WA banks consider unique initiative

28 Sep, 2011 02:00 AM

BANKS have been considering an innovative restructure of farm debt management in the WA Wheatbelt, due to the amount of debt carried into this season.

The initiative would see banks entering into joint-venture arrangements with farmers, sharing potential fluctuations in land values.

In April, Westpac allocated funding to investigate preliminary modelling for the concept, based on a similar scenario that worked successfully for the New Zealand dairy industry.

Westpac Agribusiness Head of Grain, Chris Moore, said the move was a consideration in early 2011, in the event that this season repeated last year’s result, when WA experienced one of its worst ever droughts barely returning 6 million tonnes through bulk grain handler CBH.

But Mr Moore said the bank found no need to pursue the idea any further, because the 2011 season strengthened and normalised into what now looks like a typical year.

However, he said the bank would “absolutely” look into the concept again in future, if the effects of the 2010 season were repeated and debt expanded, on such a large scale.

If effective, the program could be broadened nationally to include farmers in other parts of Australia.

Industry sources estimate 30 percent of Wheatbelt farmers went into this season virtually unviable and were fortunate to receive funding to plant this year’s crop.

Banks were praised for expressing a high degree of good-will in adjusting their lending policies and practices, despite equity levels plunging dramatically due to last year’s catastrophic drought and the compound effects of lost production over the past three to five years.

The latest Planfarm Bankwest Benchmarks Survey

released last month, which surveys 500 broad acre farm businesses in WA, showed the debt per hectare ratio has escalated to about $600 per hectare.

In 1998, the survey returned a debt per hectare ratio of about $170 per hectare.

In the last two years however, the farm income per hectare ratio has declined steeply, while the debt to income ratio has spiked alarmingly.

Average farm equity sits at 72 percent, slipping from about 80 percent in 2007, with finance costs now the second highest expense item after fertiliser.

Last year farm sale listings reportedly jumped 20 percent due to the Wheatbelt’s tough economic conditions.

Senior government sources remain concerned seasonal prospects may be looking good in many areas currently - but the industry is a long way from escaping the danger zone and believe unnecessary spending needs to be curtailed.

They also say many farmers will still face the prospect of needing to sell up or look into restructuring their debt with banks, even if they have a good year.

Mr Moore said the bank’s concern in considering the restructure was the possibility of many farmers putting their land up for sale at the one time, creating a “wholesale collapse of farm values”.

He said that would have created a snowball effect which would even have included a negative outcome even for those farmers who have progressively managed their business well, over time.

“But we don’t see that as very likely now,” he said.

Mr Moore said, short of a massive frost, WA was now looking at having a very solid year apart from two main hotspots that remain, north of Hyden and at Southern Cross in the far eastern Wheatbelt.

He said farms in Southern Cross however used strong business modelling that catered for regular, unfavourable climatic events.

Bankwest Agricultural Economist, Peter Rowe, said his bank had not looked into a debt to equity swap with its farmer customers, because most of them weren’t experiencing high stress levels or facing serious financial risk.

Although he conceded, some farmer customers are under pressure.

Mr Rowe said all of Bankwest’s farmer clients were funded this year with no foreclosures.

He said providing funding for this year’s crop was the right decision to make, as farmers have good and bad seasons.

WA Agriculture Minister, Terry Redman, says this season has changed the outlook considerably for many producers, compared to 2010.

Mr Redman said the decision to sell all of the farms facing extreme equity pressure simultaneously, would have created a distressed market, given the high number of farmers in strife.

He said the better seasonal prospects would now help some farmers exit with greater capacity, if they chose to.

“Farmers are having a good season but there are still some gaps and a way to go,” he said.

“Having a better season puts them in a better position to deal with medium and long term goals.

“Considering some of the stresses that some of them experienced last year, I’d hope they are considering their broader options because it’s better to exit in a good time than a stressed environment.”

The Rural Financial Counselling Service WA (RFCS-WA) says it wants farmers to be aware that psychologically, after being under real pressure, there is an unusual impetus to spend money when it appears.

RFCS-WA Executive Officer, Chris Wheatcroft, said, knowing this, it was important for farmers to look at their financial situations objectively and not get carried away with over-spending in a good season.

Mr Wheatcroft said it was a difficult situation, with 30 percent of farmers going into this season with unacceptable debt levels.

But he praised banks for finding a way through a potential crisis.

Mr Wheatcroft said the biggest challenge for farmers when battling the elements while planting crops and managing their farms, was to actually stop, step back and think, ‘what is this all about, are we actually achieving it, what do we need to do to make money and are we doing it?’.

He said it was vital to engage in critical thinking, objective business planning evaluation to make necessary changes that help the business move forward.

“One of the challenges of a time like this for many farmers is that although they have got to this point OK, and banks have helped them out, at this point, with a good season, if you actually stop and look at the figures, it hasn’t actually saved them and redeemed them from where they were,” he said.

“It’s a hard thing to see and deal with it but people have to get on the front foot and take a real close look at their situation.

“Often it takes having another pair of eyes to help them do that.

“With our service, we don’t give advice but we help a person see their situation for what it is and take a good hard look at it.

“No person knows a farmer’s business better than they do.

“What we do is set out a framework to actually sit down and assess what it is they actually want.

“After a decade of struggling, some people say farming is not actually delivering the life they want but some stay locked into the notion they are farmers, as they have not identified their options, so stepping back to consider alternatives is really useful.”


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