NAB’s view:

As expected, the agribusiness sector was largely spared the “fall of the axe” of austerity measures in the Budget, but it has not emerged a winner by any meaningful stretch either, given only modest gains on balance.

The speculated cut in diesel fuel tax rebate did not occur. The $320 million financial assistance package for drought-affected farmers announced earlier this year is also left untouched. Similarly, most of the proposed cuts to agricultural programs by the National Commission of Audit, including the slashing of funding to the Farm Finance concessional loans scheme, abolishment of the Rural Financial Counselling Service (RFCS), and Export Market Development Grants did not materialise either.

The only recommendation by the Commission taken on board by the Government is the cessation of the National Water Commission, which is not expected to have any significant adverse impact on the sector, given that the Commission’s functions are presumably going to be taken over to a large extent by the Department of Environment or Productivity Commission.

The relatively minor changes to existing agricultural related programs possibly reflect the Government’s recognition of the continued vulnerabilities faced by certain farming communities due to ongoing drought conditions. However, the agricultural sector stands to lose indirectly from funding cuts to Cooperative Research Centres (CRC) Program and the CSIRO, even though there is now a stronger emphasis by the Government to link CRC and CSIRO research to outcomes that can be used by farmers. In addition, some benefits of the rebate will now be diluted by the resumption in fuel excise tax indexation to inflation, which is expected to raise the cost of petrol up to 3 cents a litre every year.

Perhaps the standout initiative for the agricultural sector has been the announcement of around $100 million new funding over four years to fund research in partnership with Rural Research and Development Corporations (RDC), constituting the delivery of the Government’s election promise.

There are also some smaller measures to support exporters and strengthen Australia’s biosecurity and quarantine arrangements etc, but there are very few additional initiatives targeted at the longer-term structural issues close to the heart of agricultural communities – especially cutting red tape and strategic infrastructure projects, which would make the sector more competitive.

That said, there will be some positive spillovers from the general infrastructure investments that the Government undertakes in metropolitan and regional areas alike, including improved highways, the extension of airport runways and better access to ports.

Key initiatives:

• $320 million Farm Finance package to alleviate debt pressures and provide targeted financial assistance to drought-affected farmers (up to $280 million for concessional loans to eligible farm businesses, $12 million in 2014-15 to install water related infrastructure; $10 million over two years to deal with the impact of pest animals in drought affected areas, contingent on equal contributions from states; and $10.7 million over two years from 2013 14 to enhance access to social and mental health services).
• $100 million to fund research in partnership with Rural Research and Development Corporations (RDCs).
• $8 million to improve access by farmers for minor use agricultural and veterinary chemicals.
• $20 million to strengthen Australia’s biosecurity and quarantine arrangements by providing additional resources to address pest and disease incursions.
• $15 million to support small exporters in sectors where there are specific export certification registration charges, by providing a rebate of 50 percent of their export certification registration costs in 2013-14, up to a maximum of $5,000. From 2015 16, funding will be provided for projects that directly benefit small exporters, particularly projects to improve market access.
• $9 million to support a more competitive and sustainable fisheries sector.
• Savings of $483.8 million by merging Caring for our Country and Landcare.
• $80 million reduction in Cooperative Research Centres (CRC) Program.
• $146.8 million funding cuts to CSIRO which will cost around 500 jobs.
•  $11 million reduced annual appropriation funding to the Rural Industries Research and Development Corporation (RIRDC).
• 6.6 million savings from the cessation of National Water Commission.
• The reintroduction of a fuel levy surcharge will take place on 1 August 2014, which will be indexed to inflation every six months. Every dollar raised will be linked by law to help fund more than $80 billion in new roads. The indexation of fuel excise would likely increase costs for SMEs, some of which would be less likely to absorb or pass these costs compared to their larger counterparts.

Industry comment:

The National Farmers’ Federation (NFF) acknowledged that in a tough Budget environment, the Government largely delivered on its election commitments to the agriculture sector. The NFF had fought hard to ensure the rebate to farmers for fuel used off-road was in line with excise rises.

NFF President, Mr Brent Finlay, said; “The NFF welcomes the Government’s commitment to developing key infrastructure projects in regional Australia. Given that the money for infrastructure is resulting from a rise in the fuel excise, it’s important that this is directed to projects that are most needed and that regional Australia benefits. If the funding is raised in the bush, it needs to stay in the bush via a transparent process.”

The NFF also acknowledged the confirmation of the Government’s $100 million election commitment to agriculture-specific research and development over the next four years. “The benefits from agricultural research and development to the Australian community are enormous. We are, however, disappointed to see major cuts to the Cooperative Research Centre Programme and the Rural Industries Research and Development Corporation,” Mr Finlay said.

The NFF was also disappointed that the Environmental Stewardship Programme and National Water Commission were abolished.

Our economists’ view

• Alan Oster, Group Chief Economist, NAB – Overview
  

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