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A Revenue Contingent Loan Instrument for Agricultural Credit with Particular Reference to Drought Relief

Author

Listed:
  • Bruce Chapman

    () (The Australian National University)

  • Linda Courtenay Botterill

    (The Australian National University)

Abstract

Australia’s National Drought Policy is in need of significant reform. The following analysis considers the potential role to be played by loans provided by the government to farm businesses in periods of adversity, to be repaid depending on future revenue streams. While the economic case for taxpayer subsidies for drought relief is contestable, our approach sits comfortably in the literature with the general promotion of income stabilisation instruments for agricultural credit. The paper develops earlier work on the introduction of an income (revenue) contingent loan for drought relief and promotes for consideration a specific linkage between this policy instrument and Farm Management Deposits in a single credit risk minimisation program for farmers. It is argued that policy reform along these lines would allow farm businesses the important opportunity for income smoothing and, because of the nature of the collection mechanism through the tax system, a scheme of this genre would curtail the prospects for moral hazard.

Suggested Citation

  • Bruce Chapman & Linda Courtenay Botterill, 2009. "A Revenue Contingent Loan Instrument for Agricultural Credit with Particular Reference to Drought Relief," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 12(2), pages 181-196.
  • Handle: RePEc:ozl:journl:v:12:y:2009:i:2:p:181-196
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    Cited by:

    1. Kenneth Baldwin & Bruce Chapman & Umbu Raya, 2015. "Using Income Contingent Loans for the Financing of the Next Million Australian Solar Rooftops," ANU Working Papers in Economics and Econometrics 2015-627, Australian National University, College of Business and Economics, School of Economics.
    2. Freebairn, John W., 2010. "Markets, Governments and Agriculture," 2010 Conference (54th), February 10-12, 2010, Adelaide, Australia 59073, Australian Agricultural and Resource Economics Society.
    3. Linda Botterill & Michael Hayes, 2012. "Drought triggers and declarations: science and policy considerations for drought risk management," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 64(1), pages 139-151, October.

    More about this item

    Keywords

    Economic History: Agriculture; Natural Resources; Environment; and Extractive Industries: Africa; Oceania; Regional Economic Activity: Growth; Development; and Changes Agricultural Finance;

    JEL classification:

    • N57 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - Africa; Oceania
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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