Economist Dr Remy Davison thinks the NSW Government’s $1b relief package will deliver the food security and economic protection Australia needs.
One billion dollars in drought relief to NSW's farming families might seem like a huge sum of money that has appeared out of nowhere, but our farming sector is actually one of the least-subsidised in the developed world. And, unlike the US and EU, we’re not seeking unfair advantage on the world stage through the strategic use of tariffs or production and export subsidies.
The package that has been proposed is entirely WTO-legal, provided these are temporary measures and not designed to protect and subsidise food production in the long-term.
When Cyclone Larry destroyed much of Australia’s banana crop in 2006, temporary measures were implemented to protect the industry from foreign imports. Prices increased significantly in the short-term, but fell once production recovered. In this case, the international trade system functioned as it ought to; Australia was legally permitted to implement temporary measures to protect local banana farmers. If the government didn’t step in, a significant proportion of Australian agricultural production could ultimately go the way of car industry – vanished into the history books.
Firstly, supporting Australian farms is about food security for Australians. Although Australia exports approximately 70% of its total farm production, the long-term viability of domestic food production needs to be protected.
Secondly, government assistance to the farm sector in Australia is extremely low by world standards. That said, I’m not proposing we spend like they do in the European Union (EU). For the 2021–2027 period, EU farmers will receive $AU570 billion in agricultural support. This is too much money, and as we’ve seen in the past, it will artificially increase the cost of food on supermarket shelves.
What’s more, EU food export subsidies have distorted global agricultural markets. When food is super cheap because the government has helped cover the costs of prosecution, countries in sub-Saharan Africa can’t compete. It was only in 2017 that the EU agreed to follow Australia’s lead and adopt the World Trade Organization’s (WTO) Nairobi Ministerial Decision. This decision will lead to the elimination of food export subsidies. This means wealthy countries can no longer hurt poor countries by dumping cheap, subsidised foodstuffs on their markets.
In direct response to the EU, US Farm Bills, which Congress usually passes every five years, have afforded direct payments to farmers since the 1990s. Although Farm Bills can transfer up to $US200 billion over 10 years to farmers, funds are distributed unevenly between wealthy and less well-off farmers.
Like EU subsidies, US farm payments can also distort world markets. For example, subsidized Texan cotton accounts for 50% of crop values, artificially lowering world cotton prices. Of course, cotton subsidies are deeply politicized in the US, but they are a blunt instrument designed to counter Chinese cotton prices, while also damaging cotton farmers’ incomes in Brazil and India.
Finally, Australian farmers, already suffering drought stress, are likely to be affected by Trump’s tariffs. Last week, the Trump administration announced $US12 billion in aid to farmers suffering from the dual impact of historic drought conditions and Trump’s own decision to levy tariffs on China. Beijing has responded by hitting the US’s principal export to China: soybeans. Moreover, as trade barriers have been erected, the US meat and livestock industry is now facing an oversupply of 1.1 billion kilograms of meat that is filling American warehouses to the brim.
Australia’s farmers want fair trade and the Nairobi Decision is the first step towards a global market in foodstuffs that isn’t grotesquely distorted by subsidies.
WE VISITED QUEENSLAND FARMING FAMILIES DYING IN DROUGHT
Remy Davison is Jean Monnet Chair in Politics and Economics at Monash University.