Agricultural Reforms in Australia Agricultural Products

Question: Discuss about theAgricultural Reforms in Australiafor Agricultural Products. Answer: Introduction The Australian agricultural sector is faced by very many challenges that need to be addressed in order to sustain the future supply of agricultural products (Lockie, 2015). Australian is a big producer and exporter of agricultural products. Thus the sector is a rich source of foreign earnings. Agricultural products are in daily demand as they support the food that is consumed on daily basis. The production size of Australian agriculture is big enough to serve its whole economy. Since this capacity is produced by fewer number of farmers, it is an indicator that the economy has a great potential for expansion. If all the challenges facing the sector were addressed and various reforms established on the same, this potential could be used to raise the production level. This paper will cover the major challenges that face this sector and how they have been addressed. Some farmers are not aware of the reforms that has taken place and therefore this paper will raise their awareness. The pap er will recommend the gap for other reforms and therefore important to the policy makers who are trying to raise the incentives for increased production. According to Gray, Oss-Emer and Sheng (2014) reforms helps in improving productivity. Article Analysis The article Farm groups have welcomed the Federal Government's plan for Australia's agricultural future, particularly tax reforms and changes to Farm Management Deposits (FMD) by Anna Vidot is concerned with the problem of capital financing that is difficult for Australian farmers to access (Vidot, 2015). Generally, its not easier to insure against bad weather conditions that an economy faces since this may be very costly since all farmers would be affected and the compensation will be demanded for all. This reason has made Australian farmers to be considered very risky borrowers in Australian banks. This has subsequently lowered the level of capital for innovation and process expansions. The Farm Management Deposits (FMD) is one of the important reforms that the Australian farmers have been longing for and were pleased to hear of its implementation (Ato.gov.au, 2016). Vidot noted that the previous level of the maximum FMD of $ 400,000 was insufficient to meet the many obligations th at farmers need during a crisis and that the doubling of this amount to $ 800,000 would make farmers better off (Mcmahon and Cardwell, 2015). He argued that higher FMD would help in offsetting their business loans thus lowering their interest costs which has gone up as observed below. Fig: Australian farm debt Source: Keogh (2017) The government also intervened to ensure that an additional feature is added to make the FMD more effective; tax concession wont be lost when obtaining this money and thus drought affected farmers will be able to benefit fully (Agriculture.gov.au, 2016). Fiona Simson the president of NSW Farmers' Association supported this idea by noting that the innovation was good and would be very helpful to many farmers who live in drought. Fiona also said that the concessional loans offered to drought stricken farmers should continue being offered. Further, Vidot noted that the Australian farmers are speculating on the government coming up with a program for multi-peril crop insurance which would help in mitigating crop risks faced by the farmers. This would ensure that the farmers are insured before they get their crops on the ground such that failure for the crops to develop well would attract some compensation from the insuring body of the government. By compensation here, the proposal meant that it would include all the input costs that the farmers incur such as seed, labor, fertilizers, and many others. The challenge of financing problem is normally faced by those small farmers who doesnt have collaterals to offer in order to obtain loan from banks. In the current period, every bank is demanding some form of collateral to back up loans since the defaults rates have gone up. This puts the small farmers at a greater risk of exiting the market. Their availability of capital will raise their productivity. The large farmers are not affected since they possess many assets that could be used as collateral and its thus easier for them to expand their operations. Another challenges facing the Australian agriculture is the unfavorable climate. Some Australian states receive little rainfall that is insufficient for crop development (Kingwell, 2013). Therefore, most of agriculture in Australia is based on irrigation. However, the problem of less rainfall has resulted in less water available for irrigation since the government is also concerned on the future of water supply (Iggulden, 2015). Vidot noted that the idea of the government constructing dams was a good innovation as it would help in ensuring that there is sufficient water to be used for irrigation and other purposes in future. Lastly. The article also noted that Australian farmers has many challenges in the trading of their products due to the inadequacy of information about the potential markets such as Asia. Thus, the need for the government to spend more on RD was welcomed. Recommendations Though the multi-peril crop insurance is meant to help farmers, I would argue against it. This would be on the basis that it would create a disincentive for the farmers to manage their crops when they observe that the climate is becoming worse since they bear in mind that they will lose nothing. The compensation is able to cover for all the losses. I would back up the idea of increased spending on RD as it would make it easier for the farmers to access the outside market thus creating a large market subsequently creating an incentive to produce and supply more. Conclusion The primary role of the reform on FMDs was to help small farmers face their risks at a better position. It would minimize the effects of not receiving loans from banks. The additional feature of no loss in tax concessions makes it easier and attractive for farmers to deposit and withdraw. The money will accumulate in the depository system if a good season is experienced for some years and the farmer will have a firm base when the bad season comes. References Agriculture.gov.au. (2016). Farm Management Deposits. [Online] Available at: https://www.agriculture.gov.au/ag-farm-food/drought/assistance/fmd [Accessed 19 Apr. 2017]. Ato.gov.au. (2016). Farm management deposits scheme. [Online] Available at: https://www.ato.gov.au/business/primary-producers/managing-varying-income/farm-management-deposits-scheme/ [Accessed 20 Apr. 2017]. Gray, M., Oss-Emer, M. and Sheng, Y. (2014). Australian agricultural productivity growth: Past reforms and future opportunities. Canberra: ABARES research report 14.2. Iggulden, T. (2015). Murray-Darling irrigation reforms clouded by portfolio confusion. [Online] Abc.net.au. Available at: https://www.abc.net.au/worldtoday/content/2015/s4331446.htm [Accessed 18 Apr. 2017]. Keogh, M. (2017). Not a bad time to be a farmer. [Online] Farminstitute.org.au. Available at: https://www.farminstitute.org.au/ag-forum/not-a-bad-time-to-be-in-agriculture [Accessed 18 Apr. 2017]. Kingwell, R. (2013). Australia's farming future: Western Australia. [Online] The Conversation. Available at: https://theconversation.com/australias-farming-future-western-australia-14150 [Accessed 19 Apr. 2017]. Lockie, S. (2015) Australias agricultural future: the social and political context. Report to SAF07 Australias Agricultural Future Project. Melbourne: Australian Council of Learned Academies. Mcmahon, A. and Cardwell, N. (2015). Research handbook on EU agriculture law. Cheltenham [u.a.], Edward Elgar. Vidot, A. (2015). Farmers approve of White Paper vision. [Online] ABC Rural. Available at: https://www.abc.net.au/news/2015-07-04/farmers-welcome-agriculture-white-paper/6595250 [Accessed 19 Apr. 2017].