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Rural Debt! The Elephant in the Room

In April this year the Federal government announced a plan to help farmers who are struggling with their debts. In some cases debts have spiralled out of control and no reasonable government intervention will help.

The plan allows for each state to give $60 million over the next two years allowing producers to access loans up to$ 650,000 at a variable rate of 4.5%.

Victoria and Queensland have already signed up and it is believed that other states will follow, if they haven’t signed already. Under the program a producer would save enormous amounts of money if paying 7% was a realistic commercial rate.

This to me raises a number of points.

Could debt levels be a sign of a deeper problem?  Example, if a farmer starts off with little or no debt and the costs outstrip the returns then he, or she, has to borrow to keep their heads above water.  And if things don’t improve in the immediate future then no amount of cheap loans will help.

Every time wages, holidays and superannuation increase, along with the ever tightening rules of red and green tape, are all costs that the producers are expected to absorb. Even worse when conditions and costs escalate in the processing sector beyond the farm gate these are all passed back to the producer in the form of lower prices.

A great example was explained on a TV program whereas herbicides used in Australia were being imported that clearly were not up to Australian standards. One could imagine that this will be fixed very quickly and will come at a cost to producers by extra red tape. Whilst the Australian producer has to bear the cost of more regulation on locally grown products imported products will still come in which one imagines will probably be using cheap herbicides and other chemicals that we would never dream of using in Australia.

Another interesting program talked about wages in the meat processing sector and how we have the highest cost for processing in the world and went on to say that prices to process a beast in places like Brazil and the US are far cheaper. All these higher costs are again passed back to the producer which leaves Australia with the lowest cattle prices in the developed world.

I watched over many years with producers, in many cases, saying the costs are outweighing the returns. Perhaps it is too simple, however until we can find answers more and more producers will be forced to sell up their farms through their business enterprise being unprofitable and finding that they can’t their service loans. Example, retail prices of beef have increased by 60% since 2010, from $10-$16/kg whilst the producers’ return has remained not increased at all.

Could it be possible that the government becomes the lender of last resort? This is government money and how do we ensure that a producer with a cheap loan who can’t afford to pay his way, then will the government step in and sell that producer up?

Whilst we continue to ignore the elephant in the room, the whole industry will continue to suffer the consequences of bad policy. Surely the time has come that we should be looking at why our rural producers, in a lot of cases, are not competitive on the world stage. Perhaps the time has come to invest in finding out why our farmers are working so hard for little return, and then we may have some chance. When we identify some of the problems we can effectively look at solutions. Cheap loans will only supply a Band-Aid solution to a major problem for the whole country.

David Byard

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