had lost others (Misc. Interview 4.1). No¡vithstanding its stafi¡s as a bastion of rural wome,n's compete,ncy as well as their conservatism, Teather (1994) ooncedes that ttre organisation needs to revive its public relations prograrnme if its "'tea and scones' image" if it is to be sufficientþ relwant to recruit younger rural women. This contention was supported by some Island women's experience ofthe C.W.A. during the debt crisis. Two farmwomen who were former C.W.A. members indicated that they had resþed from their local branches beoause ofthe refusal or inability ofthe organisation to campaþ politically against the community-wide ramifioations ofthe 'work-out and recovery' negotiations. One ofthese wome,n elrvisaged her branoh becoming something of a female Rr¡¡al Action Group, but was disappointed at the passive stance adopted by the whole C.W.A. to the crisisl8. As an Island - "a oommunitywith'tard edges"" (KIRC, 1995) - the Kangaroo Island community has long suffered from being a numerically-small and physically- separate (not mereþ isolated) part of South Australian society. It has like many other peripheral areas of South Australia, had to continually fight to gain and m¿intain necessary facets of the oonve,ntional welfare infrastructure. While this battle has had the positive effect of forcing local Islanders to critically assess and defend their needs, the problem in a small community like the Island is that the lobbying and leadership reqponsibilities fall on relatively few, often already overencumbered shoulders. In times of crisis, when demand for welfare and health (mental and physioal) services outstretches the existing infrastructr¡¡e, the pressrue on these 'leaders' increases dramaticaþ. The attrition rate of suoh people is tlerefore high, frrrther haryering the community's chances of defending itself from threate,ned rationalisations. We have already seen how the Island was forced to caryaþ to maintain ttre presence of both the Rural 18 Perhaps emphasising that overt political action by rural women was incompatibte with the C.W.A.'s modus operandi, a South Australian South-East Rural Women for Justice gfoup was formed in 1993. This group aimed to preserve the social and economic fabric of rural communities from government neglect and the economic restructuring process (Male, 1993,l5). 384 Qeu¡lsslling Service and a SocialWorker. As Mke Linscott modestly observed in his final report, 'oThe Rural Counselling Service continues to be seen as the main s¡¡pps¡¡ sf farmers facing difficulties" (KIRC, 1995). The stress which this multi-institutional service entailed wentually forced Linscott to retire as Rural Counsellor in Jr¡ne 1995 (KIRC, 1ee5). As an ageing population, t.he Island has particular needs whioh require multi- agency flexibility and zupport. However, the Island oommunityhas suffered more from under-resouroed and poorþco-ordinated prograrnmes and services than the inverse. A recent University ofAdelaide report on the Island's health service needs highlighted the need for an extra social worker on the Island to oope particularþ with the emotional and behaviouralproblems of children and adolescents. The ad-hoc organisation ofthis service was also criticised: '.At preselrt the social worker is funded by 3 organisations - Child Adolescent Mental Health Services (CAMHS), Department for Family and Community Services (FACS) and the SouthAustralian Mental Health Services (SAMHS) which results in an ill-defined speotrum ofproblems that the social worker is required to deal with" (KIRC, 1995). The same report also noted that the Home and community care (HACC) programme was also drasticaþ r¡nder-ftnded. "They are currently helping ó7 people but are only funded for 30. They man¿ge this with the help ofvolunteers, and by hiring local people on a contractual basis" (KIRC, 1995), The De,partment of Social Securityvisits the Island one day every month, which, as one ofthe local doctors observed, was "a bit of an insult, given the lwel ofneed" (Misc. Interview 3.l). The Island will ahnost certainly face these gaps of omission and commission in ttre local social service infrastructure for the foreseeable future. It will, however, find the battle to gain and/or maintain services more difficult with less families and a diminished and fatigued leadership base. 385 12.5. Conclusion Fig. 12.10 diqplays the full politioisation of the globalised looal agricultrue- finance relation in crisis mode. It shows fte im[rortant roles of the local Rural Action Group and Churoh groups in negotiating and resisting the worst effects ofboth the debt crisis and the borkout and recovery' strategies ofhostile creditorsle. The churches'role in this stnrcture are strengthened by their intervention as 'lenders of last resort'to seriousþ indebtetl farm families, although the sums of money le,lrt were quite small. The Rwal Counsellor, equally, has played a oentral role in subtly and graduaþ transforming the debt reduction strategies of "aggressive oreditors" (Campbelt 1994) and secruing the short-term zurvival or dignified exits, ofhis clie,lrts. Unlike New Zealand, where the sole public farm financier, tle Rwal !ank, was rapidly commercialised and then privatised, strugg:ling Kangaroo Island farmers oould still tum to the RF&DD (and its RAS fi¡nctions), the CDB and PIBA during the height of ttre local crisis. The privatisation and rationalisation of these concessional public lenders is an ominous tre,lrd, particularþ given the major trading and savings banks' relative shift out of farm lending during the wider nual crisis of the late 1980s and earþ 1990s. The intervelrtion by the local chr¡¡ches into the venture capital market to fund some families' diversification and survival strategies takes on an added significance in light ofthese changes. The banks' and stock firms' reaction to the Island's debt crisis appeared to depend, to some degree upon the predominant scale at which individual institutions (and their pare,nt corporation) operated and the relative financial strength of that institution (or its parent). For example, the State Bank's aggressive (and, at times, inconsistelrt) approach to its most seriousþindebted clients appears at least partly attributable to the le A measure of the collective effectiveness of the South Australian Ru¡al Action Groups in politicising farm credit relations during the rural crisis of the late 1980s and early 1990s was the establishment of a joint consultative approach to farm debt mediation between the State Bank and the South Australian Farmers' Federation (SAFF, previously the UF&S) (Stock Journal, 1994). Such a process would probably har¡e been unnecessary by both the banks and the SAFF in the absence ofthe high profile media campaign waged against financial institutions by RAGs throughout South Australia. 386 ,tidy escalation of the Benk's corporate exposufe and the consequent need to up' its entire bad debt portfolio. Dalgety's similarþ belligerent stance could perhaps be explained by its need to get bad debts offits books prior to its takeover by Wesfarmers in 1994. As noted above, some creditors (e.g. National Australia Ba"k) adopted a more patient approaoh to their bad debtors. The remainder ofthe relation operates as described in Fig. 7.3 (Chapter Swen). At the family farm leve[ we have seen how f¿milis5, and members thereof have reqponded to the financial stringency with an alnost bewildering array of suwival strategies. Against the grain ofmuoh theorising on farm survival strategies, nurry ofthe surveyed farm families - particularþ those families raising young children - e4plicitly quarantined t,heir household from the economic fortunes of the farm The role of farm women in obtaining oËfarm income was an important factor in this process: a process oounter to the 'keep the farm at all costs" tenor of much farm zurvival literature. Nwertheless, there were, in the examples ofthe Myers and the hiestleys, families prepared to make great sacrifices to maintain their attachment to the land. \ilhichwer broad direction they have atteryted to head, howwer, these famiries have ofte,n been con-fronted by profound constraints. Although malry families - not necessarily all those in the direst financial position - attempted some form of diversification, it is apparent tlat most are dependent upon a fesurgent wool market. The long-term proqpects for wool appear reasonable but there has been little respite for woolgrowers from low prices over the last five years. The dire financial position of many familiss, the uncertain market outlook for many so-called 'niche' farm commodities and ttre reluctance ofbenks to zupport most forms of diversification, has hampered any large-scale move into altemative farm industries. Reduoing farm expenditure was acknowledged by most interviewed farmers as a short-term and short-sighted strategy, but one which most were nevertheless forced into in one form or another. Substituting paid farm labour with increased farm family labour was equally aoknowledged as a short-term strategy, given the high proportion of Island 387 Figure. 12.10. The Globnlised Local Agriculture-f inance Relation in Clisis. x'a F n up Public Church Farm. Groups anclers I Couns I I I I Interes I I I us I I I I Centra B I Ì I t ì State D Investors Key Relations that have weakened Relations that have stre,lrgthened 388 farm childre,n who ve,nture to the mainland for education and/or work, and particularþ given the advanced age of many ofthe interviewed farm men and women. This situation exposes the oontenryorary weakness of Friedmann's (1978) notion of SCp, and its reliance on the long-term equilibrium of on- and oñfarm labour demand and zupply. The Kangaroo Island case study has shoum that the survival of so-called SCP forms depends more on the availability of secure oftfarm inoome, and given the patriarchal serual division oflabour, ofren (but not exolusiveÐ the oÊfarmroles offarmwomen. However, these trends also have implications for theories of zubsrrytion. As noted in Chapter Elwen, the sampled families' overall lwel of zubzumption had changed little over ¿ nins year period. Degrees of formal subsumption inoreased over the period and were highs¡ than levels ofreal zubsumption because ofthe sample's hi€h lggzlg3 farm debt. The present chapter has demonstrated, though, that many ofthese familisg have resisted hieûer lwels of subsumption via oÊfarm and non-farm incomes. Again, the role of farm women has been cruoial in this process. The portability of many farming women's para-professional qualifications, and the adaptability ofthe professions concemed and the women tlemselves, has bee,n ¿¡ important faotor in that process. Give'n the prwalenoe of many farmwomen's 'double-day', though, it does not appear tlat the allocation of domestic tasks within the household has been zubject to zubstantial rwision on the grounds of equity. What does appear to be changing, albeit zubtly, is women's preparedness to tolerate years ofpoverty and toil to save the farm To a large degtee, farm men have been complicit in this process. The extent to which these women will be satisfied to continue this work to keep the farm may well be a crucial factor in tlese families'future resistance to zubsumption, and the long-termviability of family farming on the Island. 389 EEAPTER THIRTEEN: CONCLUSION This thesis has attempted: l) fq s¡¿mins how, and with what effects, the economic restructu¡ing foroes bor¡nd up within financial deregulation were transmiffed through and withh soales to farm families and looal communities; and 2) to dwelop a metatheoretical - and conoeptual framework for better understanding the social and economic consequences sfrhis restructuring process and for aiding futue research in this field. This conoluding chapter addresses these two ce,ntral ¿ims in turn, while simultaneously reflecting upon the supporting objectives raised in Chapter One. Chapter Five examined the origins ofthe global financial system and the dwelopmelrt of the political and economic forces, within Australia and without, underlþg the deregulation ofthe Australian financial system" It also examined the oonsequences ofthe deregulation for the institutional structure of finance, the management of macro-economic policy, the financial position of farm families and the provision of financial services to the farm and rural sectors. This discussion showed that farmers' access to and use of finance has indeed bee,n affected by financial deregulation. The impleme,lrtation ofvariable 'credit risk ratings' (penalty interest rates) across the full range of farm borrowers has bee,n a point of tension betwee,n the farm and banking sectors since deregulation, and also played a significant role in what tr¡med into the broad farm sector's debt crisis of the late 1980s and earþ 1990s. The various loan assessment prograrnmes dweloped to foster farm borrowers' financial man¿ge6sn1 skills and success have also increased the banking sector's penetration and scrutiny of the farm business, confrming Marsden (1990) and Marsde,q et al.'s (1991) perqpective on the political economy of farm credit. Via these reforms, financial deregulation has forced farm families, as borrowers, to become better financial and business mânagers. It has also hastened the farm adjustment process, but often in an arbitrary mînner. The New Zealand, experie,noe of agricultural restructuring and the Kangaroo Island case study demonstrated the importance of timing in influencing the relative financial vulnerability of farm families. The 'worst' 390 farmers (howwer this quality may be decided) are not necessarily tle ones who have bee,n forced offoftheir land in either country's rural crisis. These developments crnnot be oonsidered aside ûom the other major reforms of deregulation as they affected the farm sector, including the abolition or privatisation and full oommeroialisation ofthe public farm finance institutions. These bodies have played quite central roles in the fostering of agriculnral dwelopme,nt in Australia over ttre last two decades or so, and have partioularþ catered for those farmers to whom the major trading and savings banks would not lend. fte importance oftlese institutions can be gauged from the high lwel of demand for long-term, concessional rate oredit in Australia with the introduction of the Farm Developme,nt Loan Fr¡nds (FDLFs) and Term Loan Funds (TLFs), the dominant position ofthe Rual Bank in the farm credit market in New Zealand(Chapter Six) and the desire by a number of surveyed Kangaroo Island farm famiries to refinance their debts with the RF&DD and CDB after the onset of the Island's debt crisis. Recent calls for altemative oo-operative style farm finance agencies (Hi[ 1993; Mitche[ 1993;Ambrose, 1994) reinforce farm families' need of and desire for such agencies and programmes. The increased commercialisation of such agencies as the RF&DD is, in this context, a cause for concem for farm ¡¿miries. In the light of these comments, then, it is obvious that Australian farm finanoe in the post-deregulation era has been "essentially 'privatised' and ' commercialised"' (Powell and Milham, 1990, 23 4). In accordance with the predictions of its promoters, deregulation did usher in a liberalisation of farm credit, and an associated expansion of financial products for the farm sector. The removal of interest rate controls with deregulation allowed banks to offer credit to potentially more farmers than r¡nder tle prwious regulatory arrangemelrts. Howwer, the ways and means by which this was achiwed has produced mixed results for farm f¿milisg, ¿g the foreþ crrrency loans debac[e ,li$lays. Financial institutions' imposition of credit risk ratings (penalty interest rates) on top of what were very high nominal interest rates through the late 1980s and earþ 1990s, exacerbated the debt position of many farm families. The lnacro-economic ramifications of 391 deregulation have, r¡ntil rece,ntly, worked primarily against the family farm sector, eqpecially with regard to interest rates. Most advocates ofthe deregulation and relevaût bank and stock firm staffhave usually tried to defend the reform ûom criticism by construoting the long-runniug nual crisis as a purely looal scale issue, highlightl¡g the abovementioned factors: the indebted families were bad mrnagefs; they paid too much for the extra block of land that they bought; they became too depende,lrt on wool, etc. The ways in which key farm financiers, like the State Bank and Elders and Dalgetys interpreted the farm credit market after deregulation, however, was very much influenced by the competitive conditions and the new opportunities that deregulation \ilas assumed to bring, without a full acceptance of the necessary lwel of fiduciary reqponsibitty that the new oonditions required. Bank and stock firm credit mnnagers, sometimes against their better judgement and against past experience, interpreted the risk inherent to farm tending less pnrdelrtly than their predecessors had. The State Bank of South Australia's attempt to become a truly gtobal bank with a regional homebase provided a good exaryle ofhow the new rules were transmitted, albeit unwe,nly, through scales, ûom the global to the local farm family lwel. The Baûk Group's aggressive attempt to meet its commercial charter geatly influenced the Bank's rural lending arm's approach to its domestic market (Chapter Nine). Within the various levels of fts Bank, though, these reforms (the '70 per cent' lending policy, acceptance ofinterest- only loans and aggressive local marketing) were actively contested. At the local scale ofKangaroo Island, it is difrcutt to determine a clear and direct role for deregulation in the Island's farm debt crisis, aside fromthe impaot ofthe removal of interest rate controls. Financial deregulation can be seen to be but one of a complex of factors, bundled together unevenly, that has influenced rece,nt local scale change. The Island's farm debt crisis did not occtu in an economic, politicat social or culturalvacuum It hit as tle Island w¿s ¡svelling in, but nwertheless becoming oautious about, a sustained economic boon The local land m¿rket boom was fed by the timely release of a nr¡mber of old soldier-settler farms, on the one hand, and tle increasing need for Island farmers to 392 adþst to greater economies of scale, on the other. The perceived long-term security ofthe wool market, with a Reserve Price Scheme 'set in oonorete', gave Island families the neoessary oonfide,lrce to borrow and expand their holdings. The wool market collapse whioh triggered tle local debt crisis was itself drive,n by a range of intemational factors (e.g. the collapse ofthe Eastern Bloc as a unified market, China,s effective exit from tÏe market as prices wool rose) and a growing reticence on the part of the Federal Govenrment to sr¡pport ¿iling industries. The actual mînner in which financial institutions, le,nding policies r¡7s¡s implemented at the looal (Kangaroo Island) lwel was, again, influe,nced by local factors. Competition did occur between Island benk branches but was ostensibly constrained by tle 'local culture'. ,went Former State Bank officer Barry Grifrth's telling ¿dmission ofhow a number ofloans bad' diqplays that the Benk's, aggressive stance was transmitted to the local scale, however, and with bad results. The Benk's inconsiste,nt approach to some of its Island clients was also in stark contrast to its earlier role as a zupportive, and at times, kee,n lender. Its approach to its farm debt negotiations ('workout and recovery') appears to have been strongly influe,noed by the Bank Group's descent into near financiat ruin. The same may be said, perhaps, for Dalgetys (Chapter Elwen). This is not to say tlat deregulation caused the Bank or stock firms to act the way in which they did, but it did create the sufficient conditions for zuoh 'entrepreneurial' business strategies to be dweloped and impleme,lrted. The National Australia Bank ¿pp¿¡ently adopted more realistic approaches to both farm lend.ing and the menagement oftheir 'bad debt'portfolios than the institutions discussed above. Of course, it would be a mystification ofpost-deregulation farmer/creditor relations to concentrate soleþ on the role of financial institutions and their officers. As noted in Chapter Eleven, in the oontext of a booming local land market, rapidly increasing wool prices and hielh profile advertising campaigns by partioular financial institutions, some Island farm families felt the 'push' to expand their holdings. With the benefit of hindsight, those families that did not over-extend their borrowings during this boom period (that 'þrobably 393 had no guts and never borrowed it" to use the words of a Rrual Action Group member), obviousþwould survive the crisis better than those who borrowed exte,nsively. Timing, as prwiousþ discussed, was all important. Pewerseþ, some families' extensive but 'piecemeal, borrowings (i.e. loans with many financial institutions) acted as an effective barrier against 'hostile' oreditors like the State Bnnk. One ofthe potelrtially long-term ramifications ofthe Island's crisis, howwer, is that a new ge,neration of Island farmers may have bee,n effectively discouraged and excluded from the zuccession process or from sst¿þlishing a farm independently due to tle difficulties in obtaining credit on suitable terms. chapter Twelve discussed the banks' adoption of a far more conservative approach to farm le,nding, relative to their generally aggressive marketing stance during the late 1980s, in the wake ofthe South Australian n¡ral crisis. The 'credit risk rating' policies of most financial institutions also diqproportionately penalise younger, less experienoed farmers. Taken together, and taking no accor¡nt ofthe still relativeþ depressed character of many farm commodity markets, these two factors have been an active disincentive to new e,ntrants: a disincentive that State Government policy has atteryted to overoomel. A frrrther barrier to new and/or young farmers þsssming established on the Island is the tre'nd towards cashless farm labour circuits as a farm survival strategJ. While these circuits have proved an effective cost-reduction method for partioipating farmers, they also prevent aqpiring farmers and farm labourers from gaining necessary experience. As the last tlree chapters have consistently shoum, many ofthe sampled f¿milies were struggling financially prior to the wool market collapse for a variety of reasons. Some were caught by the collapse of the cross-bred wool market in the mid-1980s, and had insrrfficient time to recover and capitalise on the wool merket boom ofthe late 1980s. Other f¿miliss, like the Johnsons, succumbed primarily to onerous and poorþdesþed farm t In 1994, the Brown Liberal Government established a 'Young Farmer Incentive Scheme' to aid young fa¡mers (under 30 years) start their own farm. Initially well-received the Scheme has been widely criticised for favouring already financialþsecure farmers while ofrering little to young farmers who fall outside of financial institutions' lending criteria. For example, recipients of the Scheme's $100 000 grant must be able to raise a 50 per cent deposit on their intended purchase (Gale, 1994). 394 succession plans. The Forsythes, on the other hand, were undone by their attempts to keep their son on his farm The various sr¡n¡ival strategies employed by financially-stressed farm families exerylified both their e,lrtrepre,neurialism and, to a lesser extent, their strong se,lrse of attachment to their land. The culnual aqpect sf 'his sense of attachme,lrt has bee,n commented on in earlier chapters, but as Chapter Twehe diqplayed, there were very real obstacles to structural adjustment on the Island. The local land market acted to impede what might otherwise have been seen as rational decisions to quit the farm It also acted to restrain hostile creditors from seeking a rapid resolution of their bad debt portfolios. The land market can be seen, then, to contain a mechanism that both initiates creditor pressure, yet also aids families attempting to withstand this pressure. The wool price collapse rapidly drove doum Island land values, so that few voluntary sales would occur. As commodity prices improve (as they currently are for wool) and/or good seasons retum, land values increase, farm equity lifts, creditor pressure can be expected to ease, and the farmer begins anew, optimism restored. Such was the near-total lack of demand for Island farm land following the Reserve Price scheme's abolition, that we,n whe,n familiss wanted to sell (as the Pikes attempted), they received no buyer interest (chapter Eleven). However, as noted in Chapter Twelve, the formthat the survival strategies took, and even whether an attempt was made to 'save the farm' at all depe,nded on a range of factors. For example, the changing ge,nder order in whioh these famiries (as gender regimes) were situated, and the changing articulation of these gender regimes with the local gender order, greatly influenced the tlpe of survival strategies chosen, and in the final analysis, the relative financial strengtl of each of the families concemed. While it would be easy to eryhasise ttre apparently patriarchal character of many Island women's position on and off the farm and in the household (as Whatmore, l99la; l99lb has, for example), it is also the case that, in accordance with Friedmenn's notion of SCP, many of the sampled Island f¿milies' financial survival was strongly influenced by their relative position in tle lifecycle, and relatedly, their capacity to find oËfarmwork. Of course, the gendered aqpect of these 395 interlocking labow oircuits is something that Friertmann (1978; 1936) ignores or addresses only superficially. One ofthe most sienifioant changes apparelrtly occuning in the local gender order is the degree to which farm me,n and women are prepared to sacrifice their and their family's living standards to keep the farm A potentially usefirl avenue of future research in this area would involve a focus on the ohanging articulation ofprwailing rual gender orders and regimes and their supporthg ideologies within the context of the ongoing social and economic restructuing of agricultue. Despite the depth ofthe Island's debt crisis, the application ofWhatmore, et al.'s (1987a;1987b) zubsumption tlpology and matrix to the Island family farm sample revealed that levels of real zubsumption had remained very low Atthough there has been some non- farm investor interest in Island farm property since the peak of the debt crisis þrimarily for agro-forestry dwelopment), there appears little substantive threat to the Island's family farm base ûom corporate capital at this stage. Lwels of formal subsumption had increased over the study period, however. These figures mask, of course, a great deal of eoonomic selÊexploitation, emotional conflict and stress. In the context of Island's changing lwels of zubzumption, and the pressures on farm succession noted above, it is usefirl to qpeoulate on the funue of the Island's farm base over the medium-term future (approx. l0 years). Lwels of formal subzumption can be expected to increase as rnany ofthe small, heavily-indebted soldier seffler farms are 'cannibalised'by more highly-capitalised local or mainland farmers and as those with substantial debts carried over from the present crisis battle to hold on to their properties. Under this scenario, tle financial barriers to younger farmers establishing themselves will remain. The farm family wilt howwer, retain its position as the integral production and social unit, albeit under increased pressure from within (in terms of trying to meet the labour demends of the farm without hiring labour while possibly having one or more members of the household in the oFfarm workforce) and \üithout (from oreditors). Levels of real zubzumption may simultaneousþ increase with the above-described trend ifnon-farm 396 investors or agribusiness venflues seek to capitalise on ttre oppornrnity of buþg relativeþ cheap farm land in an assured rainfall area that offers so many possibilities for diversification. Ifthis scenario were to wentuate, there would be increased financial pressure many on Island businesses and services (more pressure towards amalgamation and conce'lrtration) as the base population declines. Economically, the Island would be brought firndy in the graqp of mainland (and intemational) capitaf as tourist operators, financial institutions and agribusiness firms appropriate surplus while undermining the local population base and its social and economic commr¡nities of interest. Drawing on Giddens' notion of structuration and the critical realist transformational model of social activity (TMSA (see Chapter Three)), I have sought to show that the transmission process emanating from financial deregtrlation operates reflexiveþ. Again, the way in which this powerfrrl dyramio operated defies sinple linear analyses. Against many New and Old Right financial comme,ntators'persistent advice that deregulation would and should eliminate government attempts to achiwe social goals via the financial system (e.g. the facilitation ofyounger farmers to take up farming, aiding low-income farmers to dwelop their properties, supporting the social and economic viability of rual tor¡ms and regions), the actions of the Island Rural Action Group and the various church gtoups demonstrate that deregulation has failed to address the chronic structural social diffis¡1i., ofthe farm sector and that social relations are inextricably woven into economio relations. The political campaþ waged by the Island RAG, particularþ against the State Bank's 'workout and recovery' strategies, foroed the Bank to adopt a generally more oonciliatory and realistic approaoh towards its so-oalled 'problem' acoounts. At the State scale, collective action by Rural Action Groups could be seen to have forced financial institutions to agree to participate in the farm debt mediation strateg-y discussed in Chapter Twelve. While this campaign has generally elwated the rural crisis and farmer/creditor relations as a wider political issue, the actual practical benefits to farm families of tlis action have yet, and are indeed, t'nlikely to be seen. 397 The second main aim sf this thesis was dwelop a metatheoretical and conceptual framework for better r¡nderstanding the social and economic consequences offinancial deregulation for farm families and nual communities, and for aiding future research in this field. This thesis highlights the importance of a scale-sensitive, theoretically-informed and empirioally-grounded approaoh to the analysis of contemporary economic and social change. I have been primarily concemed to locate the thesis within an appropriate philosophical and conceptual frameworþ and tlen adapt and refine the research focus aocording to other relevant research, rather than attempt to harness middle-level theory to this research (or vice versa!). The comparative intemational perspective afforded by New Zealnd's economic restructuring has been central to the dwelopment of this frameworþ as well as informing muoh ofthe case study discussion ofPart Three ofthe thesis. While its utility has caused some recent debate (Barnett, 1993; Sayer, 1993t;1993b; Strohmayer and Hannah, 1993; hatt, 1995), critical realism provides the central underpinnings and zuperstructure ofthis framework. Its relational epistemology and ontology articulates well with the criticaf relational view of scale dweloped by Smith (1993), Howitt (1993, 1997) and others, while the transform¿tional model of social activity (TMSA) also acce,lrtuates the social connectedness of scale relations. Equally, this approaoh facilitates the assessme,nt of coryeting theories, not only in terms of their intemal ooherence and consistency, but also in terms of thei¡ capacþ to explain social and economic change through and within scales. For these reasons, this research abandoned regulation theory in prefere,nce for the combined insights of'Whatmore, et al.'s (1987a,1987b) adaptation of subsumption, the political economy offarm credit literature and poststructuralist/feminist perqpectives on contemporary agrarian restructuring. While the concept of subsumption is, in some reqpects, an outmoded notion, it nevertheless provides a usefirl stafing point in analysing farm/exterral capital relations. Poststructuralist/feminist critiques ofthe agrarian restructruing paradigm underline the imtlausibility ofthe 'blaok box' perqpective of the 398 family farm household and highlight some of the fundamental reasons why tle family farm has so stubbornly resisted subsumption. Relatedly, ^tis framework stresses the need for causal anaþsis in the social sciences, as well as the social character ofthe research prooess, embodied in the critical realist C-A-C theory-building cycle. This irylies that the theoretical focus and method of a research project must not only be compatible, but be intertrryined in the entire research process, assessing and adapting to new information in a recu¡sive fashion. Quatitative methods -his necessarily form a central compone,lrt of researoh of ¡1ps. The praotical imtlications of this research for farm families are, perhaps, too famili¿1 to be dwelt on at le,ngth. Under the new regime, with its inherently rapid pace and transmission of economic change, it is vital that farm familis5 become more olpert at financial and risk management, and that they plan openly and fairly for the eventual 'passing-doum' ofthe farm Another ofthe inTortant lessons for Island farm families is that a diversþ of income sources is desirable to prwent undue exposure to one commodity sector. Nofwithstanding the finanoial rlifficulties ofthe last five years, the Island's relatively assured rainfall offers Island farmers a considerable range of enterprise choice: one of the primary reasons that the Island has attracted families from the more arid parts of the South Australian mainland over the last century. The popularity of the Island as a tourist destination, ,clean and its newly-created image as a and green' environment for a conrucopia of niche farm produots expands the options available to innovative families seeking to diversify thei¡ income sources. At a broader lwel this research has demonstrated the ongoing need for public, perhaps regionat financial institutions that are not so much 'lenders of last resort, but are focused on the balanced social and economic dwelopment ofthe region. While some might implY that tle failure of the State Bank of South Australia to combine regional social and economic development goals with an aggressive commercial charter during an era of gtobal capitalism and monetarist faith in free financial markets is analogous to the megafauna extinctions ofthe Cretaceous period, to do so would ssmmit the logical enor ofthe fallacy 399 of oomposition. This said, the prese,nt merger aotivity oocurring within the Australian banking sector in the lead-up to the release ofthe Wallis Inquiry's rqrort, does not bode well for the creation of such institutions. 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