Mining makes you go blind or something

I got interviewed by the ABC asking about an Australia Institute report that is coming out later today.

Australian farmers have lost $61.5 billion in export income since the mining boom pushed the Australian dollar to historic highs, a new analysis by The Australia Institute reveals.

Still beating around the bush: The continuing impacts of the mining boom on rural exports examines the rural sector’s export income from the beginning of the mining boom in 2003-04 until 2011-12.

The implication being that the mining boom has pushed up the value of the Aussie dollar. Now the Australia Institute report is going to be long on assertion and short on analysis – but that’s fine. What about the actual claim?

I don’t believe it. The Aussie is strong because of our high domestic interest rates relative to the rest of the world. The Aussie is strong because it has gained ‘safe haven’ status – rightly or wrongly, Australia is now one of three economies with AAA status from three ratings agencies. The Aussie is strong because we have had over twenty years of economic growth. The Aussie is over-valued IMHO right now and will be for some time – until the rest of the world gets its affairs in order.

If the mining boom was driving our currency to being over-valued why aren’t other mining economies currencies over-valued too? When I speak to my South African friends they’re not complaining about an over-valued currency.

Now here is a specious argument:

Our farmers are price-takers not price-setters. This has meant that the surge in the Australian dollar due to the mining boom has had the knock-on effect of reducing the value of their exports.

Miners are price takers too. If farmers face this knock on effect why not the miners? I suspect the report will be silent on that matter.

Now as Lord Keynes famously said, everything depends on everything else. Having a strong mining industry is good for Australia. Relative prices will change and signal that resources should exit some parts of the economy and migrate to other parts. Now some industries will suffer more than others – but it is the more marginal producers in all industries that are under the pump.

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45 Responses to Mining makes you go blind or something

  1. Grey

    When I speak to my South African friends they’re not complaining about an over-valued currency.

    South Africans? Not complaining about something? I find that difficult to believe.
    Perhaps it was a long way down their complaining list and you had already eased your way out of the conversation before they reached it?

  2. Pedro

    “South Africans? Not complaining about something?”

    LOL, damn yarpies. Gun happy rugby cheats and whingers. :-)

    Seriously, why does anyone quote the Oz institute? It’s a drivel factory. Now we’ve all got to be poorer for the sake of the farmers. But I’ll bet Barnaby is reading the report and nodding his head wondering how they finally got something right.

  3. eb

    The Australia Institute hates mining. This report has zero credibility.

  4. Sleetmute

    So what’s the solution – stop mining? The farmers may be better off but we consumers will suffer as all imported goods rise in price by 50% as the dollar falls down to US 67c.

  5. tbh

    The Australia Institute, mainly in the form of Richard Dennis, has a long declared jihad against the mining industry. In Dennis’ case it may have something to do with the fact that he was an advisor to the Greens and also Natasha Stott-Despoja. Oh and added to that he was co-author of Affluenza, with old Cat favourite Clive Hamilton.

    http://www.tai.org.au/node/4

    So with leadership like that, the slamming of the mining industry has become standard fare for this bunch of misanthropes. I find it odd that people of that political persuasion have suddenly started siding with farmers. You don’t have to go back too far to find that greenies were declaring war on them them too.

  6. Chris

    Twiggy Forest doesn’t like mining in his backyard either :-) He cites environmental issues and noise disturbing cattle!

    http://www.smh.com.au/business/oh-the-irony-twiggy-fights-bid-to-mine-his-farm-20130225-2f0im.html

  7. Sinclair Davidson

    The Australia Institute hates mining.

    Well, yes. I doubt the ABC would be given much coverage to the RBA report on mining that came out last week.

  8. Rabz

    tbh,

    Lin Hatfield-McCoy-Dodds is a former greenfilth politician and chair of the AI’s Board.

  9. Harold

    SBS said that some lonely miners are financially exploited by prostitutes who take advantage of their isolated existence. Or something like that.

  10. Pedro

    “SBS said that some lonely miners are financially exploited by prostitutes who take advantage of their isolated existence. Or something like that.”

    the sex broadcasting service is just worried about the competition. less hooker means more horning miners watching their pervy movies for a wank

  11. tbh

    Lin Hatfield-McCoy-Dodds is a former greenfilth politician and chair of the AI’s Board.

    It gets worse! All it does is confirm that they have a partisan agenda and should be ignored.

  12. stackja

    Hatfield-McCoy

    Reminds me of the her fussing and feuding cousins.
    Has $Aus affected MP’s pay? Why not use the card excesses of some MPs to help marginal farmers? I am sure the excessive MPs would not mind.

  13. ugh

    Surely the “high” A$ is being influenced by other major economies printing money? ie the U$ (which many export contracts are denominated in) has depreciated, credit rating downgraded and its government seems to lurch from one fiscal cliff to another – Somehow I doubt local factors are the only culprits here.

    Also it seems only to look at the export revenue side of things – how about dramatically cheaper imported farming equipment, supplies etc? Not that I’m holding my breath for the Aus Institute to become balanced…

  14. Tom

    When I speak to my South African friends they’re not complaining about an over-valued currency.

    I’d guess that South Africa is at least as dependant on mining as Australia is.

    The Aussie is strong because of our high domestic interest rates

    And why is that? 1. We have a banking oligopoly which has bought both sides of politics, which defend its anti-competitiveness. Interest rates are high because the banks get world-record margins. 2. An unprecedented $260 billion in government debt — all accumulated in the past five years — has created huge currency inflows from foreign investors in government bonds.

    The left runs the country and controls the media and the left hates mining which, like most huge risk-and-reward industries, creates billionionaires. So “mining is evil” is the brain-damaged garbage we get daily from the national broadcaster among others because everyone knows mining is causing the high dollar because shutup. It’s like Australia is being run by a kindy full of five-year-olds.

  15. Milton von Smith

    Of course the dollar is high because of the mining boom. And moreover, that’s efficient and desirable.

  16. .

    The implication being that the mining boom has pushed up the value of the Aussie dollar. Now the Australia Institute report is going to be long on assertion and short on analysis – but that’s fine. What about the actual claim?

    No, because of two reasons.

    1. Australian grain, which makes up a high proportion of ag. exports, is of high quality and is largely immune to exchange rate pass through – or price elasticity of the AUD. Indeed what the AI is saying is not only specious, it is downright wrong. They ought to retract their statement.

    2. The Australian dollar has not risen so much in terms of a TWI, only against the USD. Not all of our mining or agriculture exports go to the US – less mining goes to the US anyway.

    The day the AI comes out with farmer friendly policies like axing the agriculture specific carbon bank rules and ending the satellite surveillance of farms, I’ll eat my 10 gallon hat.

  17. Driftforge

    Interest rates are high because the banks get world-record margins.

    Interest rates aren’t related to bank profit margins, which are made on the differential.. Interest rates are actually probably somewhat depressed below market rates due to the actions of the RBA.

  18. jumpnmcar

    Yes miners and farmers are price takers.
    Miners don’t plant, fertilize and irrigate the minerals before they process and sell.
    And Farmers don’t pay royalties.
    But as it stands ” big mining ” is making more profit than ” big Ag ” in Australia.

  19. Louis Hissink

    Hmm, I wonder if during our busts we could be compensated for the excessive profits the agricultural will make as a consequence of the low valued dollar.

    This works two ways, you know.

    Effing agrarian socialists.

  20. Bruce

    The Aussie is strong because it has gained ‘safe haven’ status

    Looks right to me from the data. Alan Kohler showed this graph recently on the nightly news. The Oz dollar was in close correlation with mining commodity prices until Q2 of 2011 then R^2 packed up and left.

    Meanwhile UK, US, Japan, Switzerland and the EU have been QE’ing as fast as their inkjets can print more money. We haven’t been.

    So mining could crash tomorrow and farmers and manufacturers probably wouldn’t benefit much. My suggestion: don’t hold your breath for a lower dollar.

  21. wreckage

    Mining has saved at least one rural town from total oblivion during the ten-year drought. For a lot of rural communities, mining income has substituted for farming income in a period where the problem wasn’t really the dollar; it was a one-a-century drought.

    This has even kept a lot of small farmers in business. Those with high equity were able to mothball farming operations and work at the mines.

    Anecdotal, I know, but eyewitness.

  22. jumpnmcar

    Yes wreckage but full property rights would see farmers with the upper hand in negotiating their rightful share in the bounty the mining companies reap from, what is in principal, their property.
    Or the farmer sells the land to the highest mining bidder.
    At least in the gas area.
    This ” mining rights ” concockeded by governments has reduced land owners rights ( be they farmers or not )

  23. Jim Rose

    Australian consumers saved $61.5 billion in income through lower import prices since the mining boom pushed the Australian dollar to historic highs, a new analysis by The Australia Institute should have revealed.

  24. gnome

    Oh Rabz- tell me it isn’t so. Tell me I don’t have to include a “McCoy” in my Fathield Dogg spoonerism.

  25. old bloke

    the sex broadcasting service is just worried about the competition.

    The same SBS series on the evil mining corporations also said that the evil miners also engage in evil political machinations. The producers gave the knifing of Kevin Rudd as an example, claiming that he was knifed beacause the evil mining corporations disliked his mining tax Mk. 1.

    The logical extension of this claim is that Gillard and Maxwell Swan are the paid dupes of the evil mining corporations.

    This could not possibly be true. We know that the mining tax Mk. 2 was designed by the experts in the Treasury without any involvement of the evil mining corporations, and that it has garnered untold billions of dollars into the Treasury.

    I’m sure that Big Bill Ludwig had nothing to do with this fallicious claim, and that the AWU want to retain Gillard as PM simply because she’s the best thing since sliced bread.

  26. Entropy


    Yes wreckage but full property rights would see farmers with the upper hand in negotiating their rightful share in the bounty the mining companies reap from, what is in principal, their property.
    Or the farmer sells the land to the highest mining bidder.
    At least in the gas area.
    This ” mining rights ” concockeded by governments has reduced land owners rights ( be they farmers or not )


    That isn’t true, jump. The land titles haven’t changed for a 100 years. There is no conspiracy here,

    Now, land prices for at least a decade haven’t reflected the agricultural earning capacity of the land, but I am pretty sure they have never reflected the earning capacity of mining.

  27. Entropy

    In any case, that miners are price takers just like ag is beside the point.

    Just think what wheat prices coulda been if the dollar was only seventy cents. What coulda been is extremely important consideration for the farming sector in the land of droughts and flooding rains. And they keep doing it because one day it will be.

  28. jumpnmcar

    Ent

    That isn’t true, jump. The land titles haven’t changed for a 100 years.

    So the property rights of land owners has been shit for a century and haven’t been rectified. OK then.

    Now, land prices for at least a decade haven’t reflected the agricultural earning capacity of the land, but I am pretty sure they have never reflected the earning capacity of mining.

    So let the owners of that property, and potential purchasers decide the value. Not some fucked up government decree.
    It’s just Govt picking winners between mines and AG.

  29. Aliice

    Bruce

    who says
    “The Aussie is strong because it has gained ‘safe haven’ status”

    anyone who thinks the aussie is stong fo any other reaon than the US is weak due to their quantitative easings there and wants to read something else into it – is completeley dreaming.

    Strong relative to weak.

  30. Jc

    ……anyone who thinks the aussie is stong fo any other reaon than the US is weak due to their quantitative easings there and wants to read something else into it – is completeley dreaming.

    Not quite dreaming. The aussie is also well up on the TWI. Since 2000 it’s been a one way street and the US dollar only takes 9% of the index

  31. Jc

    The Yuan takes 25% and because it’s fixed to the US dollar you could say that the US dollar influence is much greater than the 9%.

    So there is that I guess.

  32. Driftforge

    So let the owners of that property, and potential purchasers decide the value. Not some fucked up government decree.
    It’s just Govt picking winners between mines and AG.

    And then charge them that cost on an ongoing basis, as the perceived value changes, and you have a stable, workable system.

    The concept of land as an asset is perverse.

  33. entropy

    Jump, you can argue that the rules aren’t fair, because farmers always intended to make money from mining rather than agriculture, or because that thirty year pastoral lease is really unalienable ownership to the earth’s core, but think about the consequences if the rules are changed.
    You have to accept that to buy a property for say, beef cattle production, you would also have to account in the purchase price for the potential value of any minerals underneath. That would be great for the people that just happen to already own the land on top when the rules get changed, they would get to enjoy a massive windfall. But how would that help cattle production investment in the future? The prospects for the next generation wanting to get on the land? The fact is it wouldn’t.

    Under a scenario where the land surface owner also had the rights to the minerals below the surface, the only way to be get a farm to use for farming would be to inherit one, as the earning capacity for farming would never service the purchase cost. Agriculture for the land owner would eventually become a secondary activity compared with actual mining, or income would be derived via debt leveraging of the land asset based on speculation that there one day might be..

  34. Driftforge

    You have to remember that the value of land is basically the cost of paying others not to use it.

    No point paying others not to mine it if you don’t have to.

  35. jumpnmcar

    Look Ent, If a mining Co wants to safely lease out the surface of their property to grazier or farmer or circus animal training dude, good, negotiate a price.
    Should a government bestow ” farming rights ” on BHP owned property ?
    How about ” brothel rights ” on your property? Or ” cemetery burial rights ” ?
    Why in mining special ?

  36. Driftforge

    All those other rights are often influenced by council planning, to significant effect on the value of the land.

    Mining rights are special because they are more significant in value.

  37. jumpnmcar

    Mining rights are special because they are more significant in value.

    Plenty of mine, in fact, all of them become financially unviable in time.
    That’s beside the point.
    If a mine has value then quantify that and the access to it should be granted by the property owner not the minister of the day.

  38. Driftforge

    Sure. As long as the property owner is paying out the same as the miner would be willing to at that point, no problem.

  39. wreckage

    Agriculture for the land owner would eventually become a secondary activity compared with actual mining

    That would only occur if mining co’s were bidding up prices on Ag land in order to secure access. Pretty unlikely unless they’d done the exploration already.

  40. entropy

    No, mining rights aren’t special. They get an exploration or production lease for twenty or thirty years, I cant remember the detail, but most importantly, if they don’t use it they lose it.

    Wreckage, i was thinking in specific context of CSG. Agriculture can continue on the surface. IBut as I think of it, it would also hold for mining: if the landholder had the mineral rights, that is just what would happen. The miners would pay for the land at a price that reflects its mineral wealth value instead of state royalties in the fantasy world where the mineral rights get transferred cost free to the landholder.

    So where would that leave the state? Having to levy a massive , massive increase in leasehold land rent to make up for the loss of royalty revenue.

  41. Driftforge

    Having to levy a massive , massive increase in leasehold land rent to make up for the loss of royalty revenue.

    Actually, more likely just raising the land tax rates to a more appropriate level.

  42. Uber

    Sinclair, a question. Why can’t the overnight cash rate be determined by the market in real time rather than a small handful of suits?

  43. KeithB

    “If the mining boom was driving our currency to being over-valued why aren’t other mining economies currencies over-valued too? ”

    The value of the Australian dollar is pushed up by anything that increases money inflows, whether that be a ‘safe haven’ effect on overseas investment( in public and private securities ), high interest rates, or high export prices. This is not to say that other exporters aren’t overvalued, but that Australia has more of the above than other mining exporters and may therefore be more over-valued.

    “Now here is a specious argument… I suspect the report will be silent on that matter.”

    Miners are oligopolistic and thus have some influence on the price they receive. Since the demise of the wool reserve price scheme and wheat’s single desk marketing farmers have lost the ability to influence even their marginal price. Also, since farmers now sell through middlemen operating in Australia they are paid in Australia dollars whereas the miners, selling their own produce on international markets can write their contracts in currency of their choice.

  44. Wazsah

    jumpnmcar says – Miners don’t plant, fertilize and irrigate the minerals before they process and sell.
    I would say the high risk and costly process of mineral exploration, then years of complying with a blizzard of green & red tape conditions, then years of investment in developing the mine and processing structure – is a parallel and more expensive equivalent to “…planting, fertilizing and irrigating…”.
    jumpnmcar also says – Plenty of mine, in fact, all of them become financially unviable in time. I would also point out that many mines are reopened or re-explored, deepened, re-developed. evolve into an open cuts etc; when metal prices improve as they historically can. Often the easiest place to explore for minerals is peripheral to an existing mine, open or shut.
    jumpnmcar also says – If a mine has value then quantify that and the access to it should be granted by the property owner not the minister of the day.
    I would say – “If a mine has value…” it will already be owned by a company who has invested hard earned shareholders $’s either in mineral exploration or purchasing from an earlier minerals owner.
    That statement seems to imply that there is a database somewhere of mines waiting to be snaffled up by people who have some secret code. Far from reality.
    jumpnmcar also says – “…access to it should be granted by the property owner not the minister of the day.”
    Well it is an alternative scheme jumpnmcar but your idea to overturn centuries of mining law by the Crown giving away to property owners something the p o’s never paid for – I just can not see it helping the nation be prosperous. It would add more risk and expense to the orderly development of minerals in the national interest.
    Anybody who thinks there is easy quick wealth in mining is free to get together and form a mining company, or buy into existing co’s on the ASX, see how easy it is. Getting hired as a mining plant operator is probably a surer way to a solid income for many.
    Despite sensational revelations at ICAC I think that the broader administration of mineral rights across Australia is carried out in the States (peoples) interests and is not a problem area needing a complete overturning of the legal framework.

  45. jumpnmcar

    Wazsah.
    Farmers battle red and green tap, by plant and machinery and often form co-ops to process. That cost money too.All on their own property that they purchased.
    Some farms become unviable too. they innovate, diversify or sell.All on their own property that they purchased.
    I don’t know what your on about secret codes and databases and as for century old laws ? they get changed every day.
    I don’t know why this is controversial.
    I not clever enough to do a comparative graph comparing the 2 sectors ( both very important ) by employment,inputs, profits, proportion of GDP or projected importance to our economy but maybe you are ?
    I’m not anti-mining, far from it.
    I’m pro-property rights.
    Don’t come squealing to me when a government give a licence to a n energy company to put solar panel on your roof and a fucking great wind mill in your front yard, after all, you don’t own the sunshine and the wind.

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