Australian food sector has winners and losers in the Federal Budget

Posted by AFN Staff Writers on 14th May 2014

The Australian food industry has mostly welcomed the Budget announcement, with the agribusiness sector largely spared the “fall of the axe” of austerity measures in the Budget, announced last night.

The food and agriculture sector has made only modest gains on balance, according to the National Australia Bank (NAB). Opinions on the budget and its impact on the food industry were mixed, as shown by the news expressed by spokespersons for the Australian Food and Grocery Council (AFGC), the National Farmers’ Federation (NFF), the NAB and health research experts referred to in this article.

Key initiatives of the Budget:

  • $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 per cent 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 Co-operative 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.

AFGC says Budget will stimulate growth and confidence

Food and beverage manufacturers’ representative body the Australian Food and Grocery Council (AFGC) said the forecast deficit of $49.9bn this financial year with an expected underperforming economy for the next few years underlined “the enormous economic challenge that the Government is trying to rectify”.

AFGC CEO Gary Dawson noted the magnitude of the Government’s task in instilling budget discipline to return a surplus without harming consumer confidence while also stimulating growth.

“Massive budget deficits create a climate of uncertainty for business which undermines confidence and investment, essential to underpin jobs and growth,” Mr Dawson said. “This budget’s concerted effort to rein in spending and streamline services sends positive signals to business of the Government’s fiscally responsible approach to public finances,” he said.

The AFGC said the $11.6 billion Infrastructure Growth Package would be a “significant boost” in stimulating growth and confidence food and grocery and agribusiness sectors.

“For the food and grocery and agri-food sectors, which are spread across the length and breadth of the continent, this massive boost in infrastructure planning and delivery is essential in developing supply chain solutions that create world leading, efficient channels to market,” Mr Dawson said.

Mr Dawson said that the curtailing of business assistance programs and R&D tax concessions was “consistent with the principle of sharing the deficit reduction burden”, but that tax increases in the budget may have a dampening effect on consumer spending, which will flow through quickly to the consumer goods sector.

“The impact of tough budget measures on the $111 billion food, beverage and grocery manufacturing sector can be ameliorated through a concerted attack on its high cost base through regulatory and energy market reform,” Mr Dawson said. “Government can off-set the impact of a debt levy and fuel excise indexation on confidence and demand, by aggressively targeting existing and imminent cost challenges that are in the form of excessive regulations,” he said.

“Getting costs down to improve competitiveness is urgent, and regulatory costs and energy costs are two areas where we seem to have a great capacity for self-inflicted damage,” he said.

“This Government has clearly staked its reputation on getting the settings right to kickstart growth and investment to drive productivity and competitiveness gains,” Mr Dawson concluded.

NAB commentary

The National Australia Bank (NAB) report on the Budget said some of the expected funding cuts did not occur. For example, the speculated cut in diesel fuel tax rebate did not occur, and the $320 million financial assistance package for drought-affected farmers announced earlier in 2014 was 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 happen.

The only recommendation by the Commission taken on board by the Government was the cessation of the National Water Commission. This is unlikely to have significant adverse impact on the agribusiness sector according to NAB, given that the Commission’s functions are likely to be taken over to a large extent by the Department of Environment or Productivity Commission.

The NAB said the relatively minor changes to existing agricultural related programs possibly reflected “the Government’s recognition of the continued vulnerabilities faced by certain farming communities due to ongoing drought conditions”.

However, the NAB said the agricultural sector stands to lose indirectly from funding cuts to Co-operative Research Centres (CRC) Program and the CSIRO, despite 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.

According to the NAB, 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.

However, the NAB said there would 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.

Government “largely delivered” on election commitments, NFF

Meanwhile the National Farmers’ Federation (NFF) said it acknowledged a “tough budget environment”, but claimed the Coalition Government had “largely delivered” on its election commitments to the agriculture sector.

NFF President, Mr Brent Finlay, said that measures announced in the Budget included increases in funding to critical infrastructure projects, commitments to retain the fuel rebate for farmers and stop the water buybacks and ongoing support for the rural research and development corporation model.

“The NFF welcomes the Government’s commitment to developing key infrastructure projects in regional Australia,” Mr Finlay said. “Given that the money for infrastructure is resulting from a rise in the fuel excise, it is 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,” he said.

“In the lead up to the Budget, we fought hard to ensure the rebate to farmers for fuel used off road is in line with excise rises,” Mr Finlay said. “The Government has listened and responded to industry concerns,” he said.

The NFF said it was pleased to see that the Government had formalised its commitment to implement the Murray Darling Basin Plan by investing in water savings and capping Commonwealth water buybacks to 1,500-gigalitres.

“The NFF acknowledges the confirmation of the Government’s $100 million election commitment to agriculture specific research and development over the next four years,” Mr Finlay said.

“The benefits from agricultural research and development to the Australian community are enormous,” Mr Finlay said. “We are, however, disappointed to see major cuts to the Co-operative Research Centre Programme, and the Rural Industries Research and Development Corporation,” he said.

The NFF also said that cuts to, and realignment of, the National Landcare Programme would “limit the ability of farmers to achieve the natural resource goals and expectations of the broader community”. The NFF also expressed disappointment in the abolishment of the Environmental Stewardship Programme and the National Water Commission.

Mixed response to health funding cuts and new medical research fund

Key changes affecting the health sector include the abolition of the Australian National Preventative Health Agency, whilst establishing a new $20 billion Medical Research Future Fund to provide additional funding for medical research in Australia. However it is not all good news for science, with the Australian Research Council set to see funding reduced by $74.9 million over three years. The Budget cuts also include the Defence Science and Technology Organisation (DSTO) ($120 million), Australian Nuclear Science and Technology Organisation (ANSTO) ($27.6 million), and Australian Institute of Marine Science (AIMS) ($7.8 million).

President of the Association of Australian Medical Research Institutes (AAMRI) Professor Brendan Crabb said that in an “obviously tough economic climate”, having medical research as a centrepiece in the budget showed the importance of medical research.

“Creation of this $20 billion fund into perpetuity is amongst the most significant initiatives in the history of medical research in Australia,” Professor Crabb said.

“This will provide the stability needed to encourage our best and brightest to go into medical research,” Professor Crabb said. “Billions of taxpayers’ dollars are spent each year dealing with diseases like diabetes, Alzheimer’s, cardiovascular disease and cancer. The announcement will help medical researchers to reduce the burden of disease on the Australian community, and to make our health system more efficient,” he said.

However, some commentators said many of the Budget cuts would result in an increasing burden on the health system over time.

“Many of the funding cuts appear to be short sighted approaches that do not recognise the health and economic costs associated with the growing burden of chronic disease,” said Michael Moore, CEO of the Public Health Association of Australia.

“Almost $8.6 billion will be cut from the Health Budget over 4 years,” Mr Moore said. “It has long been said that prevention is better than cure – certainly prevention is cheaper than treatment – and its false economy to cut preventive health funding to achieve short term savings,” he said.

“As it stands, only about 2 per cent of the health budget is spent on prevention – if the Government wants to reduce pressure on the health budget over time, they should actually be looking to increase that figure,” Mr Moore said. “Instead, expenditure on prevention is reduced dramatically,” he said.