Farm Finance: worth the hassle

The problem is both sides – State and federal governments – seem to have legitimate arguments

SINCE the federal government announced its intention to support Australia’s farmers through Farm Finance packages a grubby political game has ensued.

Six weeks have passed since the announcement and finance distributors for respective States have yet to receive direction from their State governments.

The problem is both sides – State and federal governments – seem to have legitimate arguments.

Why should the federal government have to pay administration costs of these low-interest concessional loans when they will have to raise $420 million to fund the package?

Equally why should State governments have to an administration bill which, given the projected exhaustive nature of assessments, could spiral out of control.

Politicians shifted their focus this week to the difference between borrowing and lending rates of the federal government.

Victorian Nationals Senator Bridget McKenzie suggested at a Senate Estimates hearing recently the federal government was “making money” on the loans.

As we all know, politicians are prone to occasional bouts of prophecy - but Senator McKenzie takes the cake here.

The borrowing (3pc) and lending (4.5pc) rate difference has been set at 1.5pc by federal government.

This works out at $450,000 dollars for the $30m divvied out each year – a drop in the ocean given the context of a high-risk agricultural lending environment.

And given the unlikely situation that all producers fail to renege on repayments, we are not going to know if the federal government has made money on the package for a couple of years at least!

Federal government is well within its rights to protect their investment as they are relying on others to assess whether producers will be able to honour repayments.

The 1.5pc has been cynically used to direct attention towards footing the bill of administration costs.

Rural Finance Corporation CEO Rob Goudswaard said last week he expected the assessments to be the most extensive and intensive his organisation has conducted so perhaps the States are bracing themselves for that bill after that nice Italian meal.

Organising Farm Finance packages is going to be expensive, is going to take time, but is worth it – our farmers desperately need the support.

Date: Newest first | Oldest first


14/06/2013 9:24:38 AM

The real problem you are ignoring is that $420m in low interest loans is really only providing 4% (16m p/y) of that in benefit to the industry (8.5% - 4.5%) whilst some cost estimates for administration are over $2m p/y)per state/territory, so from a state government point of view spending 12m for 16m benefit is extremely inefficient.
Jen from the bush
17/06/2013 6:05:54 AM

Are you real? What help is asking us to borrow an extra $650,000 and getting cheaper interest for 5 YEARS only. If you read the guidelines it is only available to those deemed viable in the future - what farm when already overloaded with debt is going to be deemed viable? Who wants more debt when already overloaded? It would be cheaper to administer a grant.
25/06/2013 11:08:51 AM

I can't see why Government can't just create the necessary funding and loan it to farmers at the real cost of issuing the loans (<1%). Barak Obama has been doing 'quantitative easing' in the US for some years now, but his version involves creating money and depositing it with commercial banks so that they can loan it out at interest to consumers. QE for the banking sector, some say. How about some 'quantitative easing' for the Australian people? Those interested should read Huber and Robertson's 'Creating New Money' to better understand why our money system is so dysfunctional.
A matter of opinionA selection of editorials from around the Fairfax Agricultural Media group covering the issues of the week.


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