Tuesday, October 4, 2022

Subsidising fertiliser is not smart

Recent stories

Some older farmers will remember the Australian superphosphate bounty of $12/tonne that was on offer between 1964 to 1974. 

Some might have even been at this Perth rally when farmers roughed up Gough Whitlam after he said he was pulling the plug on the bounty.

Gough Whitlam in crowd

The end result of that decision was the price of super jumped from $30 to $42 a tonne overnight, a move not welcomed by the states 3,000 new land farmers.

Still the industry survived, going from growing 2.4m tonnes in 1973 when we had 12,000 grain growers to 24m tonnes through the efforts of just 2500 growers.

While it was tough on farmers, it was the right decision for the time, in fact more hard policy decisions should have been made to cut tariffs and industry support right across Australia to put an end to the endless drip of governments attempting to pick winners or prop up failing industries (including the unions).

At the time everyone seemed to be on the drip, the grain industry, the car industry, the farm machinery manufacturers, state shipping, the railways even the boot making industry. 

While farmers were benefiting from a $12 tonne bounty, they were paying for it in higher prices for their machinery and boots through far higher taxes and death duties.

It was like robbing Peter to pay Paul only to then rob Paul to pay off the Peters union who then robbed Paul the employer while the taxman robbed both Peter and Paul to pay subsidies to Paul and Peter.

It’s a zero-sum game for farmers, far better no one robs anyone, there are no subsidies and we keep taxes to a minimum. This mad system was strongly supported by the Federal Nationals Leader Jack McEwen (1949-71) who held sway over the agriculture and trade portfolios as deputy Prime Minister.

But when Whitlam came along he owed the famers nothing, so the superphosphate bounty was one of the first of the agricultural market distortions to go with the last being the single desk 40 years later.

The history of government protection of agriculture goes back to the depression years when  quotas, subsidies and bounties were put in place to cut production, policies that were reversed to boost production during the war years and then reversed again post war to try and prop up farmers.

The charge against government intervention in the market was led by the respected farmer politician the Hon Bert Kelly who throughout the 60s and 70s wrote a monthly article in the Financial Review called The Modest Farmer.

Burt made the case that government subsidies simply encouraged the unions to join the feeding frenzy in the abattoirs, the rail yards and the wharfs by also demanding special treatment.

In the end it took two Labor governments, Whitlam and Hawke/Keating, to clean up the mess.

The same thing needs to happen today in countries like India, China, Indonesia, Pakistan, Nigeria, and Bangladesh as they are where we were 50 years ago, paying out fertiliser subsidies to their farmers, distorting the market and costing their taxpayers heavily.

Last year Indonesia spent 18% of their government budget on fertiliser subsidies to prop up 33 million farmers, while in India 50kg a bag DAP is sold for ₹1,350 (A$25) kept down by a subsidy of ₹2,501 (A$45). 

Multiply that 50kg  by 20 to make a tonne and you get an Indian farmer paying just $496/tonne for their urea while the government is forking out $900/tonne, a $25 billion cost to their treasury.  It’s another version of the American and European subsidy system that distorts world trade, while costing taxpayers and consumers.

No doubt the Indians don’t need 100 million angry farmers marching on Delhi, but equally subsidising fertiliser is actually holding back their total farm production as it is encouraging too many small inefficient farmers to remain on the land.

Not that we need India to produce any more grain as it is a highly fertile country producing 110m tonnes of wheat a year.

While the argument for subsidising fertiliser is often based on food security it is well proven that larger more professional farms produce more surplus produce.

The good farmers need the small and the poor operators to sell up so they can expand and access more efficient farming systems.

Any reading of an economic textbook (not the ones the organic / renewable industry read), will show that farming subsidies end up pushing up the price of food.

But industries and lobby groups still love a good subsidy if they can get one.

Just look at Twiggy’s green hydrogen that’s been at play in his putting his hand out to access the mining industries fuel excise funds.  If green hydrogen can’t stand on its own feet, it should not be developed.

The brutal reality is that if the globe wants to maximise food production and food security then they need to unshackle farmers from the government drip and open up the world to more free trade.

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