Congratulations
Congratulations to Bob Katter, the Rural Debt
Roundtable Working Group (RDRWG) and the Northern Gulf Graziers’ Group for
organising the Beef Crisis Summit held at Richmond 7 May 2013.
A number of resolutions were passed at that meeting
calling for a change in direction to ensure the sustainability of Australia ’s
rural export industries generally and the beef industry in particular.
Five Key Richmond
Rural Crisis Summit Resolutions
The Rural Crisis Summit held at Richmond in Northern
Queensland on Tuesday 7 May 2013 passed, amongst others, the following
resolutions calling for:
1.
the Federal
Government to introduce a form of foreign aid to purchase 100,000 head of
cattle from Northern Australia at a farm gate floor price of $1.50 per kilogram
to reduce the risk of the Northern Australian Beef Industry collapsing;
2.
establishment of
a body to negotiate with the Indonesian Ambassador regarding further
development of the live cattle export market;
3.
the suspension of
the $5 Transaction Levy on all drought declared shires and individually drafted
properties;
4.
the establishment
of an Australian Reconstruction and Development Bank; and
5.
the Federal
Government to act to reduce the value of Australia’s uncompetitively high
Australian dollar and reducing bank interest rates to internationally
comparable levels.
HuntBlog Comment
on the Five Key Resolutions
1. Government Cattle Purchase
The questions arising are:
(a) If the Federal Government does buy
100,000 head of cattle in the form of foreign aid to Indonesia what will it do with
them?
There appear to be two workable answers:
1. live cattle export to Indonesia; or
2. for the Federal Government to slaughter, process and
package the cattle in Australia for distribution in Indonesia.
(b) How would
the Government decide which and whose cattle to buy?
Answer (a).
Live Cattle
Aid to Indonesia
Unless the Indonesian Government agrees to accept the
additional 100,000 head of cattle over and above the current quota, the net
effect of the purchase of 100,000 head of cattle by the Government would be to
deprive Northern Australian cattle producers from the sales of the same number
of cattle to Indonesia and the only possible benefit to Northern Australian
cattle producers would be if the proposed $1.50 per kilogram purchase price was
higher than the price obtainable on the market for live exports to Indonesia.
The chances of Australia
being able to negotiate live cattle food aid arrangements with Indonesia and
establishing agreed distribution channels seems unlikely, especially in the
short term.
A further question that arises of course is whether
the Australian Government would be prepared to take the risk of footage being
recorded showing the inhumane slaughter of cattle owned by the Federal
Government in Indonesia.
Australian Abattoir
Capacity
Whilst the sentiment behind The Richmond Rural Crisis
Summit Resolution is admirable to the extent that the motion relies on the
slaughter of the Government purchased cattle within Australia, it appears to
overlook the reality that Australia’s beef abattoirs are currently all
operating at full capacity – experiencing full shifts, extra shifts, double
shifts, Saturday shifts at record weekly slaughter numbers with no capacity to
kill any more.
To the extent that the call from the Richmond Rural
Crisis Summit for the Federal Government to buy 100,000 head of northern cattle
at a floor price of $1.50 per kilogram relies on slaughtering the cattle in
Australia, the fact that Australian abattoirs are currently operating at full
capacity, would seem to leave the motion dead in the water.
It is also unclear as to how the Government would overcome
the fact that in the short term there are no logistics in place for the
Government to can the beef and distribute it in Indonesia.
If the Federal Government did buy the 100,000 head of
northern cattle and do a deal with abattoirs to slaughter them then the abattoirs
who are already operating at full capacity would simply have to cut back on the
number of cattle that they are already buying to make room for the Government
cattle.
The net effect of the Government cattle purchase
proposal would simply be that the producer would receive a subsidised $1.50 per
kilogram which would probably be (at least on last week’s prices!) 30 cents
above current market rates.
It would be simpler and more cost effective for the
Federal Government to pay the affected cattle producers a direct subsidy
handout, for the difference between the proposed $1.50 per kilogram and the
market price being paid by the abattoirs.
Answer (b).
Whose Cattle
Should the Government Buy ?
It would be practically impossible for the Government
to buy the same percent of cattle from every Nothern Australian cattle
producer. If the Government favoured one
producer over another there would be an outcry from those that missed out, that
would be untenable for any elected Federal Government.
2. Negotiations With Indonesia on Live
Exports
A Beef Central article on Tuesday 14 May 2013 described
the meeting this week between Queensland Agricultural Minister John McVeigh and
Northern Territory Primary Industry Minister Willem Westra Van Holthe, with the
Indonesian Agricultural Minister Mr Suswono in relation to increased live
cattle exports to Indonesia as positive.
3. Levy Moratorium
The questions arising are:
(a) Is there power under the current Levy
Regulations for the Government to suspend the $5 taxable Levy in drought
declared areas?
(b) The cattle price crash is affecting all cattle
producers, whether they are in drought declared areas or not, so how is this
proposal in accord with the Government’s levy principles and guidelines that
levies must be applied equally amongst all members of the relevant industry?
Answer. The suspension of the $5 transaction levy
on all drought declared shires and individually drought declared areas would require
amendment to the current levy legislation as the proposal would not comply with
Principle 6 of the Government’s Levy Principles & Guidelines which apply to
proposals for new or amended primary industry levies which states that:
-
the levy imposition must be equitable between levy
payers.
So the short answer to questions (a) and (b) regarding
the levy moratorium is no, the Government would not be able to make amendments
to the levy regulations to suspend the $5 taxable levy in drought declared
areas because it would be in breach of the Government’s Levy Principles & Guidelines.
4. Reconstruction/Development Bank
The questions arising are:
(a) How does a debt reconstruction function fit under one
roof with development finance functions?
(b) Will the combination of debt reconstruction and
development finance functions under one roof give rise to a perception that the
bank is being established to prop up failing businesses?
Answer Again the short answer for both these questions is that
on general principles reconstruction finance and development finance does not
fit easily under one roof and if that were to occur the perception would be
that the Bank was being established to prop up a failing industry.
Economic rationalist concepts of the last half of the
20th Century resulted in the Development Bank concept falling out of
favour because, rightly or wrongly, it was seen as unresponsive to market
forces and often used to prop up unprofitable and unsustainable industries.
If Australia wants to seriously take advantage of the much
touted Asian Food Bowl opportunities it is essential that long term finance is
provided to fund innovation and development of the new rural industry focus with
credit provided based upon the future profit that will flow from the
innovation.
Essentially, traditional commercial banks need to mobilise
finances, savings and term deposits and acquire liabilities that are
individually small and protected from income and capital risk, consequently
concentrating on short term maturity loans that are substantially liquid in
nature.
On the other hand, the credit required for most
development projects tends to be individually large, substantially un-liquid in
nature and subject to income and capital risk.
5. The Uncompetitively High Australian
Dollar
On 7 May 2013, the same day that the Richmond Rural
Crisis Summit meeting was held, the Reserve Bank of Australia reduced the cash
rate to a record low of 2.75% and today the Australian dollar was trading at 99.75
cents to the US dollar, down from 102.72 cents to the US dollar on Monday 6 May
2013.
Conclusion
Congratulations once again to Bob Katter and to the
Rural Debt Round Table Working Group and Northern Golf Graziers Group who have
achieved so much by alerting the Australian public and Governments to the
immensity of the challenge that the Australian cattle industry is currently
facing.
Since RDRWG commenced its rounds of crisis meetings
across Australia:
·
the Federal Government
has unveiled a $420M Farm Finance package for indebted farmers;
·
the Australian
State & Territory primary industries ministers have agreed the framework
for a new national package of Drought Programs to replace the existing
exceptional circumstances arrangements;
·
the Reserve Bank
has reduced the interest cash rate which has lead to or coincided with a fall
in the value of the Australian dollar which have made Australia’s interest
rates slightly less uncompetitive to those of our overseas competitors; and
·
the Queensland
agricultural minister and the Northern Territory primary industries minister
had a positive meeting with the Indonesian agricultural minister about a
possible increase in live exports to Indonesia.
Whilst none of these measures may have gone far enough
they are an important first step that may not have occurred without the efforts
of Bob Katter and RDRWG.
Another HuntBlog post setting out some thoughts
regarding the underlying structural causes of the current crisis in the
Australian Beef cattle industry and suggesting some possible alternative short
and long term solutions will follow shortly.
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