Farmers facing drought & climate change

A lot of my research efforts over the past year or so have been devoted to thinking about the implications of climate change for managing biodiversity. In part this reflects my ‘greenie’ orientation which I think is consistent with my general conservative political philosophy.

Gradually however I have come to see conservation issues as part of a broader range of economic management problems including water resource management issues and agriculture as key auxiliary problems.

I posted here on climate change and biodiversity – a paper eventually published in revised form in Agenda (preprint here), here on agriculture business opportunities from climate change, here on joint agricultural and biodiversity management issues in relation to climate change – this resulted in this academic paper which is as yet unpublished, here on a remarkable paper by Terry Hillman on water resource management (not necessarily related to the issues of providing environmental flows) in the Murray-Darling to protect the environment, here on the proposed cap and trade scheme, here on the nexus between food supply, energy and climate change issues and most recently here and here on the water buyback policies.

I was pleased this evening to see a Four Corners show on the human dimensions of climate change and drought for six families in mallee country in north-western Victoria. It is all too easy for unthinking economists to treat struggling farmers much as they treat the unemployed as an inevitable ‘problem’ that inevitably arises as a consequence of economic and environmental changes. I hope I don’t ever come to even indirectly do this.

The picture was of a group of fairly optimistic farmers – perhaps overly optimistic - who have faced an 11 year drought and borrowed increasingly using their property as security in the hope that next year will be a good season. This optimism is often sustained by rejecting the hypothesis of climate change – the presumption is that the current drought will end and things will return to normal. One argument against this view is that the current drought is hotter than previous long droughts.

There is also a picture of experimentation and adaptation in response to climate change – new crop varieties being trialled, new land use technologies (‘farming systems’) employed and so on. The presumption is that it is the flexible well-managed properties that will do well.

The Commonwealth government is subsidising half the interest costs faced by farmers in difficulty – a policy widely disliked among economists on ‘moral hazard’ grounds – it encourages poor performers to hold on. Surprisingly to me there were strong divisions within farming communities over exactly this issue.

Also interesting to me is the fact that certain supply effects – for example increases in grain prices globally – are inducing farmers to ’hang on’. There is also a possibly related move of large corporations into the farming sector. These corporations can diversify their land holdings across different regions to smooth their cash flows – and in the case of livestock truck animals away from drought affected areas. These avenues are not so easily open to family farms suggesting one rationale for the increasing corporatisation of this sector (I posted on one such Australian company in the past).

My overriding impression from this show is that the optimism of some of the farmers seemed misplaced. Many too seemed very happy to depend on public handouts to keep them operating even though their businesses seemed at best marginally viable. Hanging on too long deletes a farmer’s equity in his or her property and carries a longer-term penalty. I strongly agree with Dr. Brian Fisher (who appeared on the show) that the decision to exit an agricultural business should be left to the market.

I'd be interested to hear from readers - particularly those with connections to rural Australia - whether I have caught the flavor of rural issues accurately or not in the remarks above.