Australia's "Rural Debt Crisis" Some Realities

There has been so much commentary from many different people and angles on the current “rural debt crisis” and voices are growing louder and louder……..but are they the right voices or do they deliver the right messages? And where are the solutions?

Rural debt is a complicated animal. To plan for the coming twelve months we have completed as many as 4 cash flow budgets, all based upon weather assumptions (wide spread rain, no rain, successful crop, no crop) as all these factors affect our business and all in varying degrees (and no I have not doubled up, each has a separate impact on our business).

By this example I am trying to show that every rural debt owed by a farmer is an individual one, as different as the farming operations responsible for service the debts. Many factors will affect different farm businesses, like the following examples:

1. The Interest Only demon – when people speak of servicing a rural debt, they could be speaking of meeting their interest repayments rather than actually repaying principle on the debt (remember this is not in all cases though). As overdraft limits are exceeded through servicing the interest on the interest only debts (generally Commercial Bill Facilities or Fixed Rate Interest Only or Term Loans), a new higher limit is put in place, using up equity in the mortgaged assets. There is a very high portion of rural debt which would be of the interest only persuasion, and this has not accumulated in the last two years, but over many years and can present a huge problem when it comes to succession planning.

2. Loss of equity – The market value for rural properties over the past decade had been steadily increasing in most areas, yet absurdly the earning ability of the rural properties in most case was not rising at all. So for little or no output farmers were handed an equity windfall that some chose to borrow against. In recent times much of the value of these rises has been trimmed off the value of rural properties leaving debts that exceed the bank value of the property, effectively reducing the security categorisation to partially secured and some institutions have seen the need to call in the loans. 

3. Lack of understanding of terms of the lending documents – While we all understand that if we borrow money, we must repay the money plus interest, the conditions attached to mortgage documents, loan contracts and the like are extensive and difficult to understand. Legal protection is offered for those acting as Guarantors as they must seek independent legal advice with most lenders to have the documents fully explained. Perhaps seeking independent legal advice (despite the additional cost) is something more people should do, especially when you consider the amount of money involved with many rural debts. 

4. Not enough equity to begin with – Entry into a rural industry is very hard, and can mostly be attributed to the high cost of land. Rural land prices have presented a huge barrier to new entrants to the industry, especially because the value of the land is often not reflected in the earning capacity of the land or the return on Investment. As a result some are highly geared to begin with, allowing little margin for a downturn in their income stream when confronted by poor seasons, a raging drought and/or falling commodity prices. This can also apply to those children of retiring farmers who inherit a large debt along with a farm.

5. A Bad Bank Manager – perhaps he (or she) is the manager who strives to achieve their end of year bonus through growing their lending portfolio and as a result does not investigate the repayment or serviceability capacity of the farm business properly while encouraging the uptake of loans. Perhaps they are simply not skilled enough in being able to manage clients and understand the individual needs or business capabilities. Either way a bad bank manager can be the ruin of any business (not just rural ones), and they can also have long term effects as a farm tries to trade its way out of a poor position (before you add in a drought or poor seasons and commodity prices), even if the next bank manager is one of the best.

6. The personality of the borrower – We of course have our risk takers and our ultra conservative farmers, some who take a gamble on a business decision for their farm which may not pay off. Surprisingly enough though the ultra conservative farmer can also find himself in difficulty when tough times strike, as he did not undertake something he considered too risky but which could have put him in a better position. 

7. Previous Banking Practices – during the 80’s and into the 90’s banking practices were very different to what we have today, but for many of our aging farmers that is when the debts were originally taken out and they are still service a debt that would not have been encouraged in today’s financial industry, and which has resulted in making the tough times tougher.

8. Taxation – now this is a contentious issue……..tax breaks for farmers. So I do hope I do a little justice to my explanation as I see it. During the good seasons and when commodity prices are strong, may a farmer has been encouraged to invest in unscheduled repairs and maintenance, purchase new machinery and other various methods to reduce the amount of tax they pay (which can be a lot). There is also a Farm Management Deposit Scheme which allows some money to be locked away in a fixed deposit for a minimum of 12 months and a maximum of 5 years (also the total amount is capped), effectively moving that amount of income out of the taxable year and allowing the farmer to draw on the funds in a time when income will be reduced (usually due to poor seasons). Rarely are farmers encouraged to repay debt as it is not a “tax effective” strategy. There are few other industries that have set historical costs like farming with a volatile income stream that depends on so many factors outside of the farmers control like the weather (drought, flood, no rain when needed for crops or rain when trying to harvest), commodity prices, the value of the Australian dollar, and government policy. A crystal ball can only see so far and the Live Export Ban was an example of a totally unforseen event that is still having ramifications for some. The worst outcome is that all the outside factors present at the one time. If we wan our farmers to fund themselves during extended droughts we need to provide the incentive through tax breaks in good times. If they are encouraged to pay down their debts in good times they will support themselves during the bad.

These are just a few examples of issues that can determine in part the fortunes of rural borrowers.

I do believe there are some serious issues raising their heads now that can be addressed to make small improvements for struggling farmers, especially those facing the prospect of foreclosure. I wish I had solutions to the larger issues for the here and now, but I can only offer some small suggestions that would be of assistance in the future.

Changes to the FMD (Farm Management Deposit) scheme

When funds are placed into an FMD, they attract a reasonable deposit interest rate, but difference between the interest being accrued on lending facilities and that earnt on an FMD is much greater, easily up to 5% or more. I suggest that the FMD scheme be expanded to include an offset arrangement against a nominated lending facility. And no this does not already exist as suggested to me in the past by a politician. There are no offset arrangements that can be utilised as a taxation minimisation strategy during good times to allow for the retention of funds for the tough times.

Review of rural lending practices of the Banks

Once when I worked in a bank as an Agribusiness Analyst and there was a tough drought underway, that bank quietly decreed that there were to be no foreclosures and that managers were to do their best to facilitate the refinance of clients and to help others weather the drought providing ongoing support in the increase of overdraft limits (to avoid default interest rates). It was a win for both the bank and the borrower as there were no foreclosures and no farms being sold bereft of grass and water, for below market value. I am glad to hear that this policy still remains in place today. This is where I do struggle to understand the current round of foreclosures. Surely the properties are being sold during this widespread drought for below market value and therefore is there not a good chance that the debts owed would not be covered by the sale proceeds? I cannot understand how it could be considered good lending practice and I suggest that the government does need to create a policy for the banks around Natural Disasters (both drought, floods and cyclones) whereby there are no foreclosures unless they had already been underway.

I would also suggest that the banks undertake to employ a specialist team of managers who can take over and manage the whole default process in a way which allows the farmer to process the series of emotions, the first of which is denial, usually followed swiftly by anger and this is generally when communications between the bank and the customer break down. In fact I suggest that one of the team be a counsellor who will be able to understand the farmer’s emotional needs and ensure that any transition to a foreclosure is managed in a way that leaves the farmer’s integrity and dignity intact and also allows them to deal with the grief associated with the loss of their home. Remember that your average bank manager lives amongst the community, has friends in that community and is a part of the community. They are not are not specifically trained to handle the emotional impact of foreclosure. They may only ever experience one or two first hand in their career. The simpler option for many managers is to cease verbal communications or hand them over to another department (a very impersonal one who has no job but to see to the removal of the mortgagee). The communication channel then becomes a series of default and legal notices. There is a more effective way to handle such a sensitive issue than with a police escort and bullish tactics through ensuring bank staff are sufficiently skilled or supported to manage the difficult situation.

Any review should also touch on the disparity in interest rates between farms and businesses and the standard home owner. While the financial market place responds quickly to interest rate falls for personal borrowings, the response is much slower to business lending generally. However should the rates rise, the increase is generally passed on almost immediately to the farms and businesses. There are more risks associated with business lending, although I would love to see a study completed to prove this claim. Additionally there are numerous unnecessary fees that once never existed (I joined the bank a year before account fees were introduced, the following year was hell). As our banks are not struggling I would love to see them offer some waivers in certain fees to any businesses impacted heavily by Natural Disasters, not only farmers during times of drought.

Education

I saw today a comment which was so very true and correct, and I will now paraphrase it: 

Farmers have invested heavily in educating themselves about farming practices and how to do things better and more efficiently, grow better livestock, etc. but their financial education has not seen the same investment.

I do think this is a vital and neglected area that could be easily addressed perhaps in conjunction with the Rural Financial Counselling Services but in a proactive manner rather than a reactive manner.

Remember……………

It is important for us to remember that our banking system and our major banks are very sound having survived the Global Financial Crisis reasonably unscathed. Any steps taken cannot undermine the strength of our financial institutions, or foreclosure will become the norm (like parts of the US) rather than occurring occasionally.

A farm is a business and there are many other non-farming businesses out there who struggle through the down turn in an economy, seasonal impacts and other effects, however a farm can experience so many outside forces at once, for such extended periods, leaving little to no income. There are few businesses that can compare in this respect, let alone continue to operate as many farms do.

Diversification is a wonderful idea and practical in some areas, but for many other areas it is simply not a solution.

A farm is a business and must be treated as one financially, otherwise sustainability and longevity is simply not achievable.

The best thing about the current debates, articles and coverage relating to rural debt are the conversations that are occurring. Let’s make sure they are constructive and lead to the development of workable solutions at all levels. We may not be able to make a difference for many currently affected, but let’s make sure that there is not a repeat in the future and let's do this through mature debate and discussion. We don't have to like each other to develop solutions and ideas together.

At the end of the day it is there is a much more insidious problem facing our farmers than the “rural debt crisis”………….declining profits and erosion of farm gate profits. The decline in profits for many has lead to a decline in their debt servicing capability. Without correctly addressing this issue we cannot address our rural debt and that is a whole other story.

Ag-Gag or Prevention of Crulety and Protection of Farmers

There’s a new term being tossed around by opponents and antagonists of Australian agriculture……”Ag-Gag Laws”. As with many things it is a term borrowed from the US where animal rights activists like PETA and Animal Liberation are very active. So active in fact that they have taken their activism to the next level - terrorism, and I do not jest. Animal Liberation burnt 14 trucks at a US meat company in an effort to damage industry.

http://agricultureproud.com/2012/01/11/california-activists-torch-cattle-trucks/

But we are in Australia, and things like this don’t happen, or do they? Is there a campaign against our Australian intensive livestock industries underway? Definitely. We have Animals Australia and Animal Liberation undertaking many campaigns and activities to undermine consumer confidence in our livestock farmers. They have also successfully, it seems, drawn the RSPCA into their efforts. Their most effective campaigns stem from the use of video footage depicting acts of cruelty against farm animals. This however is where I take issue to their campaigns. 

http://www.stockandland.com.au/news/agriculture/livestock/general-news/activists-antifarm-mission/2704528.aspx?storypage=0

Let me explain a little more initially by way of some myth busting of the seven basic myths being pedalled……..

Myth 1: Farmers don’t want people on their farms or filming things because they are cruel and are doing the wrong thing.

Truth:

Australian farmers love to talk about their farms and livestock. Just ask one a genuine question and they will love the opportunity to explain what they do and why they do it. They love visitors. However they are also far from naive and over the past three years many have become very aware of how easily things can be twisted through clever editing, to alter a perfectly benign situation into something much more sinister. This has made them cautious and wary. The amount of damage done to individual farmers through footage, of which little has resulted in successful prosecution for cruelty, is enormous. They have learned to be distrusting of a stranger’s motives and wary of disgruntled employees in this day and age of social media and the Internet.

Myth 2: All livestock farmers are cruel. 

Truth:

There is always someone somewhere in this world doing the wrong thing. People murder each other, people do terrible things to their pets, they do terrible things to each other. Farmers are not immune to this either and there will always be a small minority doing the wrong thing. They are however, as with the rest of the population,  a small minority. As a beef cattle farmer and feedlotter, I can tell you we take great care of our livestock. We value them not only as a commodity from which we earn an income, but as a living, breathing being for whom we provide food and water, treat when ill or injured and receive endless enjoyment from. Farmers are proud of their livestock. They put much effort into the genetics and breeding herd and their animals give them great pleasure and pride. To treat one of their animals poorly that they invested so much time, effort and patience into simply makes little sense.  There is also the fact that a mistreated animal will never result in the same returns as a happy, well cared for, content animal.

Myth 3: If you earn a living from livestock you are only interested in making money and are therefore cruel.

Truth:

To own or operate a farm, the end goal must be sustainability. Sustainability encompasses a wide spectrum of responsibility. Farmers must care sustainably for the environment (soils, water, vegetation), the animals (their welfare), their community (employees, contractors, service providers, schools, etc) and their business. If their business is not financially sustainable they cannot undertake the other aspects of farming sustainably. Did you know that 61% of Australia’s land mass has a farmer as its custodian, and to maintain this land, vegetation and animals is expensive. A livestock business must make money from the sale of its animals. It must be profitable during the good seasons/times so there are funds in reserve to manage the business through the poor seasons and times. Without money generated through profits from the sale of livestock there is no money for fodder or vets or medicines to treat ill livestock.Financial viability underpins animal welfare.

Myth 4: You can’t trust Livestock Industries and their various representative bodies because they have a vested interest

Truth:

A vested interest is exactly why livestock industries and bodies need to be one of the first ports of call when an issue rears its head. As a feedlotter we face annual audits each year, but in addition if we were found to be doing something wrong, especially acts of cruelty we would very quickly have  our licence suspended and probably revoked. Our industry does not want to see its well established reputation as progressive and welfare orientated tarnished by individuals who chose to deliberately do the wrong thing. After speaking with members from several other industries their Industry bodies are much the same. There is always room for improvement and our Australian livestock industries and the bodies that represent them are striving to achieve high standards.

Myth 5: Farmers are uneducated and therefore are unable to adopt new practises and unable to be trusted with knowing what is best for their farm and livestock.

Truth:

It can be very easy for people from outside the livestock industries to view our farmers as uneducated and believe that they in fact may know better how to operate a farm and look after its livestock than the actual farmers doing it themselves. The truth of the matter is that Australian farmers are some o the most efficient and innovative in the world. They are quick to adopt new practices and technologies. They deal with a variety of environments, climates and market conditions. Australian farmers are very adaptable and their abilities do need to be given a little more respect.  As an aside, an interesting static for the feedlot industry shows that 29% of those employed in the industry actually have a Bachelor or Master's degree.

Myth 6: Animals Rights activists and organisations are the same as Animal Welfare organisations.

Truth:

Nothing could be further from the truth. Organisations like Animals Australia and the Animal Liberation do not spend a cent on the provision of welfare for any animals. Instead, in the case of Animals Australia, they spend a large portion of their budget on wages, advertising and legal fees. They provide shelter for no homeless pets nor do they act in the best interest of animals, rather making the best use of any footage to further their agenda than swiftly report and act incidents of cruelty.

Myth 7: Cruelty should be reported to animal rights organisations like Animals Australia.

Truth:

Due to the heavy campaigning in the media of groups like Animals Australia there is a misguided belief that they should be the first port of call if you witness cruelty occurring especially for farm animals. This is something that is becoming increasingly concerning as we continue to see footage released that has been held for long periods of time with no direct action or intervention. It is worrying seeing the shift in understanding that an organisation like Animals Australia is the right place to report cruelty. It is not. In fact nothing could be further from the truth. Animals Australia do not have any power to act upon reports. The RSPCA does. Animals Australia does not have the ability to investigate and prosecute, DAFF does. Animals Australia is not able to suspend accreditation for intensive industries, but industry bodies can.

So how can we counter these issues to a point that will see both animal cruelty reported in a timely manner but farmers rights protected from the deceitful actions of activists.

http://www.stockjournal.com.au/news/agriculture/general/news/back-pushes-antitrespass-bill/2705331.aspx

Portions of the legislation being proposed by Senator Chris Back would you believe actually originated from a chance meeting in Canberra. I had actually gone to Canberra to attend the launch of the Agribusiness Council of Australia. So perhaps I might be well placed to describe in part what the actual purpose behind the legislation is.

Animal Rights groups (not Animal Welfare) have increased their campaigns since the Four Corners episode A Bloody Business aired in 2011. Since that time there have been numerous releases of footage of animal cruelty at slaughter yards, piggeries, poultry farms and now shearing sheds. This footage is generally obtained using either deceptive methods or as a result of surveillance cameras being placed on farms after trespassing and breaching biosecurity protocols. 

While the common theme in these clips is of course the cruelty, there is another more sinister theme……that of an agenda that allows the footage to be obtained and held sometimes for as much as 9 months before being released or authorities contacted to report the incident. Often the clips are held to coincide with a peak production period for an industry such as ham at Christmas, or the height of the Live Export season.  This is where I take particular exception.

How can any person who claims to have the welfare of the animals at heart not immediately report the cruelty incident to the correct authorities immediately? How can someone who claims to have the interest of animals at the centre of their beliefs not act promptly to ensure that the person responsible is at least removed from the position of caring for animals if not prosecuted. Why do they not act immediately?

There has been a whole industry spawned that revolves around obtaining footage of cruelty. At present there is a veritable wealth of causes on sites like pozible, to which you can contribute by way of crowd funding, to facilitate the purchase of camera, video cameras and even drones whose sole purpose is to obtain footage from farms. The footage is used on social and mainstream to instill outrage amongst consumers. The footage that reaches its final destinations is not the original footage, but heavily edited, with suitably sad music applied.

If there is so much cruelty in our livestock farming industries, why are there not more cases successfully prosecuted? 

To counter the issue of unauthorised filming obtained with an agenda in mind but also to ensure that any cruelty is reported immediately to the authorities so it can be acted upon immediately a new suite of legislation is required. The legislation should be enacted at a Federal level and the States should follow suit so that borders are no obstacle in implementation or prosecution. I believe this is the only way that both parties (a person filming genuine cruelty and an innocent farmer) can be protected. 

I urge all parties to consider supporting the Bill that Senator Back has proposed. If we are to see cruelty dealt with swiftly and effectively but also protect our farmers from organisations whose intention is to defame, discredit and destroy I believe this legislation must be adopted.

As a feedlotter it would give me great peace of mind. It is not unedited footage we fear, as it would show a complete version of event, but the heavily edited footage obtained through illegal trespass. It is easy enough to create an issue where in actual fact there is none with today’s technology. The liability and biosecurity risks we face are also real concern, along with the risk posed to ourselves, employees and children.

Surely all reasonable sides of the argument can see the benefits of adopting this legislation. I suggest that those against the legislation are fearful of a loss of revenue stemming from their public funding campaigns that rely heavily on footage of cruelty to win public support through outrage. It is much harder to inspire outrage when authorities are dealing with the matter at hand. 

Let's be proactive and think of the welfare of both our livestock and our farmers. 

A Letter To An Angel

My beautiful friend, after three and a half years battling Lymphoma, you slipped away peacefully. You fought tooth and nail all the way to have more time with your loved ones, but it wasn’t to be. I feel extremely selfish as I can feel your absence already with all the things I want to talk to you about, that big hug I want to be able to give you, that night out on the grog we spoke about, those shopping trips we won’t get to have (could we shop or what!). Selfish because if I miss you already as your friend, I cannot begin to fathom what you beautiful family is feeling. Selfish because these things seem so small compared to your epic battle.

I really need to tell you some things I didn’t get to say last time and I know some of them you already know, but I still need to say them:

Firstly and you already know this, but you have raised three of the most awesome children together with William. They are beautiful, brilliant children and will be all the stronger and more compassionate for watching how hard and courageously you fought this battle. Be proud AM and we all know you are and will always be watching over them and you have left them in safe hands. Will is a wonderful father, you taught him well :)

Secondly you fought this battle with so much determination and courage. You were simply inspirational to so many, especially me. Your positive attitude shone thought. There was no “why me” or “poor me” but “Let’s kick this thing in the arse”. Sometimes your courage faltered but you regathered and regrouped and fought harder. 

Thirdly thank you for so many wonderful memories. From puddle dancing at the Injune pub to going to the movies and watching “the Preacher’s Wife” ( no sex, violence or swearing and somehow so therapeutic) when we had the worst day at work; from having the absolutely best joint birthday party (cops came twice and everything) to having the most wonderfully supportive bridesmaid(who may have got a little too much satisfaction out of my very first proper hangover); from watching Dusk to Dawn (and freaking ourselves out) to  baby sitting that cute little bundle that is now a 6ft teenager. Most especially thank you for coming with me to Eddie’s scan in Brisbane when I was quite terrified. “It will be so lovely to see a baby scan instead of a cancer one” you said. Eddie will now have a Godmother with a direct link the lucky boy. The more I think of you, the more lovely memories that surface.

Fourthly, thank you for being my rock. Like everyone we had our rough patches as we traveled through life and things didn't quite got to plan. I can still remember when it was my turn for life to get a little rocky how happy you were to be able to repay the favour and be my rock (“I never thought I would be able to return the favour” were your words). Your support, wisdom, honesty and friendship got me through. I can only hope I was able to give you just a little of the help you gave me.

Fifthly (is that a word?) Thank you for teaching me the importance of treasuring those around me, my children, my husband, my family and friends. Not a day goes by I don’t think of how lucky I am and even though sometimes it is hard at the end of a day. I try to be thankful for everything from the tantrums to the triumphs. I don’t always succeed, but I am getting better. I think of you and your wish to be here and see you children finish school. It was not a big ask.

And finally I am sorry. Sorry I that I took for granted you were only a couple of hours away and didn’t visit more. Sorry that I got too wrapped up in my own little family and our own problems to be a wonderful friend to you. I have just got myself all sorted and now you are gone and this devastates me to no end. I have taken this on as a lesson and never again will I take those close to me for granted.

I miss you already darling girl and I know I always will, but I will talk to you everyday and check in on your wonderful family. I will not forget the things I have learnt from your experience or friendship.  Love you always and forever until we meet again. xx

From my beautiful friend's battle I discovered the dire need to increase numbers of people registered on the Australian Bone Morrow Donor Registry. A simple blood test and you could be registered and possibly save a life while you are here now. Please register. It was Anne-Marie's wish that from her battle something positive came about and she had hoped to raise awareness of the need for Bone Marrow Donors.

This is a little more of her story.......

http://www.lymphoma.org.au/lymphoma-support/the-gift-of-life-bm/32-bone-marrow/180-anne-marie-brandon