Bush Matters Op-Ed – “Pollies: step up or step out”
25 July 2014
There’s an old joke about an investigator from the Federal Department of Employment arriving at a farm following claims the grazier wasn’t paying proper wages.
The investigator drives through the gate to the homestead, where the grazier has just pulled up for smoko.
“I need a list of your employees and how much you pay them,” the investigator says.
“Let me think,” the old grazier replies. “There are my stockmen who have been with me for six years. I pay them $900 a week plus free room and board.
“There is the cook who has been here for 18 months. I pay her $700 a week with free room and board.
“Then there’s the half-wit who works 19 hours a day and does about 90 per cent of the work. He makes $10 per week, pays his own room and board and I buy him a bottle of rum every Friday night.”
‘”The half-wit!” exclaims the investigator. “That’s the bloke I want to talk to!”
The old grazier wipes the sweat from his brow and tilts his head towards the investigator.
“Well, old mate, that would be me!”
The joke for many is art imitating life.
Life on the land is getting harder and harder for family partnerships and small corporate enterprises.
It is not uncommon to hear some weary landholders say they don’t expect their sons or daughters to remain in the family business.
Even that joke about the old grazier is now probably showing its age. These days it’s harder to find graziers that can afford to employ anybody.
Instead, more often than not, it is family members pulling the extra weight – the kids on break from school; the grandparents who have already battled costly succession planning; or the wife who somehow manages to juggle farm work with home duties and a job in-town.
Commentators have long predicted the decline of the family farm. Yet the agriculture sector has managed to defy the odds with each passing decade.
Despite the fact that iron ore and coal have long surpassed wool and wheat as the guideposts for Australia’s economic direction, agriculture is increasingly returning to the forefront of economic public policy.
There is some speculation that suggests economic growth in Asia – which will push the continent to account for as much as 70 per cent of global middle class food and fibre consumption by 2050 – will bring additional revenues of $710 billion (in 2011 dollars) to Australia over the next four decades.
These are very encouraging figures. But the earning capacity of each farming family will only increase if the sector’s foundations and fundamentals are strong.
The new Senate has generated a lot of commentary and headlines this month as it tests out its new found notoriety.
But once the upper house wakes from this media bender, will it be the electorate left with the hangover?
Having sat in the parliament for the past fortnight, it is concerning to think there is an increasing potential that the apparent instability in the new-look Federal Senate could entangle the process of government in bureaucratic brinkmanship.
As each piece of legislation is blocked by a Senatorial Mexican standoff and each major government decision is scuffed by prolonged debate, so too are the intended cost savings for the small business and household budget.
This is wasted time that the average farming family cannot afford. For my money, this is a pox on our own house.
Rural debt has skyrocketed 75 per cent in less than a decade and farm gate returns are in alarming decline. No week goes by without some rumour of more properties unable to be re-financed.
The times call for swift and pragmatic policy that focusses on tangible outcomes. The public are sick to their back teeth of politicians not doing our job.
It will be difficult for my new Senate colleagues, of all political persuasions, to not become ensnared by the political grandstanding and power plays that is actively applauded by the Canberra press gallery.
But Australian voters are tired of personality and ego driven politics.
The majority of those among the new Senate crossbench have politically-conservative leanings – some have rural knowledge – and it is these individuals who should respect the clear mandate delivered by the electorate.
Antagonistic attitudes and obstructionist politics will only further strain the hip pockets of farmers at a time when their budgets are already at breaking point.
And rural Australians will neither forgive nor forget such political games when they next cast their vote.
I say to my colleagues, right across the chamber – do your job or do the nation a favour, and go home.
The commencement of the 2014-15 financial year has brought the troubling news that banks are forcing more Queensland rural properties onto the market.
Some of these financial institutions have reported that the current value of non-performing agribusiness loans is the largest of all their banking categories.
Yet the representative body of the financial sector, the Australian Bankers’ Association, continues its inaction on these crippling rural debt loads.
In fact, the Australian Bankers’ Association claims there is no rural debt crisis.
This organisation claims the banks will no longer participate in rural debt surveys, which for more than a decade have measured the debt levels and provided context to assist the decisions of public policy makers.
Both Federal and State governments have outlined policy goals to double the real value of agricultural exports by 2050.
Some speculate this could result in additional revenues of $710 billion (in 2011 dollars) for the nation over the next four decades as economic growth will push the Asian continent to account for as much as 70 per cent of global middle class consumption by 2050.
But how do we ensure Australia’s rural communities and family farms are the beneficiaries of these unprecedented opportunities?
Future success in agriculture requires a deliberate focus on fostering globally competitive industries with high potential for growth.
This takes long term thinking and strategic capital injections. Banking loans are an important facility for business growth. This is necessary and unavoidable debt.
But there is another, more alarming, debt stream that is damaging the viability and survivability of many farms.
In 1980, output per dollar of debt in Australian agriculture peaked at $3.12. By 2010, output per dollar of debt had fallen to just 64 cents.
Some of this shift could relate to the increases in cost outlays and operating expenses.
But, overall, it is obvious this trajectory is not sustainable.
I have stood in the Senate chamber multiple times since taking office in February to call on the banks to participate in a rural debt survey.
These calls have been met with stubborn indifference, if not silence.
The last available data on debt was compiled by the Queensland Rural Adjustment Authority (QRAA) in 2011 and it proves the importance of understanding the industry’s financial trends to create better public policy.
The 2011 survey found the number of beef enterprises deemed ‘non-viable’ in the state had increased from less than 1 per cent in 2009 to 6.9 per cent in 2011.
Many graziers have struggled, and many others had been unable, to secure financial assistance because of this ‘non-viable’ standard, compounding the family pain and troubles.
Since 2001, the average debt of beef industry borrowers in Queensland has increased by more than 300 per cent.
Land purchase was the largest single contributor to the increases in farm debt over this period, followed by borrowing to meet spiralling operating costs.
Spending borrowed money to meet operating costs is also unsustainable.
The key economic indicators for Queensland producers since the 2011 debt survey only further point to a sector that is not generating sufficient income to alleviate debt stress.
The past two summers have delivered rainfall well below the 324mm state average and while the EYCI has solidly recovered from the lows of last year, when it lingered below 300c/kg, it is still 60 and 80 points shy of the weekly averages of recent, better seasons.
Everywhere I travel across the state I am confronted with stories of producers staring down foreclosure or, in some cases, banks permitting families to remain on the farm because it is
cheaper to hold the property and wait for an upsurge in the real estate market than it is to send in the receivers – taking people from lord of the manor to little more than a caretaker.
The social cost to rural communities has been immense and will likely never be adequately measured.
The grazier’s wife doesn’t come into town anymore for a morning at the saleyards and an afternoon shopping.
Families have spent their savings, sold their cars, machinery and jewellery. Parents have pulled their children out of boarding schools.
Allied businesses have shut their doors and left town.
Maintenance programs have been scaled back and there is a reduction in employment opportunities because businesses cannot afford to take on or retain workers.
Bankers will privately disclose they hold concerns that any debt survey that paints a truly accurate picture of the intensity of debt stress across the state’s rural sector will only further hamper their moves to sell-off non-viable properties.
However, the concern of our government is to seek solutions that will keep families on the farm and place their ledgers back into the black.
A better return at the family farm gate must always be government’s driving force.
I will crawl over burning coals from Burketown to Bollon before standing by mutely and watching overseas investors and their pencil pushing lackeys pick off multi-generational family farms and corporatize the Australian rural landscape.
But, to prevent this significant shift that many city commentators believe is inevitable, we need to accept that rural debt is a ticking time bomb that jeopardises the ability of family farms to increase competitiveness, innovate and upgrade.
Alarmingly, financial stress is occurring across the rural sector at a time when the Reserve Bank of Australia’s (RBA) official interest cash rate sits at only 2.5 per cent – the lowest rate in half a century.
Interest on debts grow without rain, and repayments will only become more difficult as rates rise.
The aftermath of the ‘get big or get out’ mantra is strangling our beef sector.
During the property boom in the early years of this century, the banks were compliant in easing loan requirements to escalate borrowings and maximise their business growth.
No doubt some people borrowed more than they should. But the bankers’ hand also signed the paper.
Before we can fully lock our sights on the spoils of Asia, we must reverse the trend of declining productivity, unsustainable debt loads and stagnant earnings.
A fair dinkum rural debt survey will prove essential to understanding and repairing the road blocks to industry progress.
Senator O’Sullivan Says it’s Crunch Time for Rural Lenders
14 July 2014
Queensland Nationals Senator Barry O’Sullivan has invited Australian Bankers’ Association chief executive officer Steven Münchenberg to “roll out his swag for a couple of days” and hear, first-hand, the true extent of the Queensland rural debt crisis.
In the written letter, Senator O’Sullivan invites Mr Munchenberg to join him on a tour of rural Queensland in the coming weeks.
Senator O’Sullivan said the banking industry representative would be afforded the opportunity to listen to graziers who are confronting increasing debt stress.
“I am willing to set aside any part of my calendar outside of parliamentary sittings to take Mr Munchenberg on this tour,” Senator O’Sullivan said.
“We will hold meetings with landholders from the north to the south-west and in between.
“Mr Munchenberg will be provided every opportunity to discuss the experiences of farmers with their rural lenders.
“My office will organise these meetings, I simply ask that Mr Munchenberg gives a commitment to accompanying us.”
Senator O’Sullivan said farm debt in Australia has increased by almost 75 per cent in a decade, from $40.3 billion in 2004 to an estimated $70 billion in 2014.
He said the latest available debt data from 2011 also shows an alarming increase in Queensland properties deemed ‘non-viable,’ from 1 percent to 6.9 percent.
Senator O’Sullivan said with institutions as diverse as the Reserve Bank and MLA warning about the financial crippling of the rural sector in Queensland, there was an urgent need to conduct a debt survey.
He said it was “irresponsible” of the finance sector to dismiss repeated on-the-ground warnings that rural communities were facing economic decline.
“There have been warning signs for years that farmers were facing debt stress and the message I am hearing loud and clear is they want and need urgent action,” Senator O’Sullivan said.
“In order to deliver relevant public policy, it is imperative that we gather the essential information to understand the true extent of debt profiles across Western and Northern Queensland.
“State and Federal Governments need to be on the front foot with this issue because, without any sense of exaggeration, I believe the debt crisis has the potential to change the face of rural Queensland – and not for the better.
“Meanwhile, the silence from the banking sector is deafening.”
Senator O’Sullivan said he would use his planned state-wide tour in the coming weeks to continue his pressure on the banks to participate in the debt survey.
“I have extended a fair and reasonable invitation to Mr Münchenberg. I have also repeatedly spoken about the importance of the banking sector’s participation in the rural debt survey process,” Senator O’Sullivan said.
“If they fail to respond accordingly, I will have no option than to investigate what powers and measures are at the disposal of government to force their hands.
“With events in the financial sector in recent week, I am sure the banking sector won’t want government ferreting through their filing draws and wheelie bins.”
Don Chipp launched the Australian Democrats in 1977 with his now infamous commitment to “keep the bastards honest.”
Readers might claim this catch-cry is still a relevant yardstick to measure the current political climate.
But it could also, just as easily, be extended to the Australian banking sector in the 21st century.
Since the deregulation policies of the Hawke Government enabled banks to widen their scope, the financial sector has grown into a Goliath of commerce, with an unprecedented stranglehold of the market place.
It is estimated the Commonwealth Bank, Westpac, National Australia Bank and ANZ will report combined profits of $29.7 billion this year.
For four years in a row, our major banks have recorded better returns than lenders in 10 major developed countries, including Canada, the US, Britain and Europe.
So where is a social license to operate buried among the Australian banking sector’s dazzling mountain of money?
This week I stood on the floor of the Senate chamber and again spoke out about the complacency and arrogance of the banks in refusing to participate in a rural debt survey.
Such a survey would provide a vital platform to understand the true extent of the rural debt problem and enable public policy and social services to be better directed to those who most in need.
The Australian Bankers’ Association has espoused a steady stream of excuses in recent months as to why the banks are refusing to participate in proposed surveys in Queensland and New South Wales.
One of the major complaints is that the process costs the banks too much.
It is a disingenuous claim, given the world-beating profits of the bankers.
Equally, it is an offensive statement to the thousands of landholders who are being forced to tighten their belts more and more, with little else than hope and perseverance pushing them to hold on for another week or month.
At a time when Australian agriculture is looking to capitalise on the economic spoils of “The Asian Century,” we find ourselves confronted with a sector hampered by unsustainable debt loads and stagnant earnings.
Australian agriculture is existing in a space where, increasingly, the value of farm production is being significantly outpaced by the levels of farm debt.
In 1980, output per dollar of debt in Australian agriculture peaked at $3.12.
By 2010, output per dollar of debt had fallen to just 64 cents.
This debt issue is no more evident than in my state of Queensland where the latest available figures indicate total rural debt is $16.97 billion, more than half of which is with the vital beef sector, which has spent years struggling under drought, flood, fire and the 2011 Live Export Suspension.
The warnings signs are glaringly obvious despite the Australian Bankers’ Association steadfast claims there is no rural debt crisis.
Australian farm debt has increased by almost 75 per cent in a decade – from A$40.3 billion in 2004 to an estimated A$70 billion in 2014.
Land purchase is the largest single contributor to the increases in farm debt over the past two decades.
We are now experiencing the fallout from the “get big or get out” mantra.
MLA’s recently released Northern Beef Situation Analysis reports that the majority of northern beef producers are not generating profits sufficient to fund current and future liabilities.
The report states that across all 14 regions surveyed – stretching from the Queensland/New South Wales border to Central Western Australia – have reported average business returns of -2.9 per cent between 2010 and 2012.
The double lives the Australian banks are living are coming under increasing scrutiny as the divide between their public façade and their masked intentions begin to show cracks.
Questions have again been raised about honesty and integrity of our bankers with the release last week of a Senate report into fraud, forgery and cover-up in the financial planning division of the Commonwealth Bank.
Away from their public statements of contrition, we can only presume the head honchos at our major banks are reviewing their social license to operate policies.
Admitting there are concerns about rural debt loads and agreeing to assist in a survey would be a reasonable start.
It would provide some direction in the effort to address the current troubles confronting the agriculture sector.
Only a pigeon knows how to get to where it is going when it doesn’t know where it is.
Landholders across the nation expect the banks to clear a pathway for a rural debt survey.
And their collective patience, like their capacity to survive this financial crisis, is running thin.
Senator O’SULLIVAN (Queensland—Nationals Whip in the Senate) (21:04): I rise tonight to speak on a matter of importance for beef producers in Australia and, in particular, for beef producers in northern Australia—that is, northern Australia as described in a survey by Meat and Livestock Australia as being those properties above the line reflected by the New South Wales-Queensland border, which takes us all the way through to the northern aspects of Western Australia.
Since 2004 farm debt in our country has increased by some 75 per cent—up, in dollar terms, from $40.3 billion in 2004 to approximately $70 billion this year. One of the indicators of concern associated with that debt is around a figure established in 1980. In 1980 a producer or a private farm enterprise generated $3.12 in gross income for every dollar of debt held. When last surveyed in 2010 by ABARES, that figure had collapsed to 64c of gross income generated for each dollar of debt that farm enterprises held.
Of the national debt I have referred to, Queensland producers are responsible for about $16.9 billion, which equates to 36 per cent of the national debt and yet we do not generate 36 per cent of the GDP of agricultural production in our state. While, across the country, each state’s primary producers have had their challenges over the last decade or more, I would argue that primary producers in Queensland—particularly those in agriculture and most particularly those in beef production—have faced more challenges than most; in some areas they are accompanied by those in the sector in the Northern Territory and northern Western Australia. These primary producers, in beef cattle production in particular, have battled the force majeure of droughts, floods and cyclones and the impacts that occurred through the suspension of the live cattle trade in 2011. Indeed, some of the issues associated with those decisions are still working their way through the balance sheets of some producers in the Northern Territory, northern Western Australia and northern Queensland.
The increase of debt that has occurred has been applied largely to the purchase of additional property in response to the trend of ‘get big or get out’ that has occurred during the last decade to 15 years, and additionally to farm improvements and capital purchases on-farm for plant and equipment. It is well known that many of these producers who now find themselves in trouble were the darlings of their financial providers as recently as four or five years ago, and certainly up until the advent of the global financial crisis. Over those years, because of the incidence of some improvement in property values, which I will refer to later as having declined, many producers were able to borrow more money against the value of their assets. In many cases this money was applied in depreciating investments or for stocking purposes or for general operational purposes in the belief that, by subsidising the operations of their property for a period of time, their fortunes would turn around—that is to say that they would have a break in the weather, the dollar would reduce, market demand would increase or the fortunes of the live cattle trade would improve quicker than many of them had hoped.
In subsidising their production and operational costs, many of these producers have in fact artificially subsidised the cost of beef production in our country. When those sorts of things happen, it can sometimes take a number of years before the impacts are felt on the balance sheet of the individual primary producers or, indeed, across the industry. We saw these debt trends commence about 10 years ago with agribusiness banks offering low-interest, interest-only loans. These are dangerous for the non-sophisticated borrower, which many of these producers are—I do not say that in a deprecating way; I say that in the sense that many of these producers are not necessarily sophisticated in the ways of big finance. In much the same way as we have seen with the recent revelations of the Commonwealth Bank here in Australia, this is no less the case when bank managers and agri-advisers within banks are giving advice to primary producers about their expansion programs. They encouraged them to borrow money, in this case in particular it was interest-only loans, some with terms of 10 years.
This was soft credit into what arguably ought to have been seen as a subprime market in the sense that the wrong time to borrow is when there is grass up to your knees and the dams are full, but that was what was happening. It is my view that these agribankers, including in many instances the banks that are part of the big four and those others that specialise in this space, did not take into account the seasonal variations that would generally present to producers. They possibly could not have known about, but ought to have made some contingency provisions for, things such as fluctuating currencies and large impact interference in things like the live cattle trade if the borrower, if their client, had a big exposure in that area. Soft money is what things like credit cards provide: you really do not feel the effect of it; there are no principal payments to be made, just interest payments. Indeed, at the time when interest rates are at an all-time low, one can cope with that until such time as it is time to pay the piper. When it is time to pay the loan back or it is time to restructure the loan or your income streams collapse for some of the reasons I articulated earlier in this speech, then you have a complete incapacity to service your loan.
Many of these loans were a 100 per cent lend against the purpose of the loan. For example, many of these producers who were buying expanded landholdings were doing so by borrowing 100 per cent of the money and using alternative properties—sometimes their only other principal place of business, their home property as it is referred to in this sector—or assets that were off-farm. Not only were they at risk, again in a subprime capacity, of exposing the asset acquired, but they also put at risk in many cases some of the only other assets they had. Tragically, for some these were third-, fourth-and fifth-generation holdings passed down through their families.
These properties were subject to biannual review covenants, and the same smiling bankers who left them two years previously and helped them to expand a business that always had the potential to fail—or certainly was, by any other measured examination, high risk—were to return into their lives, only this time it was no longer a friendly visit. We had the enormous tragedy, and it plays itself out still today, where there were neighbours with identical circumstances, identical properties and identical debts but where one of them was in grave difficulty and in fact losing their enterprise whilst the other one had perhaps a year or 18 months longer to live. During that time—as was the case with many properties, fortunately, in the Northern Territory—fortunes can turn around, allowing these second families, these second businesses, to recover. The cases I refer to, of course, are where the live cattle trade was reinstated—and has indeed prospered for many over the last 12 or 18 months.
We have a situation where I believe that in some defined sectors of beef production, certainly more pronounced as one goes further north—indeed, by the time one gets to the line of Townsville to Broome and north of there—this has had a terrible impact. For some months now—indeed, from the very first stages of my time here in this place—I have been calling for a debt survey to occur so that industry and policymakers, both at a state and federal level, have all the facts before them that one would need to make policy decisions that will impact on the lives of many thousands of these producers.
The banks have a responsibility here. I am not a bank basher. I have had a lot of association with banks over time and it has been my experience that, if I have held up my end of the deal, they have largely held up theirs. But in this case the banks are frustrating any efforts by us to determine exactly the extent and type of debt levels we are dealing with through what I regard as a crisis. Through many and various media outlets, the Australian Bankers Association chief executive has said that the banks will not participate in a state debt survey. Mind you, from 2000 or 2001 through 2011 the banks did participate in such a debt survey with the rural reconstruction authority in my home state of Queensland, and they acknowledge that by saying:
Banks have previously participated in the survey, however, a number of banks have raised questions about its effectiveness, particularly given the considerable investment banks need to make to contribute.
I find that to be, in all the circumstances on the public record, a difficult statement to accept. The banks are suggesting—mind you, I often cringe when this is said by someone else—that, with the massive profits they have generated, much of it on occasion from people in rural and primary production, they find the cost involved in collating their own data too high. It is their data, yet cooperating with, in this case, a state government agency to determine the debt levels is too difficult. I find that to be a remarkable statement and one that I would suggest does not accurately reflect the truth of why the banks are not participating.
It is my view that the banks would not want to exacerbate a belief that there is softness in the property market. I have said this before and I will say it again: I need to be particularly careful that I do not, or that anyone else making commentary in this space does not, exacerbate an already difficult situation. But it is a broadly held belief that many properties are in that uncertain space where the banks will progressively and in a very orderly fashion move on them. Many of those property operators are no longer viable. Their loan to valuation—LVR—ratios are in some cases up in the 70 per cent and 80 per cent range, which we all know is not sustainable for rural production, having regard to the return on investment that we have been seeing from these properties over the last 15 or 20 years. In fact, many of them have reported through ABARES surveys a decline in their gross incomes and most certainly a significant decline in their net profits. There was some work done in this space by the meat and livestock authority that showed that, in the 14 different regions surveyed by them, there were losses of about
2.9 per cent of gross turnover recorded. They made this statement at the end of their report:
The majority of northern beef producers are not generating profits sufficient to fund current and future liabilities.
That is a massive statement and well worth repeating. The majority of northern beef producers—and I described who they were: above the line of the Queensland-New South Wales border across to the northern part of Western Australia—are not generating profits sufficient to fund current and future liabilities. That is a very disturbing statement. In the same period that I reported the increase in borrowings we have an increase in non-viable business operations from one per cent to 6.5 per cent at the same time as there was a 75 per cent increase in the debt.
It is essential that the banks of Australia participate in this case in a debt survey in my home state of Queensland. Without diminishing the circumstances of many primary producers in other states, I would have to say that, given that 66 per cent of the nation’s herd is in Queensland, the number of producers who are affected by this subprime crisis in agriculture is probably greater. Given the circumstances in Northern Queensland, with the run of drought, fires and the live cattle job, there are many producers who fit in this situation.
Only a pigeon knows how to get to where they are going when they don’t know where they are. That certainly would not apply to the agricultural sector or the banks in my home state. I say to the banks: I have been moderating what I have had to say to date. I have been persistent over these last three or four months, but my patience, like the capacity of primary producers, is running thin. They are called upon to immediately respond.
Response to Queensland Country Life Media Inquiry: Rural Debt Surveys
1 July 2014
Senator Barry O’Sullivan said a full Federal Senate Inquiry into rural debt structures and agribusiness banking lending practices across Australia may be necessary if the banking sector continued to refuse to participate in the proposed rural debt surveys.
“It is in the best interests of the banks to assist in the attempts by State Governments to undertake these rural debt surveys,” Senator O’Sullivan said.
“This should serve as a warning to the banks because, ultimately, the final recommendations from any Federal Senate Inquiry may not be beneficial to the banking sector. Such an inquiry might produce consequences for rural lenders that do not benefit their businesses.
“Current attempts to assist drought and debt stricken farmers are currently having mixed results. I have repeatedly warned that the ability to deliver effective public policy is being hampered because the banks are refusing to assist government collect the necessary data to gain an accurate picture of the current debt loads across the agriculture sector, especially in Northern and Western Queensland, where farmers are dying a death by 1000 cuts.
“The banks could do themselves a massive favour by acting as responsible corporate citizens and agreeing to support the rural debt survey process.”