Farm debt pressure builds

14 Mar, 2014 03:00 AM
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ANZ Qld state agribusiness manager Jeff Schrale, Assistant Treasurer Arthur Sinodinos and Noeline Ikin, Ikin Projects, Georgetown, Qld, at the debt forum in Charters Towers this week.
ANZ Qld state agribusiness manager Jeff Schrale, Assistant Treasurer Arthur Sinodinos and Noeline Ikin, Ikin Projects, Georgetown, Qld, at the debt forum in Charters Towers this week.

BANKS say there's no farm debt blowout to panic about, but four of the big rural lenders have conceded the need to re-examine debt management policies at a crisis forum in drought-fatigued North Queensland this week.

Assistant federal Treasurer Arthur Sinodinos joined with State management representatives from National Australia Bank, Westpac, Rabobank and the ANZ Banking Group in Charters Towers where northern graziers are desperate for a national strategy to unwind the deepening debt cycle and avoid an avalanche of bank foreclosures and forced property sales.

North Queensland producers are leading the charge to highlight Australia's total rural debt climbed rapidly in the past year to peak around $70 billion in late 2013 (according to the Australian Bureau of Agricultural Resource Economics and Sciences).

The debt level's new high was reached four years earlier than previous forecasts had expected.

Last year, Charters Towers was the launch pad for a proposal to allow banks to trade farm debt for tax credits, now being reviewed by Treasury and the Australian Taxation Office (ATO).

The tax credit trade plan effectively gives banks the chance to cash in farmers' tax credits with the ATO as an alternative to forcing their cash-strapped rural clients to sell assets to meet loan repayments.

The special debt trading option would only apply in regions where loan pressures and the risk of rural property foreclosures had been exacerbated by extreme economic events such as prolonged drought or the 2011 ban on live cattle exports to Indonesia.

"The headlines from the banking industry keep telling us there is no crisis, but the debt bus keeps rolling on in so many rural areas," said Northern Gulf Grazing Group chairman Barry Hughes.

"We must have banks involved and acknowledging the conversation we need to have - the debt burden, lack of cashflow and mental health are all sleeping in the same bed."

Senator Sinodinos said the federal government was keen to explore options for trading about $2 billion in farm tax losses, but other debt management strategies also had to be part of any solution to the debt spiral.

"The live cattle ban was clearly the straw that broke the camel's back in northern Australia - the responsibility to fix up the mess is with government and I'm certainly talking with my colleagues in government about what can be done on various fronts," he said.

Canberra's drought assistance package, a national agricultural industry "white paper" plan and proposals for an Agricultural Reconstruction and Development Board within the Reserve Bank of Australia were other themes on the agenda when farmers, bankers and government officials met this week.

"In our view it's better to look at what else would also be effective," Senator Sinodinos said when discussing the tax credit option.

"We need to sit down with the banks and see what challenges they face and what they can do to better handle the good and bad times."

Banks had been non-committal about the tax credit plans at this stage, but happy to review how they assess and price risk margins on farm lending and other fees and costs on rural clients.

Lenders had also discussed the need for primary producers to have access to funds to pay bills and maintain their properties when income dried up, otherwise they would not have the capacity to seize income-earning opportunities when conditions improved.

"We're on a journey to get a better overall outcome," he said.

"We're looking at other measures, including the effectiveness of concessional loan assistance."

Senator Sinodinos acknowledged many farmers were concerned about increasing their debt burden further by accepting emergency loan assistance.

The layers of complexity which had compounded the farm debt problem would not be solved with a "silver bullet" solution, said North Queensland business advisor Noeline Ikin.

Mrs Ikin, an early champion of the plan for banks to trade accumulated debt for tax losses, said the banking sector was "being careful not to concede there is a big debt problem".

"But there is now definitely an appetite within government and the banking industry and the agricultural sector to partner up and start making lots of small changes to help cut the debt blowout risk," she said.

"Banks say it is in their best interests for clients to be viable and making money and it's certainly not in their interests to be foreclosing on farms."

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FarmOnline
Andrew Marshall

Andrew Marshall

is the national agribusiness writer for Fairfax Agricultural Media
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READER COMMENTS

ando
14/03/2014 7:30:55 AM

The last thing the banks want (or need) is panic about the current debt crisis in ag. They cannot be taken seriously though if they continue to deny there is a crisis. The writing was on the wall long before the live ex ban which has become a convenient tool in the blame game. Over valuation of land and the willingness of banks to lend on over optomistic cash flow budgets coupled with bad seasons and increasing overheads have created a perfect recipe for the storm that is brewing. Time to face reality before it is too late, this problem does not just belong to northern Australia, it is endemic
wtf
14/03/2014 8:09:23 AM

I fully agree Ando, we need debt to invest in our industry but the legislation allowing banks to lend like a drunken sailor throughout the entire economy is exposing us to a bubble we did not need. Every opportunity the rba and banks get they say no problem here, its time our toothless supervising bodies did something, but i fear the horse has bolted.
Bushfire Blonde
14/03/2014 9:47:40 AM

The other drunken sailors in the equation are the Miners who were paying stupid money for land and so making it very difficult for genuine Producers who wanted to buy more land to put drought-stricken cattle on or to simply get bigger to make a more viable enterprise. Where are they now - sailed off into the Sunset!
RWH
14/03/2014 10:27:36 AM

I guess I take a bit of a different view on this, the Banks have lent the money - but I seriously doubt they forced the farmer to buy more land, more cattle, plant more crop, etc. Sure there are people that have over-leveraged, just like there is in the city where a house is $1m and can produce no income. I think that the government does need to do something, however their money may be better invested looking at things like multi-peril insurance to at least cover operating costs than to dole out cheap loans that the rest of the taxpayers (and small business owners) pay for but can't access
Bushie Bill
14/03/2014 11:14:05 AM

Off with the pixies again, wtf. No-one put a gun to your head, did they? You got yourself into a mess all by yourself, didn't you? Now you want to blame everyone but yourself, don't you? Where is your basic honesty, integrity and self-respect?
Geronimo
14/03/2014 11:56:03 AM

if someone gives you the money to buy an asset well-above it's productive value, using calculations based on the yield or carrying capacity you need to get, not what the actual long-term average is, then the freight train is coming. It left the station the day you signed the documents. So who is to blame: the person that asked for more money or the person that gave more money?
ando
14/03/2014 12:33:58 PM

I dont think anyone is suggesting banks have forced farmers to borrow money, they have however, made lots of money readily available in good times and against property values they accepted. Then the minute things get tough they (banks) move you into a higher credit risk rating which in turn allows them to increase the interest they are charging. This then inevitably exacerbates the tough period for the producer and in many cases the interest on interest scenario develops and we all know how that ends up. Banks should be more accountable for lending and for accepting asset values etc.
Percy
14/03/2014 2:26:56 PM

Since deregulation and elimination of checks and balances like the Glass-Stiegel controls, banks have made massive increases in loans and have huge "off-balance sheet" derivative obligations which is why the last thing they want is any sort of run on funds or devaluation of assets they hold a mortgage on - that is until the "bail-in" legislation being drawn up is in place. Then they will be able to call depositor’s money their own should times drastically turn around. I well remember someone who should know the Australian economy state that: "Your money is safer under the bed".
wtf
14/03/2014 2:36:13 PM

Well said ando
wtf
14/03/2014 2:53:03 PM

Bushie, there u are, its been boring without u. Being buying gold last couple of days hey? the worlds gone mad
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