Agricultural white paper by Powers Financial Group

POWERS F INANCIAL GROUP O V E R V I E W O F I N I T I AT I V E S : A G R I C U LT U R A L COMPETITIVENESS W H I T E PA P E R

TABLE OF CONTENTS

3. INTRODUCTION 4. WHAT’S IN IT FOR YOU 5. A VISION FOR PROFITABILITY AND SUSTAINABILITY 6. WHAT YOUR ‘COUNTRY’ CAN DO FOR YOU 7. FUNDING CHECKLIST 8. CONTACT US

Agricultural Competitiveness White Paper Powers’ Overview of Initiatives

Introduction Since the release of the White Paper last weekend, some people have been surprised to hear the topic of Agricultural Competitiveness is generating significant debate across all sectors of the industry. “The ultimate measure of success for any long-term plan in agriculture will be its effect on the profitability of farmers.” - Grant Maudsley, General President of AgForce. “Many of the initiatives outlined appear beneficial, although some appear to address symptoms rather than solve long-term problems, and have missed strategic opportunities.” - Mick Keogh, Executive Director of Australian Farm Institute. National Farmers Federation welcomed the tax reforms in the White Paper, particularly moves to increase access to Farm Management Deposits (FMDs) and changes to allow farmers to use those deposits to offset business loans and reduce their interest costs: “These changes will help strengthen the resilience of farm businesses, and ensure farmers get a fairer deal from their banks, allowing investments to offset farm debt.” - Brent Findlay, President of National Farmers Federation. Federal concessional loans schemes introduced by both Labor and Coalition governments have delivered less than half their allocated funds to farmers since 2013. Barnaby Joyce, the Minister for Agriculture, has indicated he might be prepared to consider changes to improve the Federal Government's concessional loan scheme for drought-hit farmers. “The White Paper does not provide a ‘clear direction’ or map out a ‘strategic pathway’ for Australia’s agrifood industries to capitalise on innovation and investment.” - Professor Snow Barlow, Foundation Professor of Horticulture and Viticulture at the University of Melbourne.

Investment in the Future of Agriculture The Federal Government has identified an estimated $4BN of investment funding in the future of agriculture in its Agricultural Competitiveness White Paper intended to provide a stimulus for economic growth along with a commitment to profitability, resilience and sustainability for primary producers and agribusiness in the agricultural sector. The Government has launched its vision for Australian agriculture on the back of the Northern Australian White Paper and significant investment announcements for: Northern Australian Infrastructure Facilities, National Broadband Network, Industry Skills Fund, the Green Army commitment and ongoing support for the National Landcare Program. The direct impact for Primary Producers at the farm gate comes from a $1.2BN funding boost including significant taxation benefits and measures to reinforce the strength of the Australian primary food production sector.

Agricultural Competitiveness White Paper Powers’ Overview of Initiatives

Agricultural Incentives – What’s in it for you? The key tax planning incentive provided by the government is doubling of FMDs from the $400K cap up to $800K, which is considered one of the main strategic planning tools utilised by primary producers to manage yearly income fluctuations within farm enterprises. Early access to FMDs during drought without losing tax benefits has been reinstated. The Government will allow Banks to offer FMD accounts as an offset against farm business loans; however, the details of this scheme are not yet available. The recently announced 2015 Federal Budget incentives including an immediate deduction for investment in water infrastructure and depreciation of fodder storage facilities over three years have been keenly taken up along with recent small business tax deductions on assets under $20,000. Key White Paper incentives include the following: Farm tax incentives:  Increase in the FMD cap from $400K up to $800K from July 2016  FMDs available as an offset against farm business loans  $13.8M pilot program to investigate alternative agribusiness models for two years  Immediate deduction for the new cost of fencing costing $56M Infrastructure expenditure:  Set up the National Water Infrastructure Fund with additional $300M including $50M planning  Commonwealth Scientific and Industrial Research Organisation (CSIRO) Transport Network Tool (TRANSIT) costing $1.0M  Additional expenditure on infrastructure for mobile coverage of $60M Drought incentives:  Up to $250M in drought concessional loans per year over 10 years  Continue the current drought concessional and recovery loans of $250M for further 12 months  Funding of $3.3M for the Bureau of Meteorology (BOM) to develop more accurate seasonal forecasting models by 2017  Allowing early access to FMDs in drought without losing taxation benefit  Immediate deduction for the new cost of water infrastructure costing $86M  Depreciation over 3 years for capital expenditure on fodder storage facilities  Farm Household Allowance including increase in case management costing $22.8M Access to advanced technologies:  $100M extension of the Rural Research and Development (R&D) program for four years to 2020/21  Research boost to match tea tree industry and export fodder industry levies of $1.4M  Funding of $1.2M to Rural Industries Research and Development Coalition (RIRDC) for small industries  Funding of $50M over four years to fund emergency disease and pest eradication capability  Funding of $50M for four years to improve control methods against pest (feral) animals and weeds  $1.5M for CSIRO to partner with farm groups to improve soil information for decision making Improving international trade and accessing premium markets:  Appointing five new Agriculture Trade Counsellors costing $30.8M  Funding of $200M to improve biosecurity surveillance and analysis (including Northern Australia)  Funding of $12.4M to modernise food export traceability and safety

Agricultural Competitiveness White Paper Powers’ Overview of Initiatives

The new drought concessional loan scheme will now provide up to $250M of funding each year over the next 10 years from July 2016. In the short term, this provides support and underpins farm businesses during periods of extended drought. In the long term, recovery loans will help to maintain viability and assist the return to production. The government has also extended current drought funding by $250M for the next 12 months.

Agricultural Incentives – A Vision for Profitability and Sustainability The success of the Federal Governments Agricultural Competitiveness White Paper will be reflected by an increase in farm productivity, a return to profitability and a fundamental shift towards sustainability throughout the agricultural industry. The benefit of having a viable rural economy will provide much needed support to the broader regional business community that heavily depends on rural business and in turn provides important services to agriculture. As Accountants and Advisors to the rural sector, we remind Clients to focus on making effective and timely farm management decisions which will have the most impact on the productivity and profitability of a farm business. The following recommendations could apply to both grazing and farming enterprises in achieving improvements in business performance:1      

Improve strategic farm financial planning and management of debt Understand the profit drivers of the farm business Focus on increasing income from productivity as the solution to profitability Improve understanding of climate risk management and making timely decisions Manage expenditure with careful budgeting and planning and identifying efficiencies Measure, monitor and manage your land as the prime economic resource for production

The key to productivity growth in industry is research, development and extension effectively directed back into industry, where improved technology can be applied in achieving production efficiencies and improve profitability, or returns on assets managed. The NFF has set a vision to double agricultural production by the year 2030. This would require productivity growth in excess of 2.5% per year according to the AFI, which is currently well below this level. The new $100M Rural R&D Profit program for agriculture funded over four years to 2020/21 will provide much needed research capability due to previous government funding cuts to CSIRO and state based departments of agriculture. There is a real opportunity for farm businesses to utilise R&D incentives currently available within the taxation system in the form of the R&D tax off-sets. Given the need for technology advances in agriculture this on-farm R&D option provides an alternative to combine farm productivity with forward tax planning in pursuit of sustainable farming methods for future generations.

2013 MLA Northern Beef Report - key recommendations

Agricultural Competitiveness White Paper Powers’ Overview of Initiatives

Agricultural Incentives – What Your ‘Country’ can do for You! Managing your soil and farm ecology within a rural land environment will be given a boost with the recent $1.5M government initiative announced in June 2015. The funding is for CSIRO to work with farming groups to improve farm soil information for future decision making. The initiative appears to be a precursor to the National Soil Research, Development and Extension (RD&E) Strategy, soon to be released by the Minister for Agriculture, which according to the White Paper will be Australia’s ‘first national, collaborative, forward looking approach to soil management’. Considering the bigger picture of farm viability, the continuous government support for the healthier soils strategy will redirect focus onto farm productivity and potentially lead to farm profitability. The National Soil RD&E Strategy is supported by the combined resources of the Carbon Farming Futures program, Ground Cover Monitoring program, the Australian Collaborative Land Evaluation Program (ACLEP) and the CSIRO partner program. In conjunction with these important on-farm initiatives, the White Paper also highlights the Government’s critical concern for land and water resources by funding investment initiatives to manage water for agricultural production and funding for CSIRO and BOM to develop forecasting tools for management of weather events and adaptation to climate change.

Great opportunity for the ‘Next-Generation’ in Agriculture! A leadership strategy is vital to support and encourage the next generation of farm managers, farm business owners and skilled young people keen to acquire knowledge and take up current opportunities and future initiatives available in agriculture today. Industry leadership could be sourced from: agricultural industry sectors, levels of Government including education, professional and technical service providers and not least from current farm managers and farming families. Rural leadership can help provide direction for industry in education, skills training, governance, mentoring and motivating incumbents. Industry advocates in a leadership role can also support the next generation and present agriculture as a worthwhile career option with enormous potential for personal growth. Growth in global agricultural production is essential to feed the world. If Australia is to play a significant part in exporting to the Asia Pacific and other international markets, we must be heavily reliant on farm gate productivity, profitability and long term sustainability. The underlying investment infrastructure and farm gate incentives provided in the Agricultural Competitiveness White Paper allows for participants in agriculture to capitalise on current land and water resource opportunities. The application of advancing industry technology and intellectual capability will also likely generate long term viability for food and fibre production in Australia’s agricultural industry.

Agricultural Competitiveness White Paper Powers’ Overview of Initiatives

Agricultural Competitiveness White Paper – Funding Checklist Agricultural Competitiveness White Paper - Funding Checklist 5 Key priority areas for growth in Agriculture:

Year

NEW

Total

No.

1 A fair go for farm businesses New ACCC engagement with Agriculture Alternative business model pilot programme Streamline Agri Chemical regulation Increase FMD limit to $800k and loan offset Immediate deduction for cost of new fencing

11.4 13.8 20.4

Incentive ± Check

11.4 13.8 20.4 56.0 101.6

May-15

2 Building infrastructure for the 21st century water National Water Infrastructure Fund (NWIF) NWIF - planning for investment decisions Developing Northern Aust (White paper) for water CSIRO Transport Network Tool (TRANSIT) Current & future infrastructure - road & rail ($50b) Includes Nth Aust Infrastructure Facility ($5b) Includes Nth Aust Beef Roads Fund ($100m) Additional infrastructure for mobile coverage Mobile Black Spot programme (in place) National Broadband Network (NBN) ($29.5b)

250.0 50.0 Released

1.0

250.0 50.0 200.0 1.0

Announced Announced Announced

60.0 Current Current

60.0 100.0 661.0

3 Strong approach to drought and risk management Announced Seasonal forecasting - for BOM models Immediate deduction - Water & Forage(3yrs) assets Farm insurance advice and insurance assessments Drought concessional loans Farm household allowance (case management) Increased financial counselling Improved access to community mental health Access to FMD's without losing tax concessions Local infrastructure projects during drought Manage pest & weeds in drought affected areas

3.3 May-15 4 11 May-15 May-15

29.9 250.0 22.8 1.8 20.0

May-15 May-15

25.8

3.3 86.0 29.9 250.0 22.8 1.8 20.0 35.0 25.8 474.6

4 Farming smarter - Access to advanced technologies Extension of Rural R&D Profit programme to 2020/21 Research boost - tea tree and export fodder industry RIRDC for small industries Emergency disease & pest eradication capability Improving controls against pest animals & weeds Industry Skills Fund National Landcare Program Green Army commitment

100.0 1.4 1.2 50.0 50.0

100.0 1.4 1.2 50.0 50.0 664.1 1,000.0 700.0 2,566.7

30.8 200.0 12.4

30.8 200.0 12.4 243.2

Current Current Current

5 Improving access to premium markets Appointing five new Ag trade Counsellors Biosecurity surveillance & analysis (inc. Nthn Aust) Modernise food export traceability & safety

Agricultural Competitiveness White Paper

Est. ($m)

$1,206.0

$4,047.1

If you have any questions in relation to the Agricultural Competitiveness White Paper or you would like to discuss how it may impact you, your family or your rural or regional business, please contact your Powers Accountant or Advisor.

C O N TA C T P O W E R S

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