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Revisiting revenue contingent loans for drought relief: government as risk manager

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  • Linda Courtenay Botterill
  • Bruce Chapman
  • Simon Kelly

Abstract

It is clear that Australian governments will provide assistance to farmers in drought, which is a rational political judgement supported by recent survey work suggesting strongly the pervasive existence among voters of agrarian sentiment. In this context, a reasonable question relates to what forms of assistance are most equitable for taxpayers and also have desirable properties for farm businesses. In this study it is argued that traditional and current approaches to drought assistance are not equitable and do not provide sufficient protection to farmers from default and thus insolvency risk. But there is an instrument available to government which can be designed to minimise taxpayer subsidies while at the same time delivering insurance for farmers against default: a Revenue Contingent Loan (RCL). Following the principles inherent in the Higher Education Contribution Scheme, a RCL is financial assistance repaid contingent on a farm’s capacity to pay, meaning that loan defaults can be avoided. We model the revenue streams associated with a hypothetical loan of this type and illustrate the advantages for a farm business of these kinds of debt.
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Suggested Citation

  • Linda Courtenay Botterill & Bruce Chapman & Simon Kelly, 2017. "Revisiting revenue contingent loans for drought relief: government as risk manager," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 61(3), pages 367-384, July.
    • Handle: RePEc:bla:ajarec:v:61:y:2017:i:3:p:367-384
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    File URL: http://hdl.handle.net/10.1111/1467-8489.12213
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    Cited by:

    1. Lin Crase, 2021. "Lessons in Policy Incoherence: A Review of Recent Water Policies, Water Planning and Drought Policy in Australia," Economic Papers, The Economic Society of Australia, vol. 40(4), pages 313-330, December.
    2. Sahar Daghagh Yazd & Sarah Ann Wheeler & Alec Zuo, 2019. "Exploring the Drivers of Irrigator Mental Health in the Murray–Darling Basin, Australia," Sustainability, MDPI, vol. 11(21), pages 1-15, November.
    3. Purushothaman Chirakkuzhyil Abhilash, 2021. "Restoring the Unrestored: Strategies for Restoring Global Land during the UN Decade on Ecosystem Restoration (UN-DER)," Land, MDPI, vol. 10(2), pages 1-19, February.
    4. Steele C. West & Amin W. Mugera & Ross S. Kingwell, 2021. "Drivers of farm business capital structure and its speed of adjustment: evidence from Western Australia’s Wheatbelt," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(2), pages 391-412, April.

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