Slash depreciation rate

By: Trevor Whittington

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In his first opinion column for Farms & Farm Machinery, WAFarmers CEO Trevor Whittington looks at how the government can boost farm productivity

WAFarmers CEO Trevor Whittington looks at how the gervernment can boost farm productivity
 WAFarmers CEO Trevor Whittington looks at how the gervernment can boost farm productivity

It’s hard to imagine that Australian agriculture would have been able to compete globally if we had stood still in the early 1980s with machinery that maxed out at 350hp (261kW) tractors, 40ft bars (12.2m) and 30ft (9.1m) headers fronts. Over the past 40 years the size of the largest new machinery has effectively doubled, and in some cases tripled, in size.

One of the hidden forces of productivity growth in the Australian broadacre agricultural sector is the use of large modern high tech machinery.  The faster the uptake of the latest, largest and most advanced technology, the more chance farmers have of keeping up with the productivity curve that demands one per cent of on-farm improvement every year to stay internationally competitive.

The industry needs the big and the cashed-up to buy new and then turn over their machinery at low hours so that there is a steady stream of modern second hand equipment coming onto the market every year. 

The trickle-down effect to farmers who are in the second hand market for 1,000, 2,000, 3,000-hour equipment, right through to those buying 8,000-hour plus first generation 1990s self-propelled sprayers, quad tracks or precision seeding rigs, all depends on a steady flow of new machinery hitting the market.

If the sales of new equipment takes a dive because of a drop in the value of the Australian dollar, a collapse in commodity prices, spike in interest rates or a large drought, then the ramifications on second hand values will be felt down the line for years to come.

If the Federal Government is serious about supporting the agricultural sector to remain internationally competitive and hit the National Farmers Federation target of $100 billion by 2030 (up from the current $65 billion) then they should be looking at policies that encourage farmers to continue to invest in more productive machinery, be it new or second hand.

WAFarmers CEO Trevor Whittington
 WAFarmers CEO Trevor Whittington

To do this there are multiple policy options open for the government, with the simplest and most effective being to continue to lower personal and business tax rates, leaving more profit in farmers’ pockets. However, with the blooming public sector debt the government is more likely to be convinced to support targeted changes to tax depreciation schedules, which lead to a clear economic benefit.

The tried and proven farm tax policy to drive investment is via accelerated depreciation. The federal government has used this method on and off in the past, including the current instant tax write off, which has been raised from $30,000 to $150,000 (up to June 30) as part of its Covid-19 stimulus package.

The key change needed here is to lock this in as a permanent fixture of the Australian tax system as it is due to fall to $1,000 on July 1. This would incentivise the farmers that are using 1980s and 90s-era machinery to move up into post-2000 models, which would rapidly reduce the average age of agricultural machinery across Australia and provide a generational change in technology and efficiency for these farmers. 

The other key change would be to halve the current depreciation schedule for key agricultural machinery that is closely linked to productivity, such as tractors currently set at 12 years, headers at 10 years, self-propelled sprayers at eight years and seeding rigs at 15 years. These changes would be more in line with the rapid run down of new gear working long hours and would acknowledge the speed of technological change.

While we all know new machinery is expensive and there is no doubt that there exists unfair collusion by dealers and manufacturers to restrict competition and push up prices, these issues are for another article.  However, it has to be said they when it comes to the market ultimately it’s up to farmers themselves being prepared to buy Russian, Chinese, South African or Argentinean over EU or US red, yellow, green or black.

But without the government incentivising farmers to go out and buy more new equipment from both traditional and new manufacturers or made locally, the second hand market will tighten up, forcing up prices for those farmers who cannot afford new, which over time will impact their ability to keep up with the endless race for productivity improvements.

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