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Farmers urged to contact their bank if worried about finances

3 September 2007

Joint Media Release

THE National Farmers’ Federation (NFF) and Australian Bankers’ Association (ABA) are encouraging farmers – especially those still awaiting winter rains – to keep in contact with their bank if they are concerned about their financial circumstances.

The NFF and ABA have been in constant contact throughout the prolonged drought, discussing farmers’ circumstances, and have also been briefing Federal and State Governments on the status of the agricultural sector.

The NFF and ABA are encouraging farmers to maintain close communication with their bank/s to ensure that their circumstances are geared to derive the best possible outcomes – now and with a view to the future.

NFF President David Crombie said: “Despite demand for global agricultural commodities remaining strong, driving prices to their highest levels since the late 1980’s, inconsistent winter rains across the country have been a concern to many farmers who are relying on a solid winter crop to meet their financial commitments and rebuild for, what we hope will be, post-drought conditions.”

“We are reassured by the banking sector taking a strategic, sensible and sensitive approach to farmers who find themselves in the grip of the worst drought on record. According to ABARE, debt derived from bank lending to agriculture, fishing and forestry has risen from almost $27 billion at the end of financial year 2001-02 to over $43 billion at the end of the 2005-06 financial year – an increase of over 60%.”

“It is important to note that ABARE has reported that while average farm debt has increased steadily in real terms since the mid-1990s, broadacre farmers have been able to maintain their equity in the farm business at close to 90% owing to a strong rise in land values driven by steadily increasing demand for agricultural land.”

The increasing demand for agricultural land has primarily been driven by farmers seeking to boost their productivity by increasing the scale of their operations. Farmers have also been using debt to finance investment in new technology to improve their efficiency.

David Bell, Chief Executive of the ABA, said finance provided by the banks has been important in enabling the farming sector to build capacity to give some insulation during the prolonged drought and it also needs to be carefully managed on a case-by-case basis.

“Bearing in mind that each farm operation is structured differently and faces a diversity of conditions, farmers may wish to discuss loan options and risk management tools with their bank. Any farmer worried about the impact of the drought on their financial position should contact their bank, if they have not already done so,” Mr Bell said.

“Banks have been providing our rural communities with special consideration and understanding during this difficult period by examining a customer’s circumstances on a case-by-case basis. The banks’ drought relief packages provide practical help by giving immediate financial relief to those in most need of assistance and improving prospects for maintaining a viable farming business.”

During drought:

  • farmers and rural businesses will want to identify and manage all costs that can be deferred in the short-term;
  • in some cases, individual banks may, as a short-term measure, typically lend farmers carry-on finance to enable shortfalls in cash flow to be met, subject to long-term viability;
  • farmers that already have significant debt need to be prepared to draw on financial reserves such as Farm Management Deposits, investments in managed funds and other forms of off-farm investments;
  • in some cases, to help reduce cash outgoings, individual banks may put in place the short-term measure of restructuring existing loans so as to reduce annual debt repayments - this may involve extending the term of a loan or allowing interest-only payments for a period of time.

For customers receiving State and Federal Government interest rate subsidies, it is the general practice of banks not to increase credit risk margins on loans, where customers comply with usual bank requirements.

[ENDS]

Media Enquiries: Brett Heffernan, NFF, on (02) 6273 3855 or 0408 448 250.
Heather Wellard, ABA, on (02) 8298 0411 or 0409 830 439.

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