Political backsliding is impeding the development of drought strategy, says a leading economist

Freelance economist  Alistair Watson said in the past there had been a great deal of interest in developing such a strategy, treating drought as a commercial risk, alongside a disciplined approach to welfare provision.

“Those hopes seem to have evaporated, due to lack of commitment or political backsliding,” Mr Watson said.

“Public sentiment is too easily influenced by the visible consequences of drought.”

He told the Australasian Agricultural and Resource Economics Society conference, Melbourne, increased support from Commonwealth and state governments had undermined serious attempts to develop consistent drought policies.

“We are seeing further evidence of Commonwealth government overreach and policies being really influential.  

“There is less interest, in the states, in developing coherent policies of their own.

“Sometimes disarming in their frankness, state governments have almost given up defending their traditional responsibilities for land management, in the face of increasing Commonwealth financial power.”

He cited comments by the Queensland Natural Resources Minister Dr Anthony Lynham, who said ‘If you want to build infrastructure for the benefit of Queensland, I’ll take your money,’ in relation to what Mr Watson referred to a “dodgy” infrastructure project.

“That seems to be a particularly irresponsible attitude, within state government.”

Read more: The ad hoc approach to drought is unhelpful, according to a leading economist

Mr Watson, who formerly worked for the  Australian Bureau of Agricultural and Resource Economics,  said changes in technology, superior access to information and improved transport infrastructure had made droughts more manageable.

 At the farm level, modern machinery had made fodder conservation and handling much cheaper than previously for livestock farms. 

The current drought had been characterised by favorable circumstances of high wool and red meat prices, rather than in the past, where livestock had to be sold at distressed prices. 

He said drought was a familiar topic to Australian agricultural and resource economists. 

But there was a yawning gulf between professional opinion about drought and what passed for official policy making and journalistic commentary.

“The response to the widespread drought in eastern Australia in 2018 has been low rent with little regard for the facts of Australian agricultural geography, especially that Australia has vast semi-arid areas where agricultural and pastoral activities are always vulnerable for weather and non-weather-related reasons.”

Mr Waton said there was a similar gulf between informed and lay opinion on the economics of irrigation and agricultural development in northern Australia.

“Early adventures with irrigation were encouraged by nebulous plans for drought proofing Australia; an aspiration that went by the board when enthusiasm for irrigation confronted the large number of uneconomic farms that followed closer settlement. 

“Similar vague sentiments and romanticism inform renewed enthusiasm for building dams to support government-sponsored irrigation development in northern Australia.

“If anything, the case for government-sponsored northern agricultural development is weaker than before, because modern earth moving machinery and pumping technology allows large properties to invest in small-scale irrigation on their own account, enhancing the profitability of the cattle industry.”

The difference between sophisticated and unsophisticated views on drought was more or less defined by the extent to which drought was regarded as a normal risk of Australian farming.

Mr Watson said the question should be asked whether responses to drought were mainly a private responsibility, or a contingency so difficult to manage that risk management should be a responsibility for government.

The balance had swung towards the latter view.

“The political economy of drought is influenced by the economic perspective taken concerning risk management in general, and empirical judgements about the functioning of rural credit markets and the social security system. 

“Also at play are well-known controversies concerning the role of ad-hoc policymaking, vis-à-vis government commitment to a pre-determined strategy applied to policy problems, economic and otherwise.”

A complication for drought policy was that intervention to support farmers could be counter-productive by discouraging self-insurance, exacerbating the environmental and animal welfare consequences of drought. 

The latter was now more relevant with further urbanisation and a decline in agriculture’s share of the economy. 

It is now evident, among agricultural specialists, the enthusiasm for irrigation in south-eastern Australia was a consequence of the misguided appreciation of the economic opportunities confronting Australian agriculture.

“Our scepticism about the role of irrigation in Australia is well based,” Mr Watson said.

 “It turns out that these two topics have been influenced directly by community attitudes and political responses to drought. 

“The link between the deeply flawed Murray-Darling Basin Plan and the Millennium Drought is a recent and important example.” 

The Plan was defective conceptually,  extraordinarily costly, ineffective in achieving its objective of environmental remediation, and also had unfortunate effects on relationships between states. 

“Sadly, the worst results of the MDBP could have been predicted and avoided.

 “Among the faults of the MDBP is the over-simplified approach to the notion of ‘environment’, as if a multi-faceted concept could be expressed in a single word, and the completely unwarranted over emphasis on investment in off-farm and on-farm infrastructure, rather than gradual buyback of irrigation licences, alongside careful selection and implementation of environmental projects.” 

 Another unsatisfactory aspect of the MDBP was the failure, from the beginning, to face squarely the difference between the environmental issues of the Murray mouth and Lower Lakes and those upstream. 

“In essence, this is the point at which the contested science, economics and politics of the MDBP converge.”

He said neither the Productivity Commission nor the South Australian Royal Commission, had been prepared to ask the fundamental question as to whether having a prescriptive plan for the Murray Darling Basin was justified.

Concepts such as sustainable yield were best applied to areas such as fisheries or forests.

“To think the concept of sustainable yield can be applied to any operational meaning seems to be far fetched.

“The idea that there is something called ‘best available science’ is nonsense. 

“The idea of applying ‘best available economics’ to complicated policy problems would be laughed out of court, and rightly so.” 

What had not changed since the 1960s’ was the variation in the attitudes of individual farmers to risk and the fact that there was no single drought strategy, that was applicable at an industry level.

“Farmers decide their own drought strategies according to their expectations and financial position,” Mr Watson said. 

Market and government questions, which hinged on judgements about the flexibility of rigidity of economic systems, should be decided on the basis of empirical investigation, not a whim.

“Modern tools, for thinking about the economy, probably allow the analysis of survey data in much richer ways, to examine the sorts of questions we are interested in, whether drought encourages risky behaviour, and that sort of thing,” Mr Watson said.

“These issues are worth thinking through because the prospect of climate change changes the reference point for drought. 

“If climate change is the harbinger of the unfavourable weather patterns traditionally associated with drought occurring more frequently, drought ceases to be what was previously understood. 

“What was once judged out of the ordinary has become the norm.”