THE Pastoralists and Graziers Association of WA are calling for changes to the Farm Management Deposit scheme to bring it into line with the size and scale of modern farming practices and increase its flexibility.
The calls started during a meeting in Canberra last week where a request was put to Federal Agriculture Minister Joe Ludwig.
FMD’s are investment accounts that help primary producers around Australia set aside pre-taxable profits in prosperous years to give them an income source in leaner years, such as droughts.
According to the Australian Tax Office, producers can deduct, from their assessable income, the amount of farm management deposits made in an income year.
This allows them to manage their exposure to seasonal fluctuations by shifting before-tax income to times when it is most needed.
The scheme has a $1000 minimum and $400,000 maximum.
Some banks, like the Adelaide Bank, run FMD accounts free of bank fees.
The deposits are fixed for the first 12 months which can then be rolled into 24 hour call accounts on maturity.
PGA grains section President Rick Wilson said the most significant change he wanted was to increase the FMD’s prescribed limit and make it non-arbitrary.
Mr Wilson said the maximum cap needed to reflect a more realistic amount that matched the scale and operation of modern farming practices.
He said the current limit had been in place for about 10 years and was no longer suitable.
Mr Wilson said the limit failed farmers who operated bigger farms and now had the potential to spend $1million to $5million on input costs a year.
He said if those growers used FMD’s to put money away in a good year, in preparation for a bad year, the current system did not allow for realistic costs of fertiliser, chemical, fuel and labour.
Mr Ludwig has asked the PGA to write a detailed submission and present their views to him in it.
Mr Wilson said the submission was likely to suggest the FMD limit be increased to at least $1m but that figure could be higher.
“In a good year you could put a couple of million dollars away and pull it back out of the FMD if you needed it in a bad year and that would actually get the job done,” he said.
“At the moment, farmers should have enough fat in the system to fund the next crop in a season like this, which is a wipe-out, without lending it from the banks.
“If the government did change the FMD scheme, the new limit should be related to the farm’s individual turnover or average cost of production over five years, which most farmers or their consultants have at their fingertips anyway.
“That would make the system far more flexible and relevant to most farmers who would then be able to use it more effectively.
“It makes a lot of sense because bigger growers are restricted by the current cap.
“There’s no point having an arbitrary figure like we have now.”
The FMD is governed by federal tax laws, meaning the Federal Government would need to approve any changes.
Most banks offer FMD accounts.
The accounts accrue interest but it’s not considered taxable income until the money is taken out and used.
Mr Wilson said the PGA fought hard to introduce the current FMD rules and understood the scheme’s mechanics.
He said the PGA’s submission would include financial modelling from farm consultants and analysts, with a recommendation for the scheme to reflect the size and scale of individual farming operations and not be an arbitrary figure.
Mr Wilson said the PGA also spoke to Mr Ludwig about other agricultural related issues during last week’s meeting.
He said they touched on the Grains Research and Development Corporation’s performance in relation to the Federal Government’s current review of Rural Research and Development Corporations, through the Productivity Commission.
They also discussed the current push to introduce a Multi Peril Crop Insurance Scheme in WA, to help farmers manage production risk against seasonal challenges such as fire, flood, drought and frost.
But the PGA holds a different view to the one being pushed by WAFarmers.
Mr Wilson said PGA supported a MPCI scheme but only if it was commercially viable.
He said Mr Ludwig was “across” the MPCI issue and was “interested” in what the PGA had to say about it during last week’s meeting.
WAFarmers are calling for government assistance to underwrite the scheme’s premium.
Mr Wilson said the PGA’s policy did not support the use of State or Federal Government funding to back the scheme’s implementation.
He said FMD’s were not an alternative to MPCI.
Mr Wilson said an improved, more flexible FMD scheme would be “another tool in the farmer’s tool box”.
