The uneven playing field for Australian farmers.

Market insights | 21st January 2021 | By Andrew Whitelaw

The Snapshot

  • Australian farmers have some of the lowest subsidies in the world.
  • Australian subsidies include items such as R&D and financial assistance such as FMD’s and income averaging.
  • Australia has it good compared to Argentina. Due to export taxes they receive negative government support.
  • The OECD nations have slowly reduced their government support for agriculture, but this reduction has stalled in the past decade.
  • Next time a troll tells you that you are subsidised, ask them to look at the rest of the world.

The Detail

I spend plenty of time on social media, probably too much time in all fairness. Social media is a great tool for networking and learning. However, there are often heated debates. I regularly see comments like the one below, which generally come from faceless and nameless trolls

“You farmers are kept in flash landcruisers and RM Willams because you feed off the teet of government subsidies!”, Various anonymous trolls

At TEM, above all, we value the truth. The above type of statement grates at me, and I thought it was worthwhile dispelling these types of statements as the comments from these trolls couldn’t be further from the truth.

How much is Australian agriculture subsidised?

This analysis used data collected from the Organisation for Economic Co-operation and Development (OECD). The OECD calculate the value transferred from taxpayers to farmers.

Australia has gradually reduced its producer supports since the mid-’80s. At the moment, Australia has one of the lowest rates of subsidy in the developed world. Later on, in this article, we will discuss comparisons to other nations.

The most recent update (2019) has Australian producer support at 1.8%. It might be enough to cover a pair of RM Williams, but might only go far enough for some land cruiser mud flaps!

Where is my subsidy cheque?

I like many other farmers are still waiting for our subsidy cheques. The small subsidy that Australian farmers receive is made up of both direct and indirect benefits:

Direct: This is subsidies like the drought payments for infrastructure investment, but also tax benefits. For example, farm management deposits and income tax averaging are considered a form of support.

Indirect: One of the significant sources of support is our R&D. Levy payments to research organisations (GRDC, AWI etc.) are topped up with government payments. This is a form of subsidy, albeit an important one. The R&D in Australia has allowed our farmers to be efficient enough not to need subsidies.

How do we compare?

 

Like any competition, it’s always good to make a comparison. This data can then be used to feel hard done by due to lack of support, or more aptly as a badge of honour to show that Australian farmers stand on their own two feet.

The OECD collect data on a raft of countries, using the same methodology. Whilst some may dispute whether the factors they choose are actually subsidies, it is an apples for apples comparison.

The chart below displays a selection of countries. As we can see, we are well below these other nations, especially the EU.

Interestingly, the USA is at 12% for 2019, but in the last year or two, Trump has provided some massive subsidies to farmers due to the US-China trade scuffle. We may see extensive revisions upwards in the updated OECD data.

The main takeaway, we are substantially less subsidised than the other major economies.

Please spare a thought for our antipodean cousins

You’d think that we are close to the floor when it comes to producer support. In the past, negative interest rates were a fantasy, and now they are relatively common around the world. The same is possible with producer support; they can go negative.

Our antipodean cousins in Brazil have agricultural support at similar levels to Australia. It is Argentina which receives the shellacking from their government.

Due to the high export taxes levied on agricultural produce, farmers in Argentina actually receive negative support. An action which we are seeing occur in Russia with their export taxes (see here) which is an impact on producers to assist consumers.

Is the playing field evening?

Subsidies promote inefficiency, and our lack of support has required Australian farmers to become the kings and queens of efficiency. This is a good thing, as farmers are not reliant on handouts.

There has been a movement around the world to reduce subsidies. Government support to agriculture within the OECD countries did spend 1990/2000’s declining. The past decade has seen produce support reductions stagnate.

As protectionism increases, I wouldn’t be surprised to see government support around the world continue at similar levels or even increase in the coming years.

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  • Analysis
  • Policy