Banks fuelling farm debt, inquiry told

19 Mar, 2015 10:45 AM
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Senator John Madigan, Senator Nick Xenophon, Dr Mark McGovern, QUT, and MP Bob Katter.
Instead of ... putting water on the fire, the banks are running around throwing petrol
Senator John Madigan, Senator Nick Xenophon, Dr Mark McGovern, QUT, and MP Bob Katter.

BANKS are throwing petrol on the $60 billion farm debt 'bushfire' raging across rural and regional Australia and must be stopped, a federal Senate inquiry has been told.

The Senate Economics Legislation Committee held a public hearing in Canberra on Wednesday into legislation seeking to establish an Australian Reconstruction and Development Board (ARDB).

The Bill, raised by Independent Senators Nick Xenophon and John Madigan, also has the backing of Queensland Independent MP Bob Katter who has mooted a similar proposal in the Lower House.

Proponents told federal Senators the ARDB would help to address an escalating rural debt crisis that’s also creating severe personal hardship among farming communities and escalating tensions around farm foreclosures.

But the ARDB concept and its underlying assumption of a wide-spread debt crisis throughout the agricultural sector was severely rejected by Australian Bankers' Association CEO Steven Münchenberg.

Struggling for hope

Fourth generation Queensland grain farmer Rowell Walton – whose farm went into receivership in April last year carrying $30 million debt – told the inquiry “people are struggling for hope at this time”.

But Mr Walton said the ARDB was a suitable public policy response that would help to address systematic failure of government policy-making, over an extended period of time.

Mr Walton was also involved in the Rural Finance Roundtable Working Group which pushed the former Labor government into providing $420 million to support farmers experiencing short term viability issues and has also championed the ARDB.

Senator Madigan said according to the “pub test”, he’s been told there’s a “bushfire raging across rural and regional Australia” over rural debt.

“They believe there is no plan to put that fire out, let alone contain it,” he said.

Dr Mark McGovern from Queensland University of Technology’s School of Economics and Finance said Senator Madigan’s assertion “catches the point quite well”.

Dr McGovern said the debt issue was highlighted at various public meetings in recent times, including one at Winton, Queensland last December attended by about 400 people and hosted by outspoken Sydney radio presenter Alan Jones.

He said the debt situation in rural Australia over was “desperate” but the government’s basic policy response has been inadequate.

Dr McGovern said the crisis had escalated in the past 12 years due to poor bank lending practices and was now being driven by “desperate selling” of farm properties unable to cope with debt.

“Instead of a situation where we’re actually putting water on the fire, the banks are running around throwing petrol,” he said.

Dr McGovern said many farms are currently up for sale but property prices are falling with some dropping in value by up to 50 per cent, in certain areas.

The proposed legislation seeks to amend the Reserve Bank Act (1959) to establish the ARDB as the third board within the Reserve Bank of Australia.

It would aim to provide greater financial resilience in agriculture and associated industries, with targeted lending around droughts and other natural disasters.

In supporting the move, Dr McGovern said the ARDB would provide a way of getting to the root of the debt issue.

“Liquidity is the issue at the heart of this,” he said in referring to changed risk-management practices around farm-lending and valuations, in the post-GFC environment.

Münchenberg disputes claims

But Mr Münchenberg said from his discussions with proponents of the ARDB and by reading the legislation it was clear the proposed reconstruction board was premised on two key points.

“One is that we have a nationwide rural debt crisis and face the imminent end of agriculture in this country, and two; that we can only be saved by significant write-down on debt and government subsidised interest rates to one sector of the economy,” he said.

“We dispute both of those claims.”

Mr Münchenberg said banks actually had a very positive view of agriculture and its future.

He said the gross value of agricultural production was up by 30 per cent over the last four years and rural exports are worth $40 billion a year, which is 50pc higher than four years ago.

Banks are also significant investors in agriculture with current total lending valued at $60 billion, he said.

“This represents 8.7pc of all loans to business which is around the 20 year average for farm lending,” he said.

Mr Münchenberg said the vast majority of farmers do not have a debt problem. He said 30pc have no debt at all; a further 25pc owe less than $50,000; two thirds of farmers have an equity ratio of 90pc or more or debt that’s less than 10pc of their asset value.

“That’s not to say there are not farmers in difficulty or families losing their farm and home,” he said.

“The beef industry in northern Queensland has been particularly hard hit over the past four years. (But) my point now is we do not have a widespread rural debt crisis.

“If anything, constant claims that our sheep, cattle, dairy and sugar cane industries are all going straight down the chute at 100 miles an hour, only serves to undermine confidence in the agricultural sector.

“As we do not have a national, widespread crisis, we do not see any need for the proposed reconstruction bank.

“We are also very concerned that if such a proposal were to get up, it would have a significant detrimental impact on the ability of all farmers and agribusiness to access finance, which in turn will reduce Australia’s capacity to benefit from the growing demand for our rural exports.”

Debt an important source of funding

Committee chair Liberal Senator Sean Edwards also asked Mr Münchenberg to respond to an earlier assertion at the hearing by Mr Walton, that banks had been lending money to farmers “like drunken sailors” since the early 2000s.

Mr Münchenberg said a lot of vague or broad based assertions were made on the rural debt topic “which are hard to respond to”.

But he said recent analysis of the northern beef industry’s situation showed that out of 1258 customers, only 43 were 90 days in arrears and 18 were in mediation.

“We’re not suggesting those 43 are the only customers in financial difficulty,” he said. “There are undoubtedly problems.”

Mr Münchenberg said some bank customers are keeping up with loan repayments – to avoid going into arrears - by selling assets, including stock.

ABARES assistant secretary Peter Gooday said the areas experiencing the most debt stress in Australian farming were in Northern NSW and Northern and South-East Queensland.

“The beef industry stands out as one where again, the proportion of receipts required to cover interest payments is higher than other industries,” he said.

He said the debt problems in those areas had been worsened by recent events like drought and floods and the sudden closure of the Indonesian live cattle market.

Agriculture Department officials also said that $700m in government funding had been allocated to assist struggling farmers with reconstructing debt.

They also said debt was an important source of funding that assisted with providing on-farm investment.

Morphing drought funds into rural bank

Senator Edwards asked whether the government’s drought support packages - which had delivered $239m in concessional loans to 472 farmers - could “morph itself into a rural bank”.

He said a structure already existed where applications were assessed according to certain provisions and government funding is utilised.

“How is that different to a rural bank?” he said.

Senator Edwards also asked Treasury to provide answer, on whether it made a profit from operating the concessional loans scheme and how much that was.

“I’m very interested in that figure,” he said.

“It is possible that we’re operating a quasi-rural bank, by the concessional loans scheme, that is not actually costing the taxpayer money, but it is filling a market failure gap.”

Senator Edwards also asked the Department to provide a one page brief analysing farm finance models used in the US and Canada; which are countries Australian farmers compete against on various key commodities, like grains or beef.

He said the Bill’s sponsors would be interested in knowing if the US and Canadian farmers have a more favourable banking fall-back, than Australian farmers.

The RBA and economist Ben Rees also presented at the public hearing. The National Farmers' Federation was listed to give evidence but did not present at the hearing.

'It’s not going to be okay'

Speaking to media after the hearing, Senator Xenophon said “more and more farmers are hitting the wall and there has not been a proper response form the government in relation to this”.

Mr Walton said he was a fourth generation farmer but his family lost their entire property and “today I reside on the dole and with no motor-car”

“But he said “we still need to push for this ARDB because many farmers face similar circumstances”.

“It doesn’t matter whether you go to the sugar cane districts of Queensland, or down into the dairy country in southern Victoria, or whether you come back up into NSW and the fruit and vegie (regions), or right across into WA’s eastern Wheatbelt, or into the north of the country and the cattle stations, there’s trouble all over the place,” he said.

“(But) for some reason or other, the Commonwealth government is dragging their tail in trying to get this ARDB up; they should have had it up 12-months ago.

“I know that the (Ag) Minister Barnaby Joyce is doing the best that he can, in the position that he is, but he needs to hurry up.

“I don’t think he’ll be allowed time to drag it out to the next election - too many people are getting hurt in the process and it’s about time something was done.

“The ARDB is a gold-plated model of what should be done and despite some of the resistance from various quarters of commerce in Australia it’s the model that should be put into place immediately.”

Mr McGovern said two views of the world were presented at the hearing.

“Those who live in the bureaucratic world and those who actually get out into the real world,” he said.

“As an academic I’ve been trying to work between both sides and I can tell you that my observations on the ground don’t come through in the figures that I’ve got and the figures I see government agencies using.”

Senator Madigan said natural disasters had contributed to the debt crisis but also successive governments, of all persuasions, had failed to address the issue.

“Enough is enough,” he said. “No other country in the world ignores their farmers and ignores their rural communities like Australia does and it’s about time governments of all persuasions woke up to what is happening.

“There is a bushfire raging in rural and regional Australia and these people aren’t even looking at the fire - they’re sitting in the lounge chair, having a can of Coke thinking everything’s going to be okay.

“Well, it’s not going to be okay.

It’s all well and good to have compassion for people after a fire’s gone through (but) let’s stop the fire before it burns anyone else.”

FarmOnline
Colin Bettles

Colin Bettles

is the national political writer for Fairfax Agricultural Media
Date: Newest first | Oldest first

READER COMMENTS

A Proud Australian
19/03/2015 2:08:09 PM

So what do we do? Sign more FTAs not in our favour which are largely controlled beyond the farm gate by off shore interests? Commodity mentality that accepts "beer" prices while others profit and the "vultures"off shore buy are land and businesses!
Bushfire Blonde
19/03/2015 2:15:14 PM

"The National Farmers' Federation was listed to give evidence but did not present at the hearing" - INCREDIBLE! No wonder little is known about the financial problems in the Bush and no wonder the NFF has little credibility in the Bush. The Qld QIDC did a whole lot of good in Qld and a ARDB would do a whole lot of good for Australia, first of all for the young ones who want to farm. Good on you Nick, Bob, John & Mark.
Bushfire Blonde
19/03/2015 2:30:16 PM

Has anybody thought about the financial needs of the Beef Producers who have sold most or all of their cattle due to the continuing drought, on a market that was depressed by the drought and the Live Export Ban; and who, whenever the drought does break, have to buy in again on a dearer market? A QRAA staffer pointed this out to me just recently.
Dave Fleming
19/03/2015 4:50:34 PM

The trouble with agriculture is 95% of the population of Australia think the milk comes from the shop.I heard a comment from a friend the other day that he was questioned "was it difficult to get the sheep in to harvest the ------ cotton!"And it is getting worse as these adults that have no idea ,are raising their children.(No need to consider printing this.Its too sad.)
broodie
20/03/2015 12:44:59 AM

Of course the bankers association would deny any debt crisis because vampires need farmers' blood to survive.
Top Ender
20/03/2015 7:03:39 AM

Drought - It is the Banks fault Poor Markets - it is the Banks fault. High Land Prices - it is the Banks fault Low Land Prices - it is the Banks fault High Dollar - it is the Banks fault Low Dollar - it is the Banks fault. Banks - the whipping boy for all that ails agriculture. If Banks would just give them the money and then leave all the problems would be fixed. Agriculture in this country faces so many challenges, it is incredible that we have an industry at all. But to blame the Banks for of it's problems is a cop out by Government especially and cross bench senator's especially.
torobrook
20/03/2015 7:06:21 AM

From this we could be excused for believing that banks have forced farmers to borrow money.Quite the opposite. Borrowers apply for the money, banks assess then lend accordingly. Accept your responsibility and dont shift your losses onto others. Oh isnt that agrarian socialism.
Andre Latigan
20/03/2015 5:39:31 PM

Debt forgiveness is better then writing bad debt off.
jonjon
21/03/2015 7:35:23 AM

I bet farm debt doesn't include lease on farm machinery. Another crook year and I think we'll all be surprised to see who is in trouble.
Keith
9/04/2015 4:23:24 AM

Would be interesting to see the reaction if banks decided to pour water on the debt fire and STOPPED lending! Those same senators would want an inquiry into that too! Possibly set up another committee. Andre Latigan, debt forgiveness is NOT better than writing off bad debt. Why should a bad financial manager receive a "get out of jail card" while others who have managed their debt and met their repayments not receive the same "gratuity"? Debt forgiveness breeds bad decision making and is a dangerous precedent!
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