Do Almonds Grow On Trees?

Managed investment schemes in return

Geoff Easdown
December 01, 2007 12:00am
Source

PROMOTERS of managed investment schemes may win a reprieve in their fight to retain the tax-effective status of their olives, almond and table grape products.

Labor's election promise to undertake a comprehensive review of the costs and benefits of managed investment schemes could see the Taxation Office lift a ban the Coalition was to have enforced on new schemes from June 30.

The new government, looking to attract city money to the bush, has undertaken to consult widely with the investment and rural communities with a view to developing options for attracting long-term, sustainable investment in rural and regional areas.

At Swan Hill, where high-worth investors have generated jobs and injected tens of millions dollars via olive and almond projects into the local economy, the news that rigid tax office decision-makers might have to compromise is being welcomed.

"We'd support that," said the local rural city council's economic development chief Garry Tepper this week. He noted that a review of the MIS industry would match the protest his council made to the Howard Government last February after the axe was brought down on MIS-funded horticulture without the sector having been consulted.

At the time, Swan Hill council told the government the decision jeopardised hundreds of millions of dollars of future investment as well as hundreds of new jobs, particularly in the region's export-based almond and olive industries.

"Council has already been informed that jobs have been lost, contractors dismissed and forward orders and supplies cancelled," then local mayor Garry Norton had protested.

Now, six months later, a new attempt appears set to be made to deal with the ever-thorny MIS issue.

It's an issue that has divided communities and seen neighbours taking sides as stock exchange-listed promoters buy land and take up irrigation rights at prices ordinary farmers cannot afford.

"What we have now is a government that's more willing to look at both sides of the fence," Shane Kelly, principal of leading agricultural analysts Adviser Edge, told BusinessDaily late this week.

Six months ago National Party MPs, led by then agriculture minister Peter McGauran, backed the farm lobby protest against MIS and used the influence they had in Cabinet to favour the taxman.

MIS firms such as stock exchange listed Timbercorp, Great Southern Plantations and the Rewards Group were told their only option was to mount a test case which the Tax Office would reject, prompting a string of legal appeals that could, at some time in the distant future, be adjudicated by the High Court.

As a result, Timbercorp has curtailed planting at its Robinvale and Murray Bend orchards to 1200ha of almonds and 2300ha of olives this year, all of which, says managing director Sol Rabinowicz, come from a mix of investment projects from last year as well as some from the September 2007 season.

Little wonder that Mr Tepper was only too willing this week to provide statistics.

They show that $900 million worth of investment had been ploughed into developing 28,000ha for horticulture within the Swan Hill municipality over the past decade. Most of the funding came from agribusiness firms that obtained the cash by selling shares to city-based, wealthy professionals through MIS schemes.

"At current farm gate prices the horticultural industry generates about $400 million a year and that's likely to double as plantings mature," Mr Tepper told BusinessDaily. "We also value the almond industry at $50 million now, and that looks like going up to $400 million as the trees mature and reach peak production four to five years from now."

In terms of new employment, MIS increased full-time job numbers across the region by 290 between 2003 and 2006, with the almond industry spawning about 25 jobs for each 1000ha planted.

This season, various promoters operating north of Swan Hill put 6000ha into the ground creating 150 jobs. The expenditure amounts to about $100 million in wages annually.

"And that's going to grow over the years as well," Mr Tepper said.

He argues that jobs and incomes generate taxes, a point his council made to the former government when it decided to axe investor deductions.

Instead, the Coalition charged ahead, and without consulting MIS promoters announced it would axe tax breaks offered to olives, almonds, table grapes, mangoes and all ventures apart from plantation forestry -- exempted to help protect the environment.

Mr Kelly said the decision last February could have played out two different ways, both bad for MIS.

"The ATO might have won the test case, and had the Libs won the election they could have legislated MIS out of the present tax model," he said.

But Mr Kelly argues that concerns of both sides must be considered, especially traditional farmers when a cost-benefit analysis is made. "Land and water prices have increased but a real look needs to be taken at what is driving that," he said.

Is MIS really the culprit driving up prices?

"If it is MIS then you need to balance that against other issues, not just the farms but what also flows to regional centres."

Mr Kelly acknowledges that MIS developments need a lot of water to irrigate horticultural crops and concedes "that water has to come from somewhere".

T HAT somewhere is the Goulburn-Murray dairy and orchards districts surrounding the towns of Echuca, Nathalia and Shepparton where excess water has been traded under permanent and temporary arrangements to corporates -- in many cases at prices that drought-affected dairy farmers can't afford.

A new report into the economics and social aspects of water trading and the farming revolution brought about by MIS published this month argues that water trading is no temporary phenomenon; that there is a clear movement of water from irrigation districts to greenfield sites, most of which have been developed by MIS investors.

Commissioned by the Rural Industries Research and Development Corporation, the National Water Commission and the Murray-Darling Basin Commission, the study points out how traded water has helped existing industries, such as wine production, and prompted the development of horticultural ventures in Sunraysia.

However, it does mean the social impacts of what is happening will probably become a permanent feature of rural economies.

"Communities can find change and adjustment difficult," the study noted. It also found that water trading was a catalyst for change that would have happened as a consequence of the drought, the variation of commodity markets and rural adjustment.

As Kelly argues: "High value horticulture will always be able to pay more for water than dairy farmers."