Call for farm debt survey

11 Apr, 2014 04:00 AM
Liberal National Party Senator Barry O’Sullivan wants federal government to initiate a national survey of farm debt.
There's a locust plague of problems emerging in some areas
Liberal National Party Senator Barry O’Sullivan wants federal government to initiate a national survey of farm debt.

BANKS are deliberately stonewalling farm sector efforts to release up-to-date figures on Australia's rural debt problem for fear the flood of red ink surrounding many of their clients could badly erode lenders own balance sheets, says Queensland Senator Barry O'Sullivan.

The Liberal National Party (LNP) Senator wants the federal government to initiate a national survey into rural debt because the banking sector is refusing to divulge State-specific or regional breakdowns.

He said an organisation such as the Australian Bureau of Agricultural Resource Economics and Sciences (ABARES) needed to examine regions or sub-sectors of the farm economy so public policy and business strategies could properly understand and plan around such financial trouble spots.

He believed lenders already had the information at their finger tips but with some debt problems now blowing out equating to almost the entire value of rural properties, particularly in parts of Queensland, it was not in the finance industry's commercial interest to spell out how bad the problem had grown.

And it was a problem not just limited to farmers.

"Rural service providers who've been around for two or three generations have clients owing big sums for fuel, fertiliser, or herbicide which is in turn putting pressure on their own financial position with their bank, or their ability to cover GST liabilities," Senator O'Sullivan said.

"If bank penalty rates kick in because your debt levels become a risk, loan costs can jump from seven per cent to 12pc, which obviously only compounds the issue further.

"There's a locust plague of problems emerging in some areas where business ranging from small post offices to car dealerships have been devastated as their district's cashflow dries up."

He said banks were understandably worried information about debt levels in specific areas could further erode land values as potential buyers stepped back to wait for sellers in distressed areas to accept property deals at fire sale prices.

Any big hit to local property values would spread to hurt other borrowers' equity levels and their lenders, too.

Senator O'Sullivan last month told federal parliament there was an urgent need to understand the true extent of Australia's farm debt, which is variously quoted at being between $60 billion and $70b.

Without understanding the size of the problem, particularly in specific industry segments or regions, and doing something to halt it, Australia was set to lose "too many years of corporate and industry knowledge and experience" vital to helping the economy capitalise on agriculture's export growth potential.

"It's not that we don't know what the problem is," he said.

"The issue is we don't know what we don't know."

Government responses to help drought-squeezed producers also had to recognise how to effectively target any financial packages, not make the problem worse with short-term loans that often compounded debt.

"If we're to truly capitalise on our focus on signing free trade agreements and the increasing demand for our food and fibre in this Asian century, we must thoroughly investigate the true economic state of our rural sector," he said.

"We need to ensure there will be a productive, stable and profitable primary production industry."

Senator O'Sullivan said the debt crisis could not be generalised, and it was biting far harder in some regional areas while other industry sectors were in a solid position with lenders.

Queensland's Rural Adjustment Authority (QRAA) was blocked from undertaking its usual survey last year because banks declined to be involved in a State-specific initiative for the first time since 2000.

But Senator O'Sullivan said QRAA's earlier 2011 survey found the number of Queensland beef industry borrowers considered non-viable was up alarmingly from less than 1pc to almost 7pc in two years.

Total debt for the sector had increased 17.2pc to $9.1b.

It was irresponsible for the Australian Bankers Association to dismiss the concept of a rual debt crisis or to bury important data in generalist information, he said.

"Their posturing on this question simply nets off some of the good work the banks are doing in the distressed lending space."

Andrew Marshall

Andrew Marshall

is the national agribusiness writer for Fairfax Agricultural Media
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11/04/2014 6:11:42 AM

Good on you Barry, putting a bandaid on cancer never works. The expansion of credit has caused this problem and so to when property bubbles burst. We need to live within our means as a society. Problems such as obesity would be reduced. I know it sounds like holistic claptrap but this monetary system is not sustainable.
Rob Moore
11/04/2014 9:43:51 AM

Barry - you're on the money with this one! (bad pun) Ag debt is $70B and rising rapidly. Just yesterday I almost bought a well priced good close property. Had the equity and probably would have got the loan but the farmgate returns just don't add up and inspite of two keen sons- I vetoed it at the last minute! Too risky and I don't want to be working to pay bank interest for the next 30 years. IF my PPP were in place I am almost sure I would have signed up. Know too much about this theiving game to fall for all the spin!
11/04/2014 9:52:50 AM

Poor farm profitability driven by bad government policies aiming to keep food cheap for the voting masses has resulted in excessive debt levels. Good one Senator, you need to look closer to home for the solution, maybe the red meat industry structure, who owns the vegetation etc etc. The whole lot is unsustainable and guess what, this is the result of poor government!!
Bushfire Blonde
11/04/2014 2:23:18 PM

We have this ridiculous situation where the Banks are making record profits, paying their senior management obscene amounts of money - and the rural debt is at record level...........and possibly still climbing. And if the truth is known, there is even less competition between the Banks than ever. My Finance Broker maintains that their margins are now higher than before the GFC.
11/04/2014 4:06:44 PM

Rob Moore: If there were a few more people like you, we wouldn't have this problem in the first place.
11/04/2014 4:10:26 PM

It comes back to people putting too much faith in their bank manager. As in 'If the bank manager Oks the loan, he/she must think we'll be alright. After all he/she is financially smarter then us.'
11/04/2014 10:47:51 PM

Why is our national money supply created by privately owned companies? Who gave the banks the right to create over 90% of Australia's money supply, out of nothing and as interest bearing loans? Does anyone else find that just a bit disturbing? I'm afraid Barry's well meaning survey is too narrow, too little and too late. The Australian people, through a reformed Reserve Bank, should be the only authority to create money in this country. They should create enough to meet the demands of a growing economy - and no more - and provide it each year, interest free, to be spent in the national
12/04/2014 8:59:00 AM

Nobody makes anybody take on too much debt. The trouble for the family farmer is they can't see the cycle of cheap money has ended so if you have too much debt now you actually need to be selling land to sure up equity. Because higher interest rates are coming as sure as the sun rises. And that means falling land prices and bank foreclosures for those who never acted when they still have a relatively bouyant land market.
12/04/2014 9:18:05 AM

The Govt should create, issue, and circulate all currency and credits needed to satisfy the spending power of the Govt and buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity. Abraham Lincoln.
12/04/2014 9:24:57 AM

If the US people ever allow private banks to control the issue of their currency, 1st by inflation, then by deflation, they will deprive people of all property until their children wake up homeless in the place their fathers conquered.. The issuing power should be taken from banks and restored to the people from whom it belongs. Thomas Jefferson 1809. The modern theory of perpetuation of debt has drenched the earth with blood and crushed it inhabitants under burdens ever accumulating. Thomas Jefferson.
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