Op-Ed – “The case for a rural debt survey”

14 July 2014

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.