Rural Debt, NVFP,& Share Market Capitalisation

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 B Rs Rcostruct or Ratoaz Agrcutur? B Rs; B. Eco.; M. Ltt. (co.) Papr prstd: Agrcutur Crss - Ratoas or Rcostruct Mutadg Farmg Aac Rgoa Commuty Ctr Mrrd, Wstr Austraa Apr 15 th 213 Abstract S h a r M a r k t $ m o 18 16 14 12 1 8 6 4 2 Rura Dbt, NVFP,& Shar Markt Captasato 7 6 5 4 3 2 1 $ M o R u r a D b t N V F P Shar Prcs Markt Captasato $m Rura Dbt $m Nt Vau Farm Pr.$m Th currt rura crss s a trchd probm of og trm pocy faur. At th farm v t s charactrsd by ow farm com ad hstorcay hgh vs of dbt. Tradtoay, th ow farm com probm was assocatd wth sma sca farmg. Suppy sd coomc structura rforms post 1983 has trasformd th tradtoa ow com probm from sma sca farmg to o that ow thrats arg ffct farmrs, thr commuts, ad rgos across Austraa. Ldg practcs of faca sttutos drguatd faca markts has cotrbutd substatay to th currt crss. Dbt to quty dg was dtfd as a probm th 1994 Sat Rgoa ad Rura Affars ad Trasport Commtt Rport o Rura Adjustmt, Rura Dbt, ad Rura Rcostructo. Ths ssu was vr addrssd wth a pocy framwork. Th farm sctor s ow payg th prc of, at bst, pocy gct, or at worst, comptc o th part of major potca parts, thr advsors, ad pak rura bods. For thr dcads, rura Austraa has b rcostructd, adjustd, ad ow ratoasd. Markt powr has b rdstrbutd from th farm sctor to hghy coctratd put ad output markts. Ratoasato at th farm v caot addrss thr dcads of fad pocy. A w pocy drcto must b foud whch rcogss that rdstrbuto of markt powr away from th rura sctor actuay compoudd th prvasv forc of Eg s Law workg th backgroud matur cooms. Hopfuy, ths papr ca cotrbut to udrstadg th faur of pocy ad courag xporato of pocs to rbud a prosprous rura Austraa. I ths procss farmrs must rcogs thr ro s to rjct ratoasato; ad, fght for a w drcto. Pag 1 of 25

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 1 Probm Dfd: Pocy Faur B Rs Rcostruct or Ratoaz Austraa Agrcutur? B Rs ; B.Eco.; M. Ltt. (co.) Th pac of adjustmt agrcutur must cotu ad accrat, to uwd th dbt bud up of th 198 s ad factat adjustmt of farm sz Nw Horzos A Stratgy for Austraa s Agrfood Idustrs Natoa Farmrs Fdrato 1993 $ m o 7 6 5 4 3 2 1 Chart 1 Rura Dbt & NVFP Rura Dbt $m RBA D9 Nt Vau Farm Pr.$m Compd from: NVFP, ABARE 212, Commodty Statstcs, Rura Dbt, RBA o, Tab D9 Impct th Natoa Farmrs Fdrato (NFF) quotato s ratoasato of agrcutur to maag th dbt bud up of th 198 s. I 198, dbt to Gross Vau Farm Producto (GVFP) was 32%. By 199, th pocy objctv had ot b achvd as dbt to GVFP had rachd 51%. Dbt to GVFP pakd at 156% 21 bfor fag margay to 135.4% 212. By ay commo ss masur, offca pocy drcto ucatd by th pak agrcutura potca rprstatv body 1993 had fad. I smp trms, ths statstcs prstd graphcay cofrm sgfcat agrcutura pocy faur. Chart 1 prsts th probm from th prspctv of a adquat growth farm com. Nt Vau of Farm Producto (NVFP) s assumd a gra approxmato of bfor tax farm com. No dbt amortzato s cudd th NVFP curv. Ay NVFP curv that cudd a amortzato program woud b substatay owr o th Y axs partcuary post 1993. As ths curvs ar basd upo atoa data pubshd ABARE Commodty Statstcs 212, mprcay w ar ookg at a atoa ovrvw of agrcutura pocy faur. Thr w b dffrt xprcs across th varous stats, rgos, ad dustrs. Ths papr shoud b rad wth ths quafcato md. Structura rform pocy provds part of a xpaato that has udrwrtt agrcutur pocy faur post 1983. Ldg practcs of faca sttutos bcoms a scod tr to th probm. Faca bhavour s xpord aothr scto of ths papr. Howvr, th bhavour of th curvs Chart 1 s udab. NVFP bascay fat s whst farm dbt scaats aarmgy post 198. Dbt amortsato was vr a rasoab xpctato gv a fat g NVFP curv. Ihrt th bhavour of ths curvs ar costrats upo farm vabty, productvty, ad proftabty. dbt s a symptom rathr tha th caus of mor fudamta ad dp satd probms rura Austraa Impcty th, th shap of th dbt curv ratv to NVFP suggsts ovr tm chagg dg practcs of rura faca houss. I ght of a fat g NVFP curv, mrgg dg practcs dcatd by th rapdy rsg dbt curv had to b usustaab ovr th og trm. It was vr a Pag 2 of 25

B Rs qusto of woud th farm sctor bcom ovrburdd by dbt; but, wh woud ths occur. It took th Goba Faca Crss (GFC) to fay urav usoud dg practcs of rura drs dtfd ths graphca aayss of dbt to NVFP. So th ra qustos to b aswrd ot at th farm gat; but, at th structur ad drcto of atoa agrcutura pocy; ad, dg practcs of faca sttutos. Structura rform of agrcutur udr orthodox coomc pocy drcto has b supportd by a major potca parts, mda xprts, agro-potcas, ad som acadmcs. Acadmcs supportg prvag orthodox coomc pocy drcto must ow v wth th raty that thy ot oy fad to udrstad th ra word mpact of thos pocs; but aso, hav t dow th farm sctor. Sady, farmrs that pursud th prcvd wsdom of atoa pocy makrs ad thr advsors ar ow payg th utmat paty for that foy: sovcy. Accordg to th NFF 1993, rura adjustmt was dsgd to ovrcom th dbt bud up of th 198 s. Rura adjustmt as xpad Nw Horzos was about farm bud up whch vtaby mat som farmrs bcam coatra costs of pocy as thy xtd prmary producto. Ext of farmrs was ratoasd as bg causd by a umbr of factors cudg: usustaab vs of dbt, poor productvty or sca of opratos. Howvr, thr was a ht of a udrstadg that som sort of prvasv coomc forc was drvg th d for structura adjustmt agrcutur. So og as growth of farm productvty xcds th growth of dmad for food, th gratr th cras farm productvty, th gratr th mbaac btw th suppy ad dmad for farm products--- ca oy rsut a outfow of abour from farmg or owr product prcs, or a combato of ths ffcts Ths rathr vagu rcogto that thr xstd som hrt coomc forc that appard to fuc th suppy ad dmad for agrcutura output s a xtraordary admsso of just how tt forma coomc kowdg udrwrot agrcutura pocy. What was dscrbd as som prvasv forc was th oprato of Eg s Law a modr growg coomy. Ths Law has b rcogsd as a mmutab ratoshp btw rsg coms ad th dmad for food growg cooms sc 1856. Yt 1993, our atoa agro-potca body coud oy dscrb t vaguy as som prvasv coomc forc. Wth ths v of coomc udrstadg cotrbutg to pocy dvopmt, t s o wodr rura Austraa s a stat of crss drcty attrbutab to pocy faur. A pocy drcto of adjustmt/ratoazato to coutr Eg s Law was aways a fut pocy drcto. Agrcutura pocy had to fa bcaus thkg at th hghst v of pocy formuato was cofusd ad uformd. O th o had, thr mpct accptac of Say s Law of Markts gdrd a bf that rsg productvty ad structura adjustmt coud sov th rura probm. O th othr had, thy rcogsd that rsg productvty ca ad to suppy ad dmad mbaac. Nvrthss, fath rura adjustmt rmad uswrvg ad shoud aways b s as o that s drctd at mprovg th productvty ad compttvss of th agrcutura dustry v. My dscusso today w bud upo th papr prstd at Brsba Rura Fac Roud Tab Cofrc, Octobr 17 th, 212. At that Cofrc, a srous rfutato of prvag agrcutura pocy drcto ad ts udryg coomc phosophy was prstd Rura Austraa: Crss 212. I that papr thr s a dscusso o th cofct btw Say s Law of Markts ad Eg s Law. I ssc, fr trad, markt brazato, ad abour markt rform bcam th doogca atr for th hgh prsts of suppy sd coomcs brought to Austraa post 1983 by th Hawk Admstrato. Agrcutur bcam th sacrfca amb offrd to appas th gods of at ghtth ad ary tth ctury coomc thorsts. Th rsut thr dcads atr s wdsprad atoa dsocato rura dustrs, rgos, commuts ad farm fams. 2 Producto & Dbt Th dowward trd ra commodty prcs d ot of tsf produc a oss of atoa com or a dc th proftabty of commodty producrs f th dc th ra commodty or maufacturs prc s th rsut of hghr productvty v Batg th commodty prc cyc NFF, 1995 Pag 3 of 25

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 B Rs Rura adjustmt shoud aways b s as o that s drctd at mprovg th productvty ad compttvss of th agrcutura dustry v Ths two quotatos from sparat NFF pubcatos show th uswrvg fath dfatg th ukow prvasv forc through productvty ad compttvss. Such commtmt to a sg pocy drcto carrs a th hamarks of a rgous frvour. 7 6 5 4 3 2 1 Chart 2 GVFP, NVFP & Dbt GVFP $m Rura Dbt $m RBA D9 Nt Vau Farm Pr.$m Compd from: NVFP, ABARE 212, Commodty Statstcs, Rura Dbt, RBA o, Tab D9 Chart 2 cofrms that th pocy of productvty ad compttvss agrcutura dustry has b purchasd through crasg vs of farm dbt post 1983. By 23, agrcutur had bcom Austraa s Euro zo dbt cot cas. Nvrthss, pocy makrs rmad uchastd dspt growg mprca vdc of pocy faur. Potca parts, acadmc advsors, ad pak agopotca movmts cotud thr doogca drv for ffccy productvty ad compttvss. Ths o-farm groups rtssy pursud thr suppy sd coomc structura rform of agrcutur fag to rcogs umstakab vdc of pdg pocy coaps. Farmrs ad rura commuts bcam th coatra carag of fad suppy sd coomc doogy. If ayo qustod th drcto of pocy, thy wr thr gord or dsmssd wth sogas supportg th mrts of fr trad, productvty ad tratoa compttvss. I othr words, thos who coud s what was happg at th farm gat, commuty ad rgoa v wr cosdrd as tt mor tha -formd usacs. Cosquty, for th frst tm sc th Grat Dprsso, aras of Wstr Austraa ar ookg at ot patg a crop. I othr stats, dffrt dustrs ar xprcg svr dsocato. A offca raty chck o th pocy drcto of productvty, compttvss ad ratoazato s og ovrdu. Th dfto of productvty usd as th rfug of pocy makrs, thr advsors, ad pak agrcutura bods s Tota Factor Productvty. Tota Factor Productvty s tsf a qustoab cocpt. It s udrwrtt by a 192 s ocassca growth mod kow as a Cobb-Dougas or a Cobb Dougas typ producto fucto. Th mod assums growth s drvd from popuato crass ad tchoogca chag; ad, assums costat rturs to sca. Offca pocy th s drctd cofdty towards couragg ad assstg rsarch ad dvopmt to sur cotud growth ad prosprty agrcutur. As th growth mod assums costat rturs to sca, f puts ar doubd, output doubs. Ihrt th Cobb-Dougas typ producto fucto s Say s Law of Markts.. suppy crats dmad. So gv suppy crats dmad, ad costat rturs to sca, productvty ad compttvss bcom th oy mportat barrrs to a proftab agrcutura sctor. Th ra word dffcuty for pocy basd upo Say Law of Markts s Eg s Law. Kys had ths to say about Say s Law of Markts or suppy crats dmad: th cocuso that costs of output ar aways covrd aggrgat by th sa procds---- has grat pausbty, but, s cofusd wth aothr, dubtab smar ookg proposto that th com drvd aggrgat by a th mts th commuty cocrd a productv capacty has a vau xacty qua to th vau of th output v Pag 4 of 25

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 B Rs Kys maks car that th faw th thory that suppy crats dmad s that th markt vau of fa output d ot qua cost of producto. Cosquty, mpcty assumg Say s Law of Markts udrwrts Tota Factor Productvty maks t a cofusd growth mod th ra word. Th NVFP curv chags th smpstc bf productvty ad compttvss. Th fat g of th NVFP curv dcats that growth GVFP fows to th o-farm sctor. I othr words farm gat prcs hav ot rs suffcty to ab a adquat rsdu to sur a proftab farm sctor. Emprcay, Chart 3 cofrms a srous rdstrbuto of farm com to th wdr commuty. $ m o 6 5 4 3 2 1-1 Chart 3 Rdstrbuto GVFP Nt Vau Farm Pr.$m GVFP $m Lar (Nt Vau Farm Pr.$m) Lar ( GVFP $m) Compd from: NVFP, ABARE 212, Commodty Statstcs Rdstrbuto of com away from agrcutur s ffctd by th ratoshp btw prcs pad ad prcs rcvd. Thr ar two factors at work com rdstrbuto: fato ad markt powr put ad output markts. As prcs rs, fato rdstrbuts from th coomcay wak to th coomcay strog. Moopoy powr xrcsd put ad output markts aso rdstrbuts farm com away from producrs. Chart 4 tracs out th ra word strugg btw farm sctor put prc ad output prc. Prcs rcvd ad prcs pad chagd thr ratoshp from 1989 owards. Ths s cosstt th Katg mov agast dustry trvto th 1988 Budgt; ad, ogog structura rform Hawk s 1991 Idustry statmt. Th xt pot of trst s 1996 wh prcs rcvd movd bow prcs pad. Excpt for a brf momt 22, thy rmad bow prcs pad. Chart 4 I d x v a u 18 16 14 12 1 8 6 4 2 Idcs Prcs Pad & Prcs Rcvd Prcs Rcvd Lar (Prcs Rcvd) Prcs Pad Lar (Prcs Pad) Pag 5 of 25

B Rs Compd from: NVFP, ABARE 212, Commodty Statstcs Major dcsos wth srous cost ramfcatos for agrcutur wr tak ovr 1995 ad 1997. Athough th d Austraa dd ot ratfy th Kyoto Agrmt, t dd achv th grhous gas commtmt agrd to at Kyoto. By gotatg a aboto of ad carg at Stat v, th Commowath Govrmt mt th agrd Kyoto targt. Evromta pocy has had a gatv mpact upo productvty growth by mtg factor broadg ad factor dpg at th farm v. I othr words, udrdvopd ad coud b thr adquaty mprovd for grazg or card for tsv croppg. I Octobr 1992, Katg stabshd a atoa Comptto Pocy Rvw. Th Rvw was hadd dow August 1993 ad bcam commoy rfrrd to as th Hmr Rport. Btw 1995 ad 25, th fdgs of Hmr wr mpmtd. O cto to offc 1995, th Howard Govrmt mpmtd th ma body of th Rport. Th dowtur prcs rcvd curv 1995; ad, th vtua cross-ovr of th two prc curvs 1997 mght w b cocdta; but, t s mor probab th bhavour of th two curvs was fucd by major pocy dcsos tak durg th md 199 s. Effcts of ths two major pocy dcsos woud hav dffrt mpacts upo th rura sctor. Comptto pocy woud rduc markt powr of th farm sctor thrby wakg thr bargag posto both put ad output markts. At th sam tm, th Trad Practcs Act was ot strgthd to brak up or rduc moopoy powr agrcutura put ad output markts. Ths faur to addrss th markt powr dffrta agrcutura put ad output markts has had srous cosqucs for sctora vabty. Th dary dustry s a w kow xamp of cofct btw hghy coctratd owrshp ad cotro of th rta sctor ad agrcutur. I othr words wth a crasg trd of coctrato put ad output markts, th rmova of ordry markt arragmts major rura dustrs dos ot pass th mora tst coomc pocy: cofct btw sf trst ad soca trst. Th Rport of th Sat Rura ad Rgoa Affars ad Trasport Commtt had ths to say about comptto pocy ad th dary dustry v : thr has ot b a thorough vstgato of th atoa cosqucs of drguato wth Stat rvws bg udrtak pcma ad assssmt of th pubc trst rvws has b ss tha comprhsv ad appars to favour arrow sctoa trst It s rasoab to assum that ths crtcsm of dary dustry atoa comptto pocy assssmt carrd mpcatos for assssmts of comptto pocy othr major rura dustrs. Pag 6 of 25

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 I d x v a u 18 16 14 12 1 8 6 4 2 B Rs Chart 5 Farm Prcs ad CPI CPI (97/98=1 Prcs Pad Prcs Rcvd Compd from: NVFP, ABARE 212, Commodty Statstcs Chart 5 rfcts th mpact of fato o rdstrbuto of com away from th farm sctor. From 1996 owards, th CPI curv s rfctv of a trd through th prcs rcvd curv. From 1991 to 22, prcs pad curv foows th CPI curv suggstg prc of puts ros cosstty wth prcs th wdr commuty. From 22, th put curv rss abov th CPI. It ca b frrd that agrcutura suppr s xrcsd thr supror markt powr sttg farm sctor put prcs. From that pot owards both fato ad moopoy powr combd to th dtrmt to farm sctor proftabty. 5 4 Chart 6 Idcs: Trms of Trad & Ra NVFP 3 2 1 Trms Of Trad Lar (Trms Of Trad) Idx Ra NVFP Lar (Idx Ra NVFP) Compd from: NVFP, ABARE 212, Commodty Statstcs Th dowward trd ra commodty prcs d ot of tsf produc a oss of atoa com or a dc th proftabty of commodty producrs f th dc th ra commodty or maufacturs prc s th rsut of hghr productvty x Batg th commodty prc cyc NFF, 1995 Farm trms of trad cosodat to a dx: th rato of output prcs to put prcs. Cofrotd wth Chart 6, th NFF rstatmt of Say s Law trms of commodts bcoms othg mor tha mpty rhtorc. I 212, th Ra NVFP curv rvas a purchasg powr com qua to 198-81. Excpt for th brf mprovmt 22, Ra NVFP rmad bow 1981 vaus for two dcads. Facd wth rdstrbuto of com away from th rura sctor through fato ad ma-dstrbuto of Pag 7 of 25

B Rs markt powr, Chart 6 prsts a svr stback for th structura rformrs post 1983 ad thr pocy drcto of ffccy, productvty ad compttvss. Bd fath structura rform appars a uphmsm for a scorchd arth pocy. 3 Rura Dbt Itratoa Exprc Govrmt trvto rura dbt rcostructo ad dustry support has a og tratoa hstory. I th USA, rura faca assstac dats back to 1917 wth th stabshmt of farm oa agcs otaby Fdra ad baks ad Fdra Itrmdat crdt baks. Ths two agcs had compmtary fuctos of mortgag ssu ad provso of workg capta rspctvy. Thr ros bcam dspsb farm support programs durg th Grat Dprsso. Dsocato cratd by th Grat Dprsso, 1929-33, havd farm com wth a subsqut coaps ad vaus x.th US Govrmt actd to authors ad baks to d o orma farm vaus rathr tha dprssd markt vaus. Th US Govrmt aso stabshd a Fdra Farm Mortgag Corporato (FFMC) authorsg oas to b ssud to 75% of farm vau as opposd to a 5% mt by ad baks. Whr a farmr was dfaut to a prvat crdtor, Fdra farm oa agcs woud gotat a accptab sttmt abg a Lad bak to tak ovr th mortgag. Th crdtor rcvd FFMC bods guaratd by th US Govrmt xchag for th mortgag. I xchag for Govrmt bods, mortgags had thr fac vaus dscoutd. Ths systm s vry smar to Brady Bod s mpoyd haf a ctury atr durg th Lat Amrca dbt dfaut crss of th 198 s. Th systm appd at farm or tratoa v has a dmostratd rcord of succss. Austraa Exprc I Austraa, th Commowath Govrmt bga rura dbt rcostructo as far back as th grat dprsso. I 1935 a dbt rcostructo schm was stabshd x. For sugar, buttr ad what, Dprsso pocy taxd domstc us of ths products ad dstrbutd th rvu to farmrs x. I th 197 s, a rura rcostructo schm was mpmtd to chag th hstorc cosr sttmt pocy to a w drcto couragg ffccy ad productvty. Sc th, th orga rura rcostructo schm has b rvampd a umbr of tms. From 1977, mphass chagd from rura rcostructo to rura adjustmt. By 1992, rura adjustmt had shftd focus to mbrac productvty, proftabty ad sustaabty. Dspt ths varous pocy fforts to rstructur th farm sctor, by 1993 dbt had rachd 57.3% of GVFP. Ths v of dbt trggrd a Sat qury to Rura Adjustmt, Rura Dbt ad Rura Rcostructo. Th subsqut Rport was pubshd Dcmbr 1994. Th Rport had ths to say about rura dbt: Thr s tt doubt that foowg drguato 1983-84 th baks, pursut of markt shar th fac of hghtd comptto, mad oas basd o scurty vs offrd by xstg quty but wthout suffct rgard to th capacty of cts to rpay. Sat Iqury 1994 x Pag 8 of 25

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 $ m o 7 6 5 4 3 2 1 B Rs Chart 7 GVFP, Farm Costs, Dbt GVFP $m Farm Costs $m Rura Dbt $m RBA D9 Sourc; ABARE Agrcutura commodty statstcs 211, Austraa farm rturs, costs ad prcs, P. 14, Farm Dbt RBA Tab D9, Rura Dbt by Ldr, o From th shap of th curvs Chart 7, th fdgs of th Sat Rura ad Rgoa Affars ad Trasport Rfrcs Commtt woud appar as rvat to th 212 crss as thy wr 1994. Th curvs suggst that tt hd was pad to th Rport s srous crtcsm of rura dg practcs. Mor mportaty, pocy rspos to curb rrsposb dg was vr srousy cotmpatd. Th cavar dsrgard to farm capacty to srvc dbt by drs cotud uabatd. Not th stp cras th gradt of th dbt curv from 1999. Dbt to quty dg appars to hav bcom a strog drvr of busss th orgat to dstrbut bakg mod. Dbt to quty dg to fu asst fato was a dbrat pocy drcto word-wd to structur coomc rcovry from th 198 s-199 s tratoa rcsso/dprsso. Ctra baks smpy pumpd moy to cooms whst govrmts ffctd tra dvauatos through mcrocoomc rform to abour ad product markts. Idpdt ctra baks pursud fato targts th ra sctor such as wag ad prc crass; but, gord fato asst markts. Ths mat that qudty xcss to ra sctor actvty fowd to asst markts. Excss qudty fowd out through xtra accouts argy fudg mports. Motary pocy mpact s upo xtra accouts was gord udr th motary mod of baac of paymts thory whch ooks at xtra stabty by summg xtra accouts to show a zro baac. Currcy movmts wr supposd to corrct for ay mbaac o xtra accouts. Itrst Impost Th 1994 Sat Iqury had ths to say about th trst mpost cotrbuto to th dbt crss th cofrotg atoa rura pocy. Th vry hgh trst rats of th 198 s, payd a sgfcat ro th dvopmt of a dbt crss xv Chart 8 shows th 211 trst mpost compot of farm costs s hghr tha 199. Ths tm howvr, trst costs ar drv by dbt vs rathr tha th v of trst rats. Th smarts of th 1994 Rport fdgs o trst mpost hav rturd to haut pocy makrs 212. I th 199 s, t was thought comptto faca markts woud provd th rqurd souto. Emprca vdc suggsts that comptto bcam a pocy abty. Fac provdrs appar mor cocrd wth markt shar tha soud dg practcs. I ths rspct, rura drs bhavd o dffrty to faca sttutos th wdr commuty. Pocy rac upo comptto faca markts has ot dvrd og trm faca stabty to rura Austraa. Pag 9 of 25

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 B Rs P r c t 18 16 14 12 1 8 6 4 2 Chart 8 Itrst % Tota Cash Costs & GVFP Itrst %/Cash Costs Itrst/GSVP% Compd from ABARE Agrcutura commodty statstcs 211 major compots of Austraa farm costs & Austraa farm rturs, costs ad prcs Ovr ght yars, btw 1982 ad 199, th trst compot of farm costs ros 87.7%; or, 8.2% aua compoud. Ovr thr yars btw 25 ad 28, th trst costs compot ros 63%; or, 17.7% auay. By 211, th trst compot of farm costs had rs furthr to15.9%. Ovr sx yars, ths rprsts a absout cras of 72.8%, or 9.6% aua compoud, th most mportat of farm costs. Ths rat of cras woud b a dagrous scaato ay varab costs. Wh such scaato of a varab cost occurs as th hghst put cost, th th vabty of a trprs bcoms thratd. Thr smpy s ot tm to adjust maagmt stratgs to maag a cotuous cras th hghst varab cost wthout dsrupto to th producto procss. Th short trm racto bcoms o of pac ad that tsf courags poor dcso makg. Th probm bcoms compoudd wh farmrs prpar budgts for th xt producto prod. Facrs w ook towards cotamt of costs. Ths sms somwhat roc wh th major put cost causg maagmt dffcuty s o of th facr s ow makg. Facrs though w b ookg towards mtg th paramtrs of thr bakg mod whch has ts roots th at 197 s/ary 198 s. Hgh US trst rats ovr th at 197 s ad ary 198 s forcd baks to ook byod th tradtoa bakg mods for survva. A w mod vovd whch rvovd aroud offoadg asst portfoos through th procss of scurtsato. Ths w bakg mod dpdt upo scurtsato bcam kow as th Orgat to Dstrbut bakg mod. Orgat to Dstrbut Bakg ad Scurtsato Chart 9 S h a r M a r k t $ m o 18 16 14 12 1 8 6 4 2 Rura Dbt, NVFP,& Shar Markt Captasato 7 6 5 4 3 2 1 $ M o R u r a D b t N V F P Shar Prcs Markt Captasato $m Rura Dbt $m Nt Vau Farm Pr.$m Pag 1 of 25

B Rs Shar markt captasato from RBA Buts 1973-26 ad o, Farm Dbt RBA Tab D9, Rura Dbt by Ldr, o From Chart 9, th k btw asst fato ad rura dg ca b frrd. Rura dg rfcts strogy th wdr pctur of Austraa asst fato. Th chagd bakg mod, Orgat to Dstrbut, mad ths possb. Th Orgat to Dstrbut bakg phoma dvopd durg th prod of hgh trst rats udr Fdra Rsrv Charma Vokr ovr th at 197 s ad ary 198 s. Urguatd faca sttutos coud offr hghr markt trst rats compard to th rguatd bakg markt. Cosquty, rguatd tradtoa bakg sttutos foud t dffcut to compt for dposts wth mrgg urguatd moy markt sttutos. Thr rspos was to dvop th orgat to dstrbut mod Th combato of rguatd ad urguatd markts th faca systm vrtuay bakruptd th Savgs & Loa (S&L) sctor of th US faca systm. Th S&L coaps was cosdrd to hav trggrd th gratst coaps of US faca sttutos sc th 193 s xv. I 1989, th US taxpayr rstructurd th US faca systm wth a stmatd $64m jcto of fuds. Ths dcad of turmo trggrd by th Vokr prod of appd hard motarsm d to th dvopmt ad cosodato of th Orgat to Dstrbut bakg mod. Th Orgat to Dstrbut mod fuctos by trasfrrg th orga mortgag to a spca purpos vhc (SPV) whch th cassfs th mortgag to casss of asst poos. Th asst casss ar th ratd by rcogsd ratgs agcs. Scurts basd upo ths asst poos ar subsquty sod to capta markts. Th mod prstd svra advatags to th bakg sctor. Rac upo dposts for asst growth was cosdraby rducd whst capta adquacy ratos bcam ss of a burd. Th mrgc of o-prformg or toxc assts wth udryg poos of assts ovr 27-8 udrwrot th GFC ad th subsqut turmo tratoa faca markts. Chart 1 ustrats th rapdy xpadg growth of scurtsato Austraa. Rura dbt s ovrad from whch t s frrd a growg us of scurtsato rura dg. S c u r t s a t o V h c s 3 25 2 15 1 5 Chart 1 Rura Dbt & Scurtsato Tab B19 Scurtsato Vhcs $m 7 6 5 4 3 2 1 Rura Dbt $m RBA D9 R u r a D b t Farm Dbt: RBA Tab D9, Rura Dbt by Ldr, o, Scurtsato: RBA Tab B19. O Whst t ca b frrd from th ar ratoshp btw rura dg ad scurtsato, t shoud b otd that scurtsato was ot cofd to rura fac. For a fu dscusso rfr: RBA Tab 19 Nots. Tab 19 covrs SPV s rgstrd to scurtz sctd Austraa assts whch ar ratd by rcogsd ratgs agcs xv. Nothss, th bhavour of th curvs Chart 1 suggst that scurtsato of rura dbt bga to bcom a crasgy mportat fatur rura fac from 1996 owards. From 27 owards, th orgat to dstrbut mod facd a coapsg dmad for scurts. Th GFC bcam th catayst that xposd udryg rura dbt as a usoud faca dg practc basd upo vr rsg ad vaus. From 23 to 25 t woud sm scurtsato of rura dbt was cosstt wth that of o rura fac. From 25 owards th two curvs bg to dvrg. Whst th rura dbt cotud ts gradt, growth o-rura scurtsato gathrd momtum. Ths rass th qusto of whthr rura dbt basd scurts wr osg vstor cofdc; or, o-rura dbt had smpy bcom th chos vstmt asst basd poo. Wth th ost of th GFC 27, scurtsato of o-rura Pag 11 of 25

B Rs dg coapsd. From 28, rura dg bgs to sow ut 29 t fat s. Ths suggsts that a dffrt atttud to rura dg had mrgd ad cosodatd from 29 owards. Curv bhavour s rmarkaby cosstt wth trst as a prctag of cash costs rsg from 12% 26 to 15% 28 to rach 15.9% 211. Th dffcut had wd that mad orgat to dstrbut bakg fatr was about cofdc of vstors th quaty of udryg asst poos. Ay asst cass that struggd to mata srvc commtmts casd to b attractv. Such asst casss bcam vwd as toxc. Facr dg stadards to such groups of borrowrs bcam th ssu. Lack of vstor trst scurtsd assts structurd o usoud dg stadards fowd back to mpact upo th markt vau of udryg ra assts th farm. Gv th ratoshp btw th Dbt ad NVFP curvs, t ca b frrd that rura dg practcs wr udr prssur from 28 owards. Th wakss rura dbt to quty dg was udr qusto. For th Austraa rura sctor, farm markt vaus wr udr prssur as asst vaus th wdr commuty casd to fat. Ifatd ad prcs suddy bcam rcogsd as ovrvaud. Cosquty, markt vau of farm ad dfatd. Ldrs wr forcd to xam th capacty of farm com to srvc dbt. Sovcy of trprss fudd by quty basd borrowg bcam a ssu. Chart 1 dmostrats th futty of such a sudd chag dg practcs. Hstorcay, farm com coud vr srvc th vs of dbt that had b structurd o a assumpto that ad prcs woud cotu to fat ftum. Wh th bubb burst, farmrs ad thr accoutats wr suddy facd wth th qusto of maagg farm sovcy. Th rura dbt crss was udr way. Th mpact dos ot d thr. Gv th xtt of dbt quty fac suggstd by mprca vdc, th dbt crss bcoms a ssu for both oca ad rgoa commuts. Uss ths probm s addrssd wth a vw to hodg farmrs o thr farms, thr w b fow o ffcts to oca ad rgoa commuts ad thr soca fabrc. Loca bussss, pubc frastructur programs, ad soca support orgasatos ar caught th dtroratg rura dbt crss. I farmg commuts, farmrs bd rura commuts togthr. Rura Austraa caot wthstad aothr mass xodus of farmrs smar to th 199 s. Lt th pocs of th 199 s bcom a bchmark of how ot to procd. I Austraa today, th qustoab asst bcoms farm mortgags xprcg roso of vauatos, usustaab dbt vs, ad adquat com fows. What s ot dd s a pubc sctor Poz schm smar to that bg pushd by wstr ctra baks partcuary th Euro ara ad USA. Thr appars to b som wshfu thkg o th part of ctra bakrs that by supportg spcuators tradg faca strumts somhow th ra sctor w rsum vstmt ad job crato. Ths s of cours a cotuato of th fad 198 s-199 s asst fato growth mod. Th asst fato growth mod s ot fowg to rura Austraa. Farm forcosurs ar proof that ths mod caot provd a way forward for rura Austraa. Th currt rura crss has two strads that must b addrssd smutaousy. Frsty, thr s th spctr of dbt dfaut ad farm forcosurs. Smpy supportg rura faca sttutos wth subsdsd trst rats w compoud rsourc dstorto rura Austraa. Th farm faca souto ds to b structurd smar to th US Grat Dprsso yars. Ths US mod supportd both farmrs ad baks through th dffcut tms of that prod. Evtuay, th mod provd ts worth. Mor rct mods hav b usd to rv th paymts systm of GFC toxc assts. Th cotmporary faca souto mod has a fudamta faw. It das oy wth systmc faca dsocato. Nothg s do to addrss dsocato th ra sctor from whr th qustoab assts orgatd. Low Farm Icom as far as commuty support for govrmt trvto agrcutur s cocrd, w suggst that pubc opo formuatd o kowdg of th actua cosqucs woud oft b dffrt from th atttud xprssd towards statd ttos Gru xv, 1978 Th scod strad to th cotmporary rura crss s ow farm com. Ths s about dstrbuto of com ad how a farm sctor rmas vab ad proftab a modr growg coomy. Faur to Pag 12 of 25

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 B Rs rcogs th ro of Eg s Law ths procss ca oy compoud th mrgc of pasat farmg Austraa. Ay scorchd arth program by ratoazato w smpy kck th ca dow th road. A qutab com dstrbuto pocy must b dvopd by pubc dbat. For too og, th xpctato has b that f Austraa farmrs caot compt wth chap abour coutrs, cosumrs hav a rght to chapr mports. Ths pocy drcto dos ot mt th mora tst. Th mora qusto Th mora probm s cocrd wth cofct btw dvdua trst ad th trst of socty Joa Robso xv I pursut of sf-trst, h (th producr) s d by a vsb had to promot a d whch s o part of hs ttos Adam Smth xx Th bf pursut of sf-trst bttrg socty ffctvy xcuds th qusto of mora cofct btw sf-trst ad soca trst. Fr trad smpy xtds th sf-trst phosophy to tratoa trad xx. Ths fudamta bf forms th bass of cotmporary orthodox coomcs. Dspt potca rhtorc about fxbty of markts, th udryg phosophy of Austraa s 198 s - 199 s mcrocoomc rforms wr drv by th prcp of sf-trst structurg coomc actvty. I th Euro ara, cotmporary austrty pocs ar about tra dvauato cratg fxb domstc markts aowg sf-trst to do ts work. Th mss th Euro ara shoud b ough to mak rsposb govrmt s r-xam prvag coomc phosophy ad thr bf sf-trst phosophy. Th dbac of Cyprus shoud sd warg sgas to a who support cotmporary coomcs ad th sf-trst souto. Whst rhtorc has chagd sc th 198 s, sf-trst rmas th foudato of suppy sd coomcs. Istad of structura rform a gtr trm s bg mpoyd: tra dvauato. I ssc ths mas rstructurg markts to aow a rdstrbuto of com away from th wakst to th strogst payrs th coomy.. trck-dow coomcs. Th dbtato facg rura Austraa has ot just happd. It s th rsut of ary thr dcads of a sf-trst pocy drcto dvod of ay prtc to a mora rsposbty coomc pocy. Frquty profssoa coomsts mak prooucmts ------rootd thr vau judgmts that th compttv markt souto s bst Gru 1978 xx $ m o 6 5 4 3 2 1-1 Chart 3 Rdstrbuto GVFP Nt Vau Farm Pr.$m GVFP $m Lar (Nt Vau Farm Pr.$m) Lar ( GVFP $m) Pag 13 of 25

B Rs Chart 3, rproducd abov, cofrms that govrmt rstructurg of rura markts wthout corrspodg at-moopoy pocs for th o-farm sctor has b mmora. Potcay, ths structura rforms ar supportd by th da that cosumr choc must b protctd wth accss to th chapst product. Moopoy powr xrcsd output markts d ot actuay mport chap forg foods. A that s dd s to thrat rura producrs wth th opto to mport chap ovrsas product. Farm gat prcs ar th forcd dow to a accptab suppy sd prc th am of cosumr wfar. It s th sf-trst of th moopost that trumphs ovr soca trst. Imports from chap abour coutrs caot mt th mora tst. Thy ar about sf-trst of th moopoy mportrs wathy atos xpotg povrty ad ow coms udrdvopd coutrs. I th cas of food mports, th d rsut s that cosumrs advacd modr cooms ar gv accss to food producd chap abour coutrs that hav xtrmy qutab dstrbutos of com. Exports from chap abour coutrs oft xacrbat povrty ths coutrs whst dprvg domstc popuato accss to hgh vs of utrto. Utmaty, to mata a fow of chap food accss from ow wag coutrs to cosumrs advacd cooms, word food producto must bcom dpdt upo a shrkg agrcutura ad mass. Ths coms about as costs of producto a crasg group of hghr wag atos rdrs agrcutur ucompttv wth a dcrasg umbr of ow wag atos. Uss cosumrs advacd atos accpt th soca trst tst ad shar rsg vg stadards qutaby modr cooms wth agrcutur, pocy protctg th sf-trst of cosumrs mght w structur a Mathusa vso of a word uab to fd tsf. P r c t a g Chart 11 2 Masurs of umpoyd/ udrutsd abour 15 1 5 % Udr utsato % umpoyd Udrmpoymt Lar (% Udr utsato) Lar (Udrmpoymt) Sourc: abour forc udrutsato rat from ABS Labour Forc Tm Srs Spradsht tab 22 Umpoymt data from RBA Statstcs o, Tab G7 Itra dvauato/mcrocoomc rform Austraa udrtak ovr th 198 s ad 199 s has ot b a succss. I hs 1979 Boyr Lcturs, Bob Hawk rfrrd to th v of umpoymt as a crss ky to dstroy th fabrc of socty. Chart 11 shows that 1979, th udrutzato rat of th abour forc was 8.9%. I 212, th udrutzato rat was 12.5%. I Fbruary 213, t stood at 13.4%. Umpoymt vs hav bcom magss. Thy do ot rfct th udrmpoyd socty. Th udrmpoyd ad umpoyd cosodatd to th udrutzato rat provds a mor accurat pctur of abour markt ffccy tha th potcsd umpoymt fgur. If th 212 abour forc data s usd, th Chart 11 cofrms that mor tha 1.25m workg Austraas ar o coms owr tha thy woud k. Ths mas that structura rforms/tra dvauato has fad both th physca ad mora tst coomcs. Th pocy drcto thrfor was about ttg sf-trst oos at th xpss of th atoa trst. Th mora qusto was ffctvy xcudd from pocy dvopmt Austraa structura rforms. If tra dvauato had b gu, th dustrs wth hgh vs of coctrato owrshp ad cotro woud hav b brok up cratg a gu compttv coomy. Ths dd ot happ. Whst th farm sctor ad abour markt wr mcro-rformd, mrgrs ad acqustos wr couragd ad wcomd th o rura sctor. Pocy hypocrsy has dstortd markt powr ad rsourc aocato across th who coomy. For xamp, whst dstast for protcto of Pag 14 of 25

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 B Rs abour markts ad food producto has b uvrsa across th potca ad mda spctrum, hgh vs of protcto ar supportd across mdd cass wfar projcts, suprauato, gr rgy ad bakg. Th suprauato dustry s th most hghy protctd dustry Austraa; yt, kps cag for hghr vs of protcto. Ths s sf-trst out of cotro For th farm sctor, t has b forcd to accpt as tt assstac as possb. Vauab drought assstac programs hav b woud back. Cosquty, drought thrats to dcmat rura dustrs across Austraa. Compoudg ths s th ogog faca crss. $ m o 7 6 5 4 3 2 1 Chart 1 Rura Dbt & NVFP Rura Dbt $m RBA D9 Nt Vau Farm Pr.$m Sf-trst bakg sctor bhavour cofctg wth soca trsts s vdt th rproducd Chart 1 abov. Icrasd dg to a sctor uab to mt srvcs paymts dos ot mt th moraty tst of coomcs. Govrmts ad thr advsors that structurd markts aowg faca sttutos to gag compttv bhavour chasg markt shar ar just as cupab as th faca sctor that smpy opratd wth gsatd markt structurs. Now th commuty s facd wth provdg a rscu pa to uwd th cosqucs of a pocy drcto basd upo sftrst bst srvg socty. Cocuso Today, rura Austraa s at a cross-road: mor of th sam or, a w drcto. For thrty yars, th farm sctor has b rcostructd ad adjustd by succssv potca admstratos ad thr advsors. Th rura sctor has b aso bud by commuty group spokspop from th, vromt, ama wfar, cosumr groups ad mda. Aftr thr dcads of ths pocy advocacy ad drcto, a prosprous ad vab rura sctor rmas as usv as t was th 197 s wh cosr sttmt was abadod for rura rcostructo xx. Idd, 213, th rura sctor facs forcosurs ad dustry dbtato rfctv of th Grat Dprsso. Pocy makrs woud hav us bv that t a rsds at th mcrocoomc v du to ack of maagra sks, ow vs of ffccy ad productvty producg a ucompttv farm sctor. Ths currt dsocato s ot a w crss. It s a trchd crss that bga back th at 196 s ad 197 s wh agrcutura coomcs was mrgg as a dscp ts ow rght xx. Agrcutura coomsts argud th that a rfocus of agrcutura pocy shoud b udrtak away from cosr sttmt to argr sca opratos. Ths was cosdrd cssary to ovrcom a ow farm com probm assocatd wth sma sca farm uts. Th mov to markt coomcs whch had ts ary support th Coombs Rport cosodatd a pocy dcso to rcostruct th farm sctor. Th troducto of suppy sd coomcs ad mcrocoomc structura rforms post 1983 addd a furthr dmso to ratoasato of th farm sctor. Som thr dcads atr, a strogr scorchd arth program of ratoazato s bg proposd to cotu xpugg ffccy, ow productvty, ad ack of compttvss. Supposdy, ths w rvtasd farmg ad captas o og trm projctos that suggst a strog vab rura Austraa a udfd futur. Thr dcads of rcostructo ad adjustmt has sowy dbtatd rura Austraa. Utmaty t had to mpod. Ovr tm, a pocy drv crss ay awatg a sutab catayst. Th frst catayst Pag 15 of 25

B Rs cam th form of th GFC whch udrmd th qudty of th orgat to dstrbut bakg mod. A scod catayst cam th form of drought. Two cataysts so cos togthr trggrd svr dsocato th ra word of farmg. Th dagr s drought bg usd as th pocy makr s rfug. Drought smpy masks udryg pocy faur. A w pocy drcto must b dvopd. Ths w pocy drcto must rcogs both Eg s Law ad th mora qusto mpct coomc pocy. Th probm s fr markt macrocoomc pocs dmadg mcrocoomc structura rforms at dustry v. Ovr thr dcads suppy sd coomcs mbracd post 1983 has ot dvrd. Istad mcrocoomc rforms hav compoudd dstortos dstrbuto of markt powr to th dsadvatag of rura Austraa. Farmrs, commuts ad rgos hav suffrd svry at th hads of suppy sd coomc rformrs. Mor scorchd arth mdc at th mcrocoomc v of farm gat w ot addrss th currt crss. Th ovra souto must b dat wth two stags: short trm ad og trm. Short trm: Immdat faca stabzato; Short trm stabzato of farm gat prcs ad farm coms. Log Trm: Eg s Law cofrmd US 211 study rcogsd Austraa farm pocy; Th chag bakg mods sc th 1994 Sat Iqury addrssd; Sma farm ow com probm of th 196 s rcogsd as a dustry ow farm com probm affctg arg producrs; Rthk Coombs 1973 o sho fts a pocy; Pocy to rcogs dffrt farm structurs.g. hobby, trmdat, ad commrca; Urgty addrss moopoy powr dstortos across agrcutura put ad output markts; Drought pocy: WTO, AoA, Ax 22 Artc 8, rf from atura dsastr. Pag 16 of 25

Appdx A: Major Costs as % Tota Cash Costs B Rs Yar Fu Frtsr Chmca s Sd/ Foddr Markt g Rpars/ Mata c Othr Wags Itrst Othr Ovrha ds %/Cash %/Cash %/Cash %/Cash %/Cash %/Cash %/Cash %/Cash %/Cash %/Cash Costs Costs Costs Costs Costs Costs Costs Costs Costs Costs 79 6.24175 6.958325 3.73732 13.1579 21.87441 1.37149 14.57665 14.1248 7.618329 2.5544 8 7.421625 6.957774 2.94358 15.96289 18.3313 9.99681 15.11516 13.65963 7.661548 1.951376 81 7.722998 7.865489 3.362781 17.8464 14.49131 1.61556 14.77629 13.83585 8.136221 2.18863 82 7.34113 6.77643 3.24423 15.73952 16.74877 9.73268 13.51676 14.3974 1.5134 2.78577 83 7.498128 6.289443 3.123329 21.64937 12.5254 9.3588 13.4887 13.2267 1.7926 2.17177 84 8.149911 6.53389 3.41668 13.4844 17.64823 9.458656 13.9229 13.46421 11.36228 2.567916 85 8.434415 6.6767 3.779972 12.8914 15.9973 9.56347 14.587 13.27692 11.949 3.112365 86 7.96856 6.551395 4.118516 12.43375 14.4612 9.288383 13.54592 14.74498 14.21496 2.789122 87 7.467455 6.413226 4.54433 12.67471 14.2486 9.1474 14.484 13.87269 15.6537 2.3136 88 6.888517 6.662783 5.11956 13.38382 12.7139 1.4879 15.3791 14.53433 13.9255 2.177237 89 5.942596 6.627528 5.277234 12.92237 12.45923 1.48924 15.19896 15.3333 13.8165 1.96347 9 5.92975 6.419275 5.369914 13.963 11.9656 1.21222 14.949 14.91969 15.2128 1.94439 91 6.521487 5.464576 5.2936 13.6715 12.15447 9.12892 18.24623 13.65854 14.29733 1.829268 92 6.41677 6.198172 5.592882 15.73755 12.46293 9.212517 15.77386 13.49797 13.43744 1.6761 93 6.739726 6.48418 6.45662 14.58752 13.8822 9.619482 15.77473 13.9563 11.1926 1.844749 94 6.362258 7.25449 6.175647 14.21157 13.44763 9.948682 16.49172 14.25822 9.884535 1.965244 Pag 17 of 25

B Rs 95 6.1196 7.394687 6.112155 16.8172 1.4911 9.487523 16.44218 14.31178 11.1276 1.845989 96 6.949 8.351459 6.823815 14.8117 12.74217 9.712176 14.85659 13.84997 11.3748 1.8799 97 5.976789 8.51638 7.156673 13.54449 14.13443 9.685687 14.28433 14.42456 1.54159 1.74812 98 6.68679 8.77177 7.27446 14.238 13.24651 9.77298 14.18922 14.6712 9.6221 1.749356 99 5.83747 9.4568 7.479474 14.11419 13.76774 1.22258 13.83893 14.86878 9.97812 1.727493 2 6.682952 8.48435 7.392727 13.12163 14.4948 9.9924 13.9515 14.9793 9.32387 1.714523 21 7.27523 8.35993 7.244547 13.37455 13.92311 9.84856 13.86216 14.62841 9.791458 1.693587 22 6.7347 8.438819 7.51172 13.74931 14.46959 9.9225 14.2392 14.3525 8.894856 1.74812 23 6.372898 7.6377 6.498679 2.4352 1.283 1.2893 13.95749 13.52564 9.622238 1.727391 24 6.815361 7.311897 6.63131 17.28667 14.28343 9.82268 13.52661 13.69479 8.961679 1.689825 25 7.25715 7.36844 6.731152 16.98511 13.66531 9.923573 13.82454 13.57376 9.17925 1.71968 26 8.27798 6.84756 6.457687 14.1311 13.5689 9.67148 13.63166 13.9492 11.9961 1.646729 27 8.126386 6.1382 5.79534 18.31116 1.1443 9.11382 13.9313 13.5333 14.2225 1.651885 28 7.823953 9.35321 5.83394 18.94495 9.75315 9.424935 11.22221 11.24674 15.3144 1.416961 29 7.19246 1.585 5.67886 16.474 11.6825 9.638554 12.169 11.97622 13.55343 1.492724 21 6.583221 7.16588 4.98385 15.31123 12.9257 1.15562 13.4216 12.7419 15.714 1.667794 211 7.2624 7.21593 4.612564 13.2224 12.13683 12.28858 13.55316 12.68692 15.87999 1.621827 Cacuatd from ABARE Agrcutura commodty statstcs: Major compots of Austraa farm costs, varous dtos up to 211 Pag 18 of 25

B Rs Appdx B: Ecoomcs Bhd Farm Pocy Ecoomc Thory Suppy sd coomcs swpt th wstr word k a bush fr ovr th 198 s ad 199 s. Two adg supportrs wr Margart Thatchr ad Road Raga. Soca dmocratc parts aso succumbd to th w coomcs whch qucky bcam cotmporary coomc orthodoxy. Hawk brought t to Austraa, Gozas to Spa, Mttrrad to Frac, Lag to Nw Zaad xxv. Suppy sd coomcs s vwd as a rassac of th cassca coomcs of Adam Smth ad Ja Baptst Say xxv. Davd Rcardo s Comparatv Advatag Thory aso faturs suppy sd coomc thory. Rcardo was a cotmporary of Smth ad Say. Th dsocato of th 197 s tatd a sarch for a atratv coomc phosophy to that of J.M. Kys. Ths d to a growg rac upo motarsm ad ocassca coomcs of th markt xxv. Th fa form of th sarch bcam crystazd by Margart Thatchr ad Road Raga to what bcam kow as suppy sd coomcs. Th archtct of suppy sd coomcs was a group of potcay powrfu vstd trst payrs d by Wa Strt Joura dtor Robrt L Barty ad dtora wrtr Jud Wask xxv. Ths two faca jourasts wr amog a sct group of pop trstd fucg coomc pocy. Thy mt rguary at Mcha I Rstaurat Nw York. Othr promt mmbrs of ths sct group wr coomsts Robrt Mud ad Arthur Laffr. Whst both had cturd at th Chcago Schoo of Ecoomcs, Laffr was at that tm chf coomst for th Offc of Maagmt ad Budgt (OMB). At ths mtgs Mud (Nob Prz wr 1999) woud ctur th group o pocy. H argud that to bat stagfato, two pocy vrs wr dd. Tght motary pocy was rqurd to bat fato whst fsca pocy shoud cut marga tax rats to grat coomc growth. Wask was a formdab faca jourast. It was Wask hs work Th Way th Word Works that th modr far campag about th us of protctosm has ts roots. Wask argud that th Smoot-Hawy tarff trggrd a sug trad war xxv. Barty modfs ths cam by sayg that Wask was probaby rght. Barty xpas that th stock markt had bgu to sd moths bfor th Smoot-Hawy gsato was actd. Appyg ratoa xpctatos thkg, Barty ft that vstor xpctatos of th gsatv ffcts mght hav trggrd th prckg of th shar (markt) bubb. Dspt ths tuous k, th argumt that protctosm causd th Grat Dprsso has bcom a strog dfsv strumt agast th at-fr trad movmt. Aothr mportat orga suppy sd archtct was Bruc Barttt xxx. As a staff mmbr of rpubca Sator Jack Kmp, Barttt faturd wrtg th Kmp-Roth Lgsato whch Raga sgd to aw rducg taxato mposts xxx. Barttt aso says that suppy-sdrs drw o thkg of Nob Prz coomsts: Robrt Mud, Mto Frdma, Jams Buchaa, ad Frdrch Hayk xxx. Mud ad Frdma ar rcogsd Chcago Schoo motarsts. Hayk s from th Austra Schoo of Thought whst Buchaa s rgardd as bg sympathtc to Austra coomcs. I th Ecoomsts Vw rfrc, Barttt s Nw York Tms artc s hghy dsappotd th drcto suppy sd coomcs had tak by 27. H argus that th pocy drcto dvopd by th orga suppy-sdrs o ogr xstd. Th trm suppy sd coomcs had b ovrtak by potca opportusts who had com to thk that ay tax cut was suppy sd pocy. Th orga suppy-sdrs had b cocrd wth marga tax rats as a fsca stmuus pocy strumt. By 27, ths was ot th cas. H thought suppy sd coomcs shoud b gv a dct bura. Th orga two vr approach to pocy s vry vdt th cotmporary Euro ara fasco. For xamp, th probm s ow ow growth ad hgh dbt. Smpstc suppy sd pocy bcoms: rduc dbt, growth through motary xpaso. Th sguar faur of coomc pocy Europ cofrms that suppy sd pocy was a pocy mx for a partcuar tm hstory. It has outvd ts usfuss. Aftr thr dcads, suppy sd pocs hav aso fad to sov th Austraa ow farm com probm. Importat Thors Udrwrtg Farm Pocy Thr ar two Laws udrwrtg cotmporary agrcutura pocy: Say s Law of Markts, ad Eg s Law. O cofcts wth th othr. As th two Laws dscrb dffrt markt structurs, th ra Pag 19 of 25

B Rs word of agrcutura producto thy caot both hod tru. If Say s Law s prov corrct, th rura sctors oprat a vromt of pur comptto. O th othr had, f Eg s Law provs accurat, th th farm sctor oprats udr a mprfct markt structur. Ths thortca dffrc s mportat for dvopmt of ffctv rura pocy. (1) Ja Baptst Say s Law of Marktsxxx Th mas of paymt for commodts s smpy commodts; a srs ar buyrs; doub th suppy of commodts ad you doub th purchasg powr xxx. J.B Say, (183) Th dowward trd ra commodty prcs d ot of tsf produc a oss of atoa com or a dc th proftabty of commodty producrs f th dc th ra commodty or maufacturs prc s th rsut of hghr productvty xxxv Batg th commodty prc cyc NFF, 1995 Ths modr rstatmt of Say s Law of Suppy ad Dmad s xprssd as a thory of aggrgat dmad for commodts ad maufacturs. It mpcty assums: fxb factor markts, fxb product markts, costat rturs to sca prva. Udr ths pury compttv thory of suppy ad dmad thr ca vr b markt faur. Pocy s drctd to rmovg suppy sd markt costrats that mpar th fr fow of rsourcs th producto procss. Oc markt rform rmovs mpdmts, dmad rspods automatcay to absorb crasg suppy. Structura adjustmt programs ar tdd to rform prcvd suppy sd structura mpdmts. A cssary assumpto s that modr dustry oprats udr costat rturs to sca. Th 212 dbt crss whch rspcts thr sz or sca s ra word vdc of a prvrs pocy outcom. (2) Eg s Law A mprca aw of cosumpto xpas why th ow farm com s a trchd fatur of a matur growg coomy. Bcaus ths Law dtfs a mprfct markt structur, appd orthodox suppy ad dmad thory; ad, trad thory must produc prvrs pocy outcoms. If ths Law s accptd, th th farm sctor bcoms rcogsd as opratg a mprfct markt systm. Th ow farm com probm ad dbt crss bcom prvrs pocy outcoms. I 1857, Erst Eg obsrvd budgts ad xpdtur pattrs ovr a arg samp of Europa fams xxxv. Eg foud that th com astcty of th dmad for food was ow. I othr words, th prctag of com xpdd o food fas as coms rs xxxv. Ths Law has b tstd ovr tm ad s accptd as frmy stabshd xxxv. Th Law has b dtfd as appyg to cotmporary houshod cosumpto, atoa cosumpto; ad, tratoa trad xxxv. A cotmporary Uvrsty of Massachustts rsarch papr has ths to say: Eg s Law cotus to b rvat today across coutrs as w as across houshods wth coutrs Rchard Akr, Ja. 211 xxxx Ths w udrstood Law xpas why rura sctors dc ratvy to th wdr coomy modr growg cooms. Smpstc ffccy ad productvty soutos ru to a Eg s Law costrat o both domstc ad tratoa pocy frots. Th Law offrs a xpaato of protctost bhavour by govrmts matur cooms that wsh to rma sf-suffct food producto. Pag 2 of 25

B Rs Icom astcty of dmad s a stabshd too commodty cosumpto aayss. Hstorcay, com astcty for commodts s kow to b astc.. hav a com astcty fgur <1. Tab 2 Icom Eastcty of Dmad: Sctd Commodts x Buttr.42 Chs.34 Cram.56 Eggs.37 Frut ad brrs.7 Four.36 Mat.35 Mk ad cram.7 Ths commodts ar sctd from 1953 rsarch by Wod, Dmad Aayss, rproducd th rfrc abov. Ths rsarch cofrms Eg s Law, ad was avaab two dcads bfor Coombs dvrd hs fr markt rura pocy framwork. Th Law was gord by Coombs ad subsqut xprts from potcs, dustry adrs, mda, ad acadma. If th Law hods tru th ra word, th cooms of sca souto s tt mor tha wshfu thkg. Th prsc of Eg s Law Austraa Houshod s dtfd cosumpto pattrs: Tab 1 Eg s Law Austraa Houshod Fa Cosumpto Expdtur Yar Food Prctag 1949/5 24.4% 1969/7 19% 1989/9 15.1% Pag 21 of 25

B Rs 29/1 11.1% 211/12 1.3% 1948/5-1989/9 from RBA Occasoa Papr No.8 Tab 5.4 p. 198 Prctags rstrctd to xpdtur o food. Tobacco, acoho tc ar xcudd (29/1-211/12)% cacuatd from ABS: Aust. Nat. Acc. Natoa Icom, Expdtur ad product. 526. Ju. 212 Tab 2, p. 4 (3)Trad thory Th ttos of th Hawk ad Katg Admstrato wr mad car 1986 wth th formato of th Cars Group of fr tradg agrcutura atos. Ths formay dcard to th word that Austraa saw Rcardo s comparatv advatag as ad dowmt. Spcasato agrcutura trad was thrfor dtrmd. Cotmporary trad thory has ts bass th 1817 work of Davd Rcardo. I that yar h pubshd hs thory of comparatv advatag Chaptr 7 of hs book O th Prcps of Potca Ecoomy ad Taxato x. Trad btw two coutrs ca bft both coutrs f ach coutry xports th goods whch t has a comparatv advatag Itratoa Ecoomcs, Thory ad Pocy x Rcardo basd hs mod o a two coutry, two commodty ad two factors of producto. Coutry A had a ptfu dowmt of ad whst Coutry B had a abudac of abour. Thory th movd from a posto of prohbtv trad barrrs to a stuato of fr trad. Coutry A spcasd growg cotto whst Coutry B spcasd th maufactur of. Ths spcasato trad was th show to mprov th coomc wbg of both coutrs. Rcardo s comparatv advatag s rcogsd as a abour thory of vau. Th modr ocassca mod s a tt mor sophstcatd. Thr factors of producto ar usd stad of two. Whst th modr vrso has thr factors of producto - capta, abour ad ad, th mod rmas a two commodty, two coutry structur. Thory th movs from prohbtv trad barrrs to a stuato of fr trad. I a modr advacd coomy, ths mod s compt ad thrfor dos ot rfct th ra word of trad btw atos. Th cotmporary two coutry, thr put mod (ad, abour, capta) dos ot hav thr a faca sctor, or a govrmt sctor. Ths fudamta structura mprfctos rdr cotmporary fr trad thory approprat th ra word. Wthout a faca systm, thr s o motary systm. Th mod prsts a mak-bv motary systm by mputg a otoa prc p mutpd by wags w. Wth o motary systm, what dos p ma? From whr dos th assumd capta orgat? Is capta a factory or craft typ actvty? How s th assumd capta usd th producto procss? As thr s o govrmt sctor, what dcso procss xsts? Wthout a govrmt sctor, th mod coapss to a trba bartr systm whch two trbs xchag goods. I th mods, maufacturs ar xchagd for food. How ar th xchagd goods dstrbutd amogst th mmbrs of th two trbs? Th mod rfcts a abour thory of vau whch goods ar bartrd for goods. Pag 22 of 25

B Rs Wh ths qustos ar satsfactory aswrd, th prhaps th doogy of fr trad w ga som crdbty. Low farm Icom: Th vdc Th Austraa ow farm com probm frst appars to hav b srousy rcogsd McKay s Papr x as far back as 1967. McKay was th th Drctor of th Burau of Agrcutura Ecoomcs. Sc th thr hav b varous survys ad dscussos o rura pocy. Th xt sgfcat cotrbuto was mad by Nuggt Coombs hs 1973 Rport. It was th ary 197 s, th trm gt bg or gt out gathrd momtum. Impcty ths s a suppy sd cocpt whch mpcty assums cooms of sca ovrcom th trchd ow farm com probm. I 1977, Arod ad Chattrto mad ths commt o th gt bg or gt out souto: Gt bg or gt out has provd qut tragcay tru for may of thos gagd xport agrcutur. But w ar ow oy too w awar that gt bg s ot rstorg th prosprty of our rura commuts, athough t s matag th vabty of a partcuar commodty for th bft of a fw xv Th coomy of sca thory was vr udrstood by ts supportrs. Udrwrtg cooms of sca was a assumpto that sma farm mrgrs woud produc argr mor ffct farm trprss. It was xpctd that ths woud dvr og trm proftab growth through crasd ffccy ad rsg productvty. Th dffcuty for th xprts assumpto s th fact that wth cooms of sca thory, thr dffrt producto vromts ar rcogsd. Each producto vromt has ts ow cooms of sca thory. Ecooms of sca ca b costat, crasg or dcrasg rturs to sca. Th xprts assumd rura cooms of sca to b costat rturs to sca. I raty, mprca vdc cofrms rura dustrs oprat udr dcrasg cooms of sca thortcay dfd as th Law of Dmshg Proportos xv. Th coomy of sca souto was aways doomd to faur. It was thortcay fawd. Commt Low farm com s ot a w phomo matur growg cooms. I Austraa, t has b kow for ary haf a ctury. Sc 1983, soutos hav rd havy upo a abstract thortca framwork comprsg Say s Law of Markts ad Rcardo s comparatv advatag trad. Say s Law was vr uvrsay accptd. Has has ths to say o orthodox coomcs but aroud Say s Thory of Suppy ad Dmad: dstrust of orthodox coomcs------- had b th ru, xcpt for rar trvas, sc th days of Rcardo xv J. M. Kys, 1936, rfutd th tts ad prcps of both th casscs ad ocassc. Say s Law, h fay trrd wth hs cosumpto fucto. For th thors of Say ad Rcardo to hav rsurfacd suppy sd coomcs says mor about th quaty of coomsts at that tm rathr tha th faur of coomc kowdg. I fact th cams of Ragaomcs succss st ucomfortaby bsds th coaps of th US faca systm 1981-94. Th dsma prformac of suppy sd thorsts th Euro ara attmptg to ovrcom th dsocato brought about by dcads of appd suppy sd coomcs shoud b ough tsf to forc a rthk of cotmporary coomcs. NFF, Nw Horzos: A Stratgy for Austraa s Agrfood Idustrs, Natoa capta prtg, 993,p. 122. Sat Rura ad Rgoa Affars ad Trasport Rfrcs Commtt, Rura Adjustmt, Rura Dbt ad rura Rcostructo Rport, Dc. 1994,p. 88 NFF, Nw Horzos: A Stratgy for Austraa s Agrfood Idustrs, Natoa capta prtg, 993,p123 v NFF, Nw Horzos: A Stratgy for Austraa s Agrfood Idustrs, Natoa capta prtg, 993,p. 123 v Bra Pau, Batg th commodty prc cyc, Spt. 1995, p.7 v NFF, Nw Horzos: A Stratgy for Austraa s Agrfood Idustrs, Natoa capta prtg, 1993,p. 123 Pag 23 of 25

B Rs v Kys, Joh Mayard; Th Gra Thory of Empoymt, Itrst ad Moy, Voum VII, Roya Ecoomc Socty, 1973, p.2 v Rport of th Sat Rura ad Rgoa Affars ad Trasport Commtt, Drguato of th Austraa Dary Idustry, Sat prtg Ut, Oct. 1999, p.xv x Bra Pau, Batg th commodty prc cyc, Spt. 1995, p.7 x Hart/K/Et; Moy Dbt ad Ecoomc Actvty, Fourth Edto, PrtcHa Ic.,1969,p.137-38 x Sat Rura ad Rgoa Affars ad Trasport Rfrcs Commtt, Rura Adjustmt, Rura Dbt ad rura Rcostructo Rport, Dc. 1994,p.1 x Brow R. J.; w Rvsd Studt Ecoomcs, Pat II, Wam Brook & Co. Ltd.,197, p. 238 x Sat Rura ad Rgoa Affars ad Trasport Rfrcs Commtt, Rura Adjustmt, Rura Dbt ad rura Rcostructo Rport, Dc. 1994,p.34 xv Sat Rura ad Rgoa Affars ad Trasport Rfrcs Commtt, Rura Adjustmt, Rura Dbt ad rura Rcostructo Rport, Dc. 1994,p.34 xv Curry Tmothy, Shbut Ly, Th Cost of th Savgs ad Loa Crss: Truth ad Cosqucs, FDIC bakg Rvw, Dc. 2, p. 26 xv Rfr to RBA But Dc. 28, Nots Tab B19, p. S19 xv Edwards G.W ad Watso As; Survys of Austraa Ecoomcs, Edtd, Gru F.H, Gorg A Uw, 1978, p. 199 xv Robso Joa, Moraty ad Ecoomcs,, Ecoomsts Vw, o, 27/7, p. 1 xx Robso Joa, Moraty ad Ecoomcs,, Ecoomsts Vw, o, 27/7, p. 1 xx Robso Joa, Ecoomc Phosophy, Pgu Books,, 1976, p. 61 xx Edwards G.W ad Watso As; Survys of Austraa Ecoomcs, Edtd, Gru F.H, Gorg A Uw, 1978, p. 198-99 xx Edwards G.W. & Watso A.S;, Survys of Austraa Ecoomcs, Agrcutura Pocy, Ch. 4; Ed. F.H. Gru; Gorg A & Uw, 1978,p.191-2 xx Edwards G.W. & Watso A.S;, Survys of Austraa Ecoomcs, Agrcutura Pocy, Ch. 4; Ed. F.H. Gru; Gorg A & Uw, 1978,p.19 xxv Omrod Pau, Th dath of Ecoomcs, fabr ad fabr,1994,p.68 xxv Cavr H. ; Suppy Sd Ecoomcs: Th Nw Phas of Captast Stratgy th Crss; Babyo Mtropo, E Gao Iustrado, 1981, p. 1;wbspac.utxas.du/hcavr, 12/7/212, xxv Haug Gabr, Th Itratoa Capta Markt ad th Itratoa Motary Systm, Th 1978 Pr Jacobsso Lctur, IMF, Washgto, Spt., 1978,p.5 xxv Barty Robrt L; How Ragaomcs Mad th Word Work: W r a suppy sdrs ow, Th Arsa, Apr 1989,p.1 xxv Barty Robrt L; How Ragaomcs Mad th Word Work: W r a suppy sdrs ow, Th Arsa, Apr 1989,p.8 xxx Ryods Aa, Suppy Sd Dfd, Cato Isttut, Apr 27,p 1 xxx Barttt Bruc; How Suppy-Sd Ecoomcs Trckd Dow, Ecoomsts Vw,coomstsvw.typpad.com/27/4,p.1 25/9/212 xxx Barttt Bruc; How Suppy-Sd Ecoomcs Trckd Dow, Ecoomsts Vw,coomstsvw.typpad.com/27/4,p.1 25/9/212 xxx Cavr H. ; Suppy Sd Ecoomcs: Th Nw Phas of Captast Stratgy th Crss; Babyo Mtropo, E Gao Iustrado, 1981, p. 1;wbspac.utxas.du/hcavr, 12/7/212, xxx Has Av H.; Busss Cycs ad atoa Icom, Gorg A & Uw, 1951, foot ot 48, p.272 xxxv Bra Pau, Batg th commodty prc cyc, Spt. 1995, p.7 xxxvxxxv Masfd Edw; Mcro-coomcs Thory & Appctos,W.W. Norto & Compay Ic.; 1969,p.p.91-92 xxxv Koutsoyas A.; Modr Mcrocoomcs;Macma;1975,p.49 xxxv Kdbrgr ad Ldrt, Itratoa Ecoomcs, Rchard D Irw, 1978,p.6 xxxv Kdbrgr ad Ldrt, Itratoa Ecoomcs, Rchard D Irw, 1978,p.6 xxxx Akr Rchard, Eg s Law Aroud th Word 15 Yars Latr, Workg papr Srs,No.. 247, PERI, Uvrsty Massachustts, Jauary 211,p.p35-36 x Masfd Edw; Mcro-coomcs Thory & Appctos,W.W. Norto & Compay Ic.; 1969,p.p.17 xx Dpt of Gography, Uvrsty of Washgto; wb st : facuty.washgto,.du, Spt. 212 x Krugma Pau R. ; Obstfd Maurc; Itratoa Ecoomcs Thory ad Pocy; sxth dto; Word Studt Srs, 23, p. 12 x Edwards G.W. & Watso A.S;, Survys of Austraa Ecoomcs, Agrcutura Pocy, Ch. 4; Ed. F.H. Gru; Gorg A & Uw, 1978,p.192 xv Arod Ly, Chattrto Bra; Futur Rura pocs for Austraa, Potcs XII, May, 1977, p.p.127-129 Pag 24 of 25

B Rs xv Koutsoyas A, Modr Mcrocoomcs, Macma 1977,p. 82-84 xv Has Av, A Gud to Kys, McGraw-H, 1953. P.p 4-5 Pag 25 of 25