June quarter rental data

June quarter rental data from the RTA based on rental bonds lodged for the quarter was released on Friday. I have updated the comparative graphs of the two largest Cairns cohorts, 2br units and 3br houses, at Rental Data. Further insights into this excellent data will be added at that link over the coming millennium.

Cairns renters are now paying a premium of $60 per week over Townsvillians for a 3br house. Mackay continues to search for a bottom.

Rental1

Despite recent reports of lower vacancy rates and limited supply for Cairns in the recent months that isn’t yet showing up in further increases in median rents.

Sugar Marketing Wars MMXVI

The Productivity Commission has released a report critical of the changes last year to sugar marketing arrangements in Queensland. Reported at the AFR: Queensland sugar re-regulation costs outweigh benefits, says PC.

The Queensland Parliament’s partial re-regulation of the state’s sugar industry has been slammed by the Productivity Commission, which says the move is likely to worsen profitability and curb investment.

Highlighting that a considerable number of Queensland sugar farms are still too small to be profitable, the independent federal government think-tank said legislation passed late last year to let sugar cane growers direct how millers market internationally is likely to restrict competition and deter new spending on mills or more innovative marketing.

“Re-regulating the Queensland sugar industry will limit the competitive forces driving innovation and productivity growth in sugarcane farming,” the commission said in its draft report into agricultural red tape.

“It is also likely to constrain innovation in marketing and continue to limit the premiums available to sugar cane growers. The commission’s view is that costs of the Sugar Industry (Real Choice in Marketing) Amendment Act outweigh the benefits.”

The legislation was passed in December by the Queensland Liberal-National Party opposition with the support of independents. It has since become a sensitive issue within the Turnbull government, which is eager to signal to foreign investors that Australia is open for business while also keeping federal Queensland LNP members on side.

Former trade minister Andrew Robb was warned during a trade mission to Singapore earlier this year that the Queensland Parliament’s move had damaged the nation’s reputation as an investment destination.

“The re-regulation of sugar marketing in Queensland has the stated objective of allowing sugar cane growers to choose their marketing arrangements,” the commission said in the report. “However, the evidence suggests that the preferred choice of marketing arrangements is likely to reduce the productivity and profitability of the industry by constraining investment and structural adjustment.”

The commission’s report reiterated that the industry continues to fail to take advantage of economies of scale. The average size of sugar cane farms has increased from 80 hectares in 1997-98 to 110 hectares in 2015-16, but is still well below the US average of 495 hectares.

Research cited in the report suggests farms smaller than 125 hectares generate a negative rate of return on capital, while those larger than 250 hectares generate similar rates of return to grain growers with similar capital investment.

If my recollection is correct the legislation was passed in our unicameral Queensland legislature by the LNP and KAP despite being opposed by the ALP government. In the current political circumstances it is unlikely any challenge will go far.

In recent times there have been some spurious claims of adverse sovereign policy risk which have successfully managed to confuse the term. In this case they are valid. Grower owners of the Mills sold their interest on quite nice terms thank you (Mulgrave) trousered the cash then lobbied for the legislation to return marketing power to themselves.

Previous comment on this at Queensland Economy Watch: Premier should definitely call an early election; Guest post by Rod Bogards.

Industry nformation and links at Sugar. PC  here: Regulation of Agriculture Draft Report.

PNG Economy

Cairns has always had particularly close contact and relationship with our neighbour to the north in PNG. The business relationships have been actively promoted by Cairns Chamber. Cairns has also been a favoured haven for less reputable funds from notoriously corrupt PNG governance.

There has been further political instability recently in PNG with a confidence vote in parliament imminent and concerns over the economy. A recently launched blog may be of interest and worth a follow offering “timely, accurate, frank and fearless advice”: PNG Economics.

Conclusion from the most recent post on “PNG’s Recent Recession”:

This new data is of great concern. While turning on the PNG LNG taps has made the headline GDP numbers look good (24% growth over two years), this has been a smokescreen for how poorly the key parts of PNG’s economy have been doing over 2014 and 2015. The combination of economic statistics indicates PNG has just had a significant recession for the parts of the economy that most affect PNG’s citizens.

Looking forward, the economy still suffers from foreign exchange shortages driven by poor policy choices, faces downward pressure on aggregate demand due to the major reduction in government expenditure (related to excessive earlier promises and poor revenue effort) and continuing uncertainty on commodity prices. Announced policies in areas such as agriculture, lands and SME have hurt confidence and will discourage growth. Earlier warnings about a slippery slope were ignored and there is now much more repair work to be done. The causes for the recession include the El Nino drought and falls in commodity prices, but the causes also go well beyond these specific issues and to the heart of poor economic management in PNG over recent years. However, with the right leadership and policies, PNG should be able to realise the opportunities owed to its people by embracing the Asian century.