Australia’s experience of drought

1. Australia has repeatedly experienced severe and prolonged periods of drought.[1] As well as the direct impact on agricultural production and the natural environment, prolonged periods of dry weather and drought have also posed increasing difficulties in maintaining the social fabric of rural and regional Australia, and threatened the viability of some rural economies and communities.[2]

The Australian Government’s drought policy

2. The National Drought Policy (NDP) was agreed by Australian, state and territory government ministers for agriculture and primary industries in August 1992. The NDP aims to assist the farm sector to: plan, prepare, respond, and recover from drought.

3. Although self-reliance is a key objective, the NDP also recognises that there are rare and severe events, such as drought, severe and abnormal frosts, locust plagues and inundation, that are beyond the ability of even the most prudent farmer to manage. Exceptional Circumstances (EC) assistance is the Australian Government’s principal mechanism for assisting farmers and small business operators who are experiencing exceptional hardship due to a rare and severe event. The rationale for providing EC assistance is:

… to ensure that eligible farmers and small business operators with long term prospects for viability are not forced to leave the land or their business due to short term adverse events that are beyond their ability to reasonably manage.[3]

4. Guidance on EC policy, the EC criteria and the processes for applying for an EC declaration, approving and reviewing EC declarations have been documented in the Exceptional Circumstances Information Handbook. Funding for EC assistance is demand driven and the Australian government has provided approximately $4.85 billion in EC drought assistance since 2001–02.

Approving and reviewing EC declarations

5. State/territory governments can apply for an EC declaration if the criteria for a rare and severe event have been met. The Australian Government Minister for Agriculture, Fisheries and Forestry (the Minister) determines whether the event has or has not met the EC criteria. As there are both successful and unsuccessful applications from state/territory governments, the announcement of the Minister’s EC decision can be sensitive. Farmers and small businesses affected by drought seek early advice of the Minister’s decision as an EC declaration means that applications may be submitted for financial assistance.

6. The Department of Agriculture, Fisheries and Forestry (DAFF) and the National Rural Advisory Council (NRAC) provide advice to the Minister on whether the state/territory government’s application for an EC declaration satisfies the EC criteria.[4] A new, ‘full EC declaration’ is valid for up to 24 months and declarations are reviewed by NRAC before they expire. If conditions have not improved, the Minister may extend an EC declaration for 12 months. As of January 2011, some areas of Australia had been EC declared for ten years or more.

7. During the most recent drought, the total area of Australia’s agricultural land covered by EC declarations peaked at 69.2 per cent (87 declarations) on 1 May 2008.[5] Recent improvements to conditions have resulted in the total number of EC declared areas decreasing to 0.3 per cent of Australia’s agricultural land (three declarations) as of 16 June 2011.[6]

Delivery arrangements with the state and territory governments and Centrelink

8. DAFF manages the arrangements established with the state and territory governments and Centrelink to assess applications from farmers and small businesses and to make payments for the EC assistance programs they deliver. Table 1 (on the following page) outlines the EC programs delivered by the state/territory governments and Centrelink and the Australian Government’s payments for each program since 30 June 2001.

Arrangements with the state/territory governments

9. Arrangements with the state/territory governments to deliver EC Interest Rate Subsidies (ECIRS) are set out in the 1993 Intergovernmental Agreement on Rural Adjustment (the IGA). The IGA was to be replaced by a National Partnership Agreement (NPA) in January 2011.[7] However, the IGA was extended and is now due to expire on 30 June 2011.

Table S.1: Exceptional Circumstances assistance delivered by the state/territory governments and Centrelink from 1 July 2001 to 31 March 2011

Note: The PAPG commenced in June 2006 and the EC Exit Package commenced in June 2007.
Source: ANAO analysis of DAFF information to 31 March 2011.

10. The agencies responsible for delivering ECIRS on behalf of the state/territory governments are collectively referred to as Rural Adjustment Authorities (RAAs). An RAA may be the state/territory department of agriculture or a separate entity. In Victoria, the RAA is a commercial agribusiness bank—the Rural Finance Corporation of Victoria. Following the Minister’s EC announcement, DAFF issues guidelines that set out the minimum assessment criteria and other factors that an RAA must consider when assessing an ECIRS application.

11. The IGA reflects the premise that program delivery will be most effective when decisions on the form and level of support are made at the state/territory level. The RAAs have developed different approaches for assessing ECIRS applications and determining the total payment due. The impact of the RAAs’ differing interpretations of the ECIRS eligibility arrangements was highlighted as an issue by the Productivity Commission, when the Commission reported that ‘differences generated inequalities and lessened the scope for the policy to meet its objectives’.[8]

Business Partnership Agreement with Centrelink

12. In 2005, DAFF engaged Centrelink through a Business Partnership Agreement (BPA) to deliver four drought programs: EC Relief Payment (ECRP), Interim Income Support (IIS), EC Exit Package and the Professional Advice and Planning Grant (PAPG).[9] While these EC payments are a core business responsibility for DAFF, EC payments represent only a small proportion of all payments made by Centrelink on behalf of many other government entities. The total value of payments made by Centrelink in 2009 10 was $84.2 billion, of which less than 0.3 per cent related to the delivery of EC payments.

13. Centrelink’s new partnership agreement document—a Bilateral Management Arrangement (BMA)—is to be negotiated with DAFF to replace the 2005 BPA.

National review of drought policy

14. On 29 February 2008, the Australian, State and Territory Governments agreed that the EC system was no longer the most appropriate way to provide drought assistance in the context of a changing climate.[10] On 23 April 2008, the then Minister announced a national review of drought policy involving the Bureau of Meteorology (BoM), the Commonwealth Scientific and Industrial Research Organisation (CSIRO), an Expert Social Panel and the Productivity Commission. A range of experts and stakeholders were consulted at 151 meetings and public forums across Australia and more than 400 written submissions were received. Following this consultation, the:

• BoM and CSIRO advised that severe prolonged droughts would become more prevalent in the future and under the current policy arrangements, EC declarations would be triggered more frequently;
• Expert Social Panel advised that future drought policy should promote dryness as inevitable and not as a crisis. The panel also reported that the stress had been caused by the existing declaration process, in the implementation of different approaches between and across state jurisdictions, namely in regard to meeting criteria and completing complex paperwork; and
• Productivity Commission reported that, as well as generating inequalities, EC declarations and related drought assistance programs did not help farmers to prepare for drought and manage climate change.

Piloting new drought policy measures

15. On 1 July 2010, the Australian and Western Australian governments commenced a 12-month pilot of new drought measures to inform the Australian Government’s ongoing work on national drought policy reform.[11] The pilot is focused on improving farmers’ preparedness and risk management and improving the effectiveness of social support services. Programs in the pilot have been funded and delivered by using similar arrangements to those used currently to deliver EC programs.[12]

Audit objective, scope and methodology

16. The objective of the audit was to assess the effectiveness of the Department of Agriculture, Fisheries and Forestry’s administration of EC measures and the implementation of the pilot of new drought reform measures.

17. The ANAO examined the department’s:

• processes for approving and reviewing EC declarations;
• arrangements for the delivery of drought assistance by state/territory governments;
• arrangements for the delivery of drought assistance by Centrelink;
• monitoring and reporting on performance; and
• management of the pilot for new drought reform measures.

18. To examine the processes for approving and reviewing EC declarations, the ANAO reviewed an indicative sample of 28 areas (out of a total of 92) that, between 1 July 2007 and 30 June 2010, had been the subject of a new application and/or had an existing EC declaration reviewed.

19. The audit focussed on the arrangements DAFF had in place to provide an appropriate level of assurance that the RAAs’ and Centrelink’s assessments, payments and information reported were sufficiently reliable. The audit was not designed to test the accuracy of the states/territories’ and Centrelink’s eligibility assessments or their payment decisions.

20. The audit was conducted in accordance with ANAO auditing standards at a cost of $445 000.

Overall conclusion

21. Australia is the driest inhabited continent on earth and drought will continue to be a recurring feature of the country’s climate. Drought and the variability of Australia’s weather patterns shape the natural environment and influence the productivity of the agricultural sector. Prolonged periods of drought also affect small business operators that service the agricultural sector and, over time, can contribute to the decline of vulnerable rural and regional communities.

22. An Exceptional Circumstances (EC) declaration by the Australian Minister for Agriculture, Fisheries and Forestry allows eligible farmers and small businesses to apply for financial assistance. The rationale for providing EC assistance is to support farmers and small businesses with prospects for long term viability during short term adverse events so they are not forced to leave the land. Through the Australian Government’s EC programs, approximately $4.85 billion has been expended on income support, interest rate subsidies and grant assistance for drought affected farmers and small businesses since 2001–02. The majority of this expenditure has been made through the EC Interest Rate Subsidy (ECIRS) and EC Relief Payments (ECRP) programs ($4.7 billion).

23. DAFF’s administration of the EC programs was generally sound. In particular, EC applications from the states/territories were assessed and reviewed by DAFF and the National Rural Advisory Council (NRAC) in a timely and consistent manner. The assessment and review processes took into account expert advice, appropriate data and involved stakeholder consultation. There was sufficient information provided to the Minister to make an informed decision to declare an area as experiencing EC, or not. DAFF has published the rationale underpinning the Minister’s recent decisions on its website, providing stakeholders with more information as to the reason(s) for the success or otherwise of a state/territory government’s EC application.

24. Following recent rainfall, the percentage of Australia’s agricultural land that is EC declared has reduced from a peak of 69.2 per cent in 2008 to 0.3 per cent in 2011. At the same time, Australian and state/territory governments have been considering the results of several evaluations that have been generally critical of the appropriateness and delivery of the current EC drought policy. In light of these reviews, a shift in policy direction from crisis management to risk management to help farmers and farm businesses plan and prepare for a more challenging climate is currently being tested in a pilot program in Western Australia.

25. The implementation of future drought policies in Australia will continue to require a collaborative effort and partnerships that involve governments and their delivery partners. Based on this audit, and the lessons learned from evaluations undertaken during the past decade, focusing on the following areas will assist DAFF to oversee the delivery of drought assistance now and in the future:

• monitoring key aspects of the performance of DAFF’s delivery partners that provide EC payments including state/territory government-based RAAs and Centrelink; and
• building on DAFF’s evaluation work with a view to establishing key performance indicators (KPIs) that can better inform decision-makers about drought assistance outcomes on a more timely and regular basis.

26. While DAFF gains some assurance about ECIRS payments through its desktop monitoring of RAA data and state/territory government acquittal processes, a key risk for DAFF is that the RAAs interpret the minimum assessment criteria for the ECIRS program in a different way. At present, DAFF does not review RAA assessments to confirm that requirements are being met. By reviewing RAA assessments on a risk basis, DAFF would have confidence that the assessment criteria of the existing policy guidelines had been met. In this environment, DAFF also has an important role in gathering data on the extent of the variability in ECIRS payment assessments across jurisdictions with a view to informing future joint government drought policy initiatives. Such information will be important for the design of any future drought program that will depend upon a balance between flexibility to respond at the local level and the equitable treatment of drought assistance recipients under the program.

27. DAFF’s 2005 BPA with Centrelink for the delivery of EC programs is now outdated and a new BMA is to be negotiated. The success of the BMA will be contingent upon a close alignment of the core business interests of DAFF with Centrelink’s responsibilities as the government’s service delivery agency.

28. DAFF has a key role in assuring that EC payments delivered by Centrelink are timely and accurate. At the program level, Centrelink can disaggregate and report its performance results for the larger ECRP program from its systems but is not able to report the results for the less material EC Exit Payments, IIS and PAPG programs. Quality assurance arrangements, including the use of Centrelink’s internal capability and controls and DAFF undertaking its own analysis of Centrelink’s performance where appropriate, would be beneficial.

29. Currently, the department’s KPIs for its drought programs capture the number and timeliness of EC payments delivered by the RAAs and Centrelink rather than the intended impact of the Government’s drought policy. Importantly, DAFF’s annual reporting against its drought program KPIs has not reflected information that has been obtained through reviews and evaluations. Although the information reported in DAFF’s annual report indicates that delivery is effective, the reviews/evaluations have generally been critical of the consequences of Australia’s existing drought policy. To bridge this gap in performance information, the department’s KPIs could be better designed to progressively collect information that would provide stakeholders with a better indication of the impact of drought assistance.

30. In 2010, the Australian and Western Australian governments commenced a pilot of new drought measures to inform ongoing work on national drought policy reform. To date, DAFF’s administration of the pilot of new drought measures has been sound. The final report on the pilot’s results is due on 30 September 2011.[13] A comprehensive monitoring and reporting framework has been developed to guide the assessment and reporting of the impact of the pilot’s measures.

31. The ANAO has made three recommendations to improve the administration and implementation of current drought assistance arrangements to take forward, should the Government proceed with a new national drought policy.

Key findings by chapter

Approval and Review of Exceptional Circumstances Declarations (Chapter Two)

32. For an indicative sample of 28 areas (out of a total of 92) that had either submitted a new EC application and/or had an existing EC declaration reviewed between 1 July 2007 and 30 June 2010, the ANAO examined the:

• processes for approving and reviewing EC declarations; and
• information provided to stakeholders.

Approving and reviewing EC declarations

33. All EC applications and reviews examined in the ANAO’s sample were assessed and reviewed by DAFF and NRAC in a timely and consistent manner. In each case, the assessment and review processes took into account expert advice from ABARES and BoM, as well as other climatic and agronomic data provided by state/territory governments. Stakeholders were consulted throughout the assessment and review processes. Analysis of DAFF’s files indicated that sufficient information was provided by DAFF and NRAC, to support an informed decision by the Minister.

Information provided to stakeholders

34. As there are both successful and unsuccessful applications from state/territory governments, the announcement of the Minister’s EC decision can be sensitive. Farmers and small businesses affected by drought seek early advice of the Minister’s decision as an EC declaration means that an application can be submitted for financial assistance.

35. Posting the Minister’s decision and reasons for it publicly has assisted the transparency of the process. However, advice from the Minister’s office to state/territory ministers and DAFF was not always provided in a timely manner. This has impacted on the preparedness of delivery partners to address stakeholders’ questions and impacted the provision of instructions from DAFF to Centrelink and the RAAs. Providing there is a clear understanding of any confidentiality requirements for proposed announcements, it would be desirable for all delivery partners to be notified before an announcement is made so that they can be prepared to answer questions relating to the outcome in an informed manner, and provide advice and assistance to stakeholders.

Arrangements with state and territory governments to deliver drought assistance (Chapter Three)

36. ECIRS provides grants of up to $100 000 per year to farmers and small businesses that are viable in the long term but are in financial difficulty due to an EC event. As of 31 March 2011, state/territory government-based Rural Adjustment Authorities (RAAs) had made ECIRS payments totalling more than $2.8 billion to 28 245 farmers and small businesses since July 2001.

37. In 1993, Australian and state/territory government ministers agreed to the IGA that underpins the delivery of the ECIRS program. DAFF issues policy guidelines that set out minimum assessment criteria and other factors the RAAs must consider when assessing ECIRS applications. The guidelines do not instruct the RAAs on how to determine the level of financial difficulty that justifies assistance or to calculate the level of subsidy to be provided.

Monitoring program delivery

38. The IGA and the policy guidelines did not specify indicators, targets or deliverables for performance monitoring and reporting on ECIRS delivery. DAFF gains some assurance about ECIRS payments through desktop monitoring of RAAs’ weekly reports of application numbers and payment data and state/territory government acquittal processes. Since July 2010, DAFF has collated ECIRS data into the Drought and Climate Change Reporting System (DCCRS) database. The DCCRS enables DAFF to monitor compliance with the guideline’s funding limits, in particular the $500 000 cumulative funding limit for farmers. Previously DAFF relied on the RAAs to ensure overpayments were not made.

39. There is variation in the RAAs’ interpretation of the minimum assessment criteria. A key risk for DAFF is that it does not employ any formal quality assurance mechanisms to confirm that RAA assessments of ECIRS applications met the guideline’s minimum assessment criteria. DAFF surveyed the RAAs in December 2009 to gain an understanding on how aspects of the ECIRS guidelines have been interpreted. The survey highlighted that RAAs applied different weightings to criteria and different methodologies to determine the: level of financial difficulty that warranted support; proportion of a farmer’s labour that was contributed to the farm; and funding levels for successful applicants.

Arrangements with Centrelink to deliver drought assistance (Chapter Four)

40. In 2005, DAFF engaged Centrelink through a Business Partnership Agreement (BPA) to deliver the following EC programs—ECRP, IIS, PAPG and the EC Exit Package.[14] During 2009–10, the Australian Government provided a total of: $257 million for ECRP payments to 19 000 farming families and small businesses; $0.58 million for IIS payments to 161 farmers and one small business; $12.5 million for PAPG payments; and paid 138 Exit grants of up to $150 000.

Monitoring Centrelink’s delivery of drought assistance

41. Centrelink reports publicly on its overall performance for the delivery of EC programs. Each of Centrelink’s annual reports since 2007–08 advised that all targets for EC program delivery KPIs had been met. On a program by program basis, Centrelink provided DAFF with performance information on the timeliness of the larger ECRP program, but not the smaller Exit Package or IIS. In addition, Centrelink did not report performance information on payment correctness for any individual EC program to DAFF.
Assurance arrangements for payment integrity

42. Centrelink has a range of quality controls that were designed to ensure the quality of payments. One of the primary controls is Quality on line (QOL), put in place to prevent and detect staff errors at their source. For Centrelink officers, EC payments are a relatively uncommon payment to process when compared to other payments delivered by Centrelink and, like other payments administered by Centrelink, are subject to QOL.

43. In 2009, DAFF engaged an audit firm to conduct two reviews of the ‘consistency and accuracy’ of Centrelink’s processing of ECRP for farmers and for small businesses. The audit firm found that Centrelink’s processing was timely but, recommended that 'DAFF undertake future payment compliance audits to independently assess payment and eligibility correctness’.

44. In the last decade, the number of ECRP recipients peaked at 25 455 (2008 09) and by May 2011, had declined to 541 recipients. In order to maintain an appropriate level of assurance of the integrity of ECRP payments, and depending on the number of ECRP recipients in the future, it will be appropriate for DAFF to negotiate arrangements with Centrelink to measure the level of accuracy and correctness of ECRP payments based on an agreed survey design and methodology, such as the Random Sample Survey (RSS) used by other policy agencies.

45. DAFF and Centrelink advised that a new Bilateral Management Arrangement was to be negotiated to replace the now outdated BPA. In these negotiations, it will be important for DAFF to pursue arrangements to obtain greater assurance regarding Centrelink’s delivery performance and EC payment integrity.

Monitoring and reporting on performance (Chapter Five)

Performance monitoring and reporting framework

46. EC assistance is the Australian Government’s principal mechanism for assisting farmers and small business operators who are experiencing exceptional hardship due to a rare and severe climatic or other event.[15] The KPIs used by DAFF for its drought programs are designed to measure the timeliness of EC service delivery and the number of EC grants provided—neither KPI assists stakeholders to assess the effectiveness of the program in achieving its objective.

47. While identifying measures of effectiveness for drought policy is particularly challenging, an indication of the impact of drought initiatives could be obtained through the use of a range of approaches including KPIs that focus on the target group. The target group for EC policy is farmers and small business operators with long-term prospects for viability. In the case of farm enterprises, the characteristics of a viable farm are known and include: farm size (scale allows larger enterprises to reduce their fixed costs relative to revenue); debt to equity ratio; and whether the farmer belongs to productivity groups and benchmarks his/her performance. One example of a lead indicator that DAFF could consider and use as a measure of the likely effectiveness of drought programs that target this group would be the extent to which EC payments were made available and used by farms with these characteristics. The data to support such a KPI could be obtained via ABARES’ biannual Farm Survey.

Evaluation of EC programs

48. KPIs and program evaluation are complementary approaches that can be used to monitor and review the effectiveness of a program. A number of reviews/evaluations have been undertaken of the EC programs. Generally, these have been critical of the programs and have led to the consideration by the Government of policy alternatives. The information found in these reviews and evaluations was not conveyed through DAFF’s annual reporting of EC program performance. By using a combination of planned evaluations and the ongoing refinement and reporting against a range of effectiveness KPIs, DAFF could provide stakeholders with a better indication of the impact of EC assistance on an ongoing basis.

Piloting new drought measures (Chapter Six)

49. Limitations of Australia’s existing drought policy have been identified in recent reviews and a new approach to drought policy is being explored through a pilot of new drought assistance measures in Western Australia. Given the proposed change in policy direction from crisis response to risk management, the Western Australian pilot is a practical approach to test potential new initiatives and gain experience before scaling up to a national policy.

50. Importantly, the pilot provides an opportunity for stakeholders to see, use and comment on the new initiatives before the Australian Government makes a decision on Australia’s future arrangements for drought management and assistance. The pilot’s design considered: the Government’s options; risks and benefits of different approaches; and comments from stakeholders and experts. The governance arrangements, implementation approach and oversight and review arrangements were well documented through the National Partnership Agreement, the project plan and the underpinning delivery partnership arrangements.

51. Should the Australian Government decide to ‘roll out’ the pilot nationally, a consideration for DAFF will be the need to manage the transformation of the small pilot into a scaled-up program operating across Australia, taking into account the concerns raised by stakeholders about the transferability of the pilot from Western Australia.

Summary of agency responses

Department of Agriculture, Fisheries and Forestry

52. The Department welcomes the ANAO’s performance audit report into the effectiveness of the administration of Exceptional Circumstances measures and the implementation of the Western Australian pilot of possible new drought reform measures.

53. The Department notes the views formed by the ANAO, agreeing with the recommendations provided within this report, with qualification on one recommendation. A full commentary detailing the Department’s response to the recommendations has been provided.

54. The Department is committed to addressing the matters raised in this report, especially given the Australian Government’s commitment to national drought policy reform.

Centrelink

55. Centrelink considers that the development of a new Bilateral Management Agreement with the Department of Agriculture, Fisheries and Forestry will further strengthen the delivery of Drought Assistance.

Footnotes

[1]   Notable periods of drought include: 1895‑1902 (the ‘Federation Drought’); 1914–1915; 1937–1945; 1982–1983; 1991–1995; 1997 and 2001–2010.

[2]   Expert Social Panel Report, It’s about people: Changing perspectives on dryness, 2008, p. 26.

[3]   Australian Government Department of Agriculture, Fisheries and Forestry, Exceptional Circumstances Information Handbook: A guide to policy, processes and assistance measures, p. 3.

[4]   The National Rural Advisory Council (NRAC) is a skills-based independent council that advises the Australian Government Minister for Agriculture, Fisheries and Forestry on rural issues.

[5]   This included areas that were prima facie declared and areas that had been declared as Interim Assistance areas in 2007 by the then Prime Minister as part of the then Government’s pre‑election commitments.

[6]   There are two EC declared areas in New South Wales, Bundarra and Eurobodalla, which are not due for review until April 2012. The EC declaration for River Murray and Lower Lakes Corridor was extended until March 2012.

[7]   The National Partnership Agreement has been deferred pending agreement on the new drought policy.

[8]   Productivity Commission, Government Drought Support, Report No. 46, Final Inquiry Report, Melbourne, 2009, p. 206.

[9]   Centrelink’s primary responsibility is to deliver a broad range of government payments and services to Australians. Prior to the 2005 BPA, DAFF and Centrelink worked together through a Memorandum of Understanding.

[10]   Primary Industries Ministerial Forum, Communiqué, 29 February 2008. Available from <http://www.daff.gov.au/about/media-centre/communiques/pimf_-29_february_2008_communique> [Accessed 17 January 2011].

[11]   Existing drought measures, including assistance available through the EC system, remain unchanged and the Government has advised that the policy will not change until a new policy has been agreed and announced.

[12]   An extension of the pilot for a further 12 months (to 30 June 2012) was announced in the Australian Government’s 2011-12 Budget on 10 May 2011.

[13]   On 10 May 2011, an extension of the pilot for a further 12 months (to 30 June 2012) was announced as part of the Australian Government’s 2011–12 Budget. The Government also advised that the review of the pilot programs, due to be completed by 30 September 2011, will be focused on informing the further consideration of national drought policy reform.

[14]   Prior to the 2005 BPA, DAFF and Centrelink worked together through a Memorandum of Understanding.

[15]  Australian Government Department of Agriculture, Fisheries and Forestry, Exceptional Circumstances Information Handbook: A guide to policy processes and assistance measures, p. 3.