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Australian Dairy Farms Reduce Debt Burden
March 11, 2016

RECORD low interest rates and much-improved agricultural earnings in many parts of the sector have finally started reducing Australia’s big farm debt burden.  About 40 per cent of broadacre and dairy farmers were able to prune back their overall debt load last financial year, reducing the nation’s total rural borrowings to about $68.5 billion – down from almost $75b at the start of the decade.

The Australian Bureau of Agricultural Resource Economics and Sciences (ABARES) says the number of farms with the sector’s biggest debt burden (paying out more than 15pc of their total farm receipts on interest payments) has fallen from 25pc in 2007 to an expected 9pc this financial year.  That’s a historic low, according to ABARES economist and farm performance specialist Peter Gooday.

He told last week’s Outlook 2016 while total rural debt was only shrinking gradually, the combination of better crop and livestock earnings and low interest rates meant the proportion of broadacre enterprises with less than 70pc equity in their farms was likely to be down to 4pc this financial year.

In the beef industry, where average debt servicing commitments across all producers hit the historic high of 16pc about 10 years ago, the proportion diverting more than 15pc of their receipts to pay interest charges was likely to be down to 9pc in 2015-16 – comfortably below the 11pc average of the past two decades.

For the sheep, grain and dairy sectors the national figure is down to 7pc.

Admitting it was difficult to describe an “average” farm operation in Australia and make averages apply to all, Mr Gooday noted debt servicing was clearly still hard in different regions, particularly where seasons had been poor for extended times.

South Australian broadacre farms have the lowest ratio of average interest payments to farm receipts, predicted to be about 5pc this financial year, followed by West Australians (6pc), and NSW and Victorian producers (7pc).

However, while debt repayments are generally less stressful to farm budgets these days and 40pc of broadacre farmers cut their total debts by an average 14pc last financial year, (particularly in pastoral regions), national average broadacre enterprise debt actually grew 4pc to almost $507,000.

Dairy farm debt averaged $888,200 in 2014-15 – up 2pc.

Drought was a notable reason for some farm loans growing, with an average 27pc lift in borrowings attributed to about 35pc of farms in drought, notably in Queensland, North West NSW and the Victorian Wimmera.  Among farms not in drought, debt has been rising, too.

About 23pc of farms experiencing reasonable seasons lifted average borrowings by more than a quarter in 2013-14, mostly to fund land purchases (33pc) and machinery (16pc), although only 1pc went towards buying livestock purchases.

Meanwhile, the productivity of larger farms also correlates with borrowing and investment patterns.  ABARES reported the largest 10pc of farm enterprises produced 48pc of Australia’s total broadacre output in 2013-14, but they also had the lowest equity in their business – 79pc.  About 80pc of all investment in agriculture was made by the top 20pc of broadacre producers.

The top 10pc made 56pc of net capital additions, while the smallest 10pc of farms accounted for just 1pc of investment.  About 50pc of Australian farms produce just 11pc of broadacre output, but they enjoy a fairly healthy equity ratio averaging about 94.5pc.

By: Andrew Marshall


Summer 2018