What's wrong with rural Australia

Whether one looks at protectionist policies of Europe and America or the free-market approach of Australia, rural sectors are in decline in mature economies. Orthodox economic theory appears unable to provide an analytical framework that can explain this phenomenon in the real world of mature growing economies.

For almost three decades Australia has pursued ad hoc rural policy underwritten by market economic theory advocating increased efficiency, rising productivity, and free international trade. The legacy of this policy approach is a battered and debilitated rural sector characterised by industry crises, volatile commodity prices, inadequate farm incomes, declining services, rising levels of poverty, suicide rates of international significance and population relocation.

To throw some light on how rural Australia has arrived at this sorry situation, we should eschew the rhetoric and do a reality check by shining the statistical spotlight on farm incomes; tracing rural policy development since the 1980s and examining an alternative analytical framework while recognising the reality of political economics. We might then be in a position to say what needs to be done for regional development.

Farm Incomes

The current improvement in cattle and wool prices is being heralded by the metropolitan media as evidence of a booming rural sector and the success of free-market policies. Analysis of purchasing power discloses that in terms of national income distribution, rural Australia is not booming. Indeed, real income of broadacre agriculture has markedly declined over time.

If one examines rural industry terms of trade (using figures from ABARE), the real net value of farm production and the consumer price index over the period from 1978 to 2001, it becomes obvious that farmers' terms of trade have declined markedly while prices in the wider community have risen i.e. prices for farm production have risen more slowly than prices measured by the CPI.

Looking at the relationship between costs, production, debt and nominal farm income for the same period, it can be deduced that costs drive production that is debt financed. Also demonstrated is that policy directed to increasing efficiency and rising productivity has made little difference to the value of farm income that remains in farm hands. The increasing divergence between gross value of farm production (GVFP) and net value of farm production (NVFP) confirms the rising proportion of farm production that is being redistributed to the wider community. In other words, policy directed to rising efficiency and increased productivity has not improved the relationship between GVFP and NVFP.

The policy response under market economics has been to reduce the number of farmers. This way NVFP is shared among fewer and fewer farmers. Mathematically, average farm income should rise. An alternative interpretation is that the increasing divergence between GVFP and NVFP represents discretionary policy redistributing income from the farm sector to underwrite incomes and living standards in the wider community.

Rural Policy

In 1994 Jonathan P. Sher and Katrina Rowe Sher published a paper in the Journal of Research in Rural Education. It was based upon work they had been commissioned to undertake for the Australian DPIE and was not so much an economic analysis as a narrative outlining their findings and conclusions drawn from wide international experience.

Sher and Sher had been asked to prepare a paper outlining a strategy for rural development based upon rural education and entrepreneurship. When they began to review existing Australian literature on the subject, they were astounded to find that very little was available. They found detailed material on specific rural places, rural groups and individual industries but they could not source a single convincing contribution that addressed the reality of life beyond cities and suburbs. They came to the conclusion that in 1993 for Australia, there existed no rural development strategy at all.

They changed their original task from rural education and entrepreneurship to one of writing a program for rural development. They used their experiences from OECD work and observations of applied empowerment strategies to compile their contribution to Australian rural development policy.

What is clear from their paper is that the Australian agro-political movement and major political parties enthusiastically embraced market theory from the early 1980s without a substantive rural development plan or understanding of likely outcomes. It appears ideology was the driving force.

According to Sher and Sher, empowerment should not be understood as a policy option in which government has no role. Empowerment of communities is based upon some central concepts - all involved parties agree on some important fundamentals and an operational strategy; each stakeholder must be empowered to contribute specific skills and the activity must be appropriately funded. It would be necessary for government to develop empowerment-promoting policies and accept a role as a partner in rural development.