farm debt reaches staggering $62 billion

Sub prime anybody? Global food security has effectively become dependent on the continued amassing of farm debt from the 1st World through to the 3rd World ... at some point farmers will be tapped out (or have the credit tap turned off) and the ability to fertilize as they always have will be compromised. Already hearing of many grain farmers in WA being told to go back and redo budgets because they are not able to have lines of credit extended. All booms do these days is breed bubbles that inevitably pop and leave masses of debt in their wake ... the fertilizer story is compromised unless grain prices rebound this year. The risk being that a farm debt crisis then moves off farm and onto the balance cheet of fertilizer producers ...

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Farm debt reaches $62 billion
11-02-2010
National | Kate Matthews


Australian farm debt amounts to a staggering $62 billion, a figure that has almost doubled in less than a decade.

New figures from the Australian Bureau of Agricultural Resource Economics, the Federal Government and Reserve Bank have shown that farm lending has jumped from $38 billion in 2003-04 to $62.2 billion in 2008-09.

Of this 2008-09 figure, $56 billion is owed to banks, $1.6 billion to government agencies and $4.4 billion owed to other finance companies.

Kondinin Group researcher Toni Nugent said there were two key reasons why the nation's farmers were geared so high - additional land purchases and machinery purchases bought with credit.

"The average farm business debt increased by 18 per cent for broadacre farms during 2007-08, with most of this increase coming from land purchases," she said.

While Mrs Nugent said the debt levels were "a scary thought", it corresponded with an increase in interest-only loans and the total amount of interest subsidies paid to farm businesses through exceptional circumstances (EC) programs.

"Chances are those who have loans are paying the interest-only component and not the principal," Mrs Nugent said. "Debt is an inevitable element of farming, and the ability to access and service that debt is crucial to running a viable primary production business."

Rising debt has also coincided with a disappointing December quarter for WA agribusiness.

A recent Westpac and Charles Sturt University Agribusiness Index report said there were significant challenges ahead for local farmers, in particular wheat and grape growers.

However, Chris Moore, Westpac's regional WA general manager, said there were bright spots.

"We are still seeing confidence in the agribusiness sector, particularly with midsize and larger farms growing through acquisition of additional land," Mr Moore said.

"We are also seeing a lot of refinancing activity as businesses work to improve their efficiency."

WA's economic performance indicator (EPI), which takes into account business performance, employment and investment indicators, has fallen from a positive to satisfactory level since September 2009.

In WA, central regions reported a positive EPI, but a tough and disappointing harvest hit hard, with a negative index across the Great Southern and east to Esperance.

Rising operating costs such as fuel, freight, raw materials and wages also took their toll.

http://www.countryman.com.au/article/2814.html