A RADICAL banking solution to Australia's rural debt crisis may be a lifeline for south-west Victorian dairy farmers, according to two financial experts who fear delay of the legislation could destabilise the Australian agricultural industry.
Local farmers and agribusiness/farm consultants travelled to Canberra in June to put pressure on political parties to support Federal Independent MP Bob Katter's push for a Federal reconstruction and rural development bank.
The Reserve Bank (RBA) Amendment Bill 2013 introduces laws within the RBA to enable a national rural reconstruction bank to buy an estimated $5 billion of rural loans at high risk of default held by the major banks, exonerate farmers about 40 per cent of their loans and refinance the remaining debt at a lower interest rate of 2.5pc.
The legislation is a long-term solution from the Rural Finance Roundtable (RFR) Working Group.
As a short-term debt solution, the group proposed the controversial Farm Finance Package which has been criticised for its delayed distribution of eligible loans.
Warrnambool Veterinary Clinic dairy farm consultant Mike Hamblin and Coffey Hunt agribusiness accountant Garry Smith, who is also a Farmer Power representative, were among those on the Canberra trip.
"If we are going to have agricultural succeed across all industries, then we desperately need a solution to debt," said Mr Smith, who is also a member of RFR.
"People in the most vulnerable situations are being slapped with the highest interest – there have been 35 farms under bank control (in south-west Victoria) that I am aware of and to my knowledge no farm has been sold to recoup the debt.
"Banks need a solution now, and so do farmers.
"If not, it will destabilise the market and erode equity right through the farming sector."
With a growing number of dairy herds in Victoria under foreclosure, Mr Smith said a significant drop in farmland prices could reset the capital rural property market, resulting in deteriorating debt-equating ratios, with further property sales threatening the downward spiral.
The Australian Bureau of Agricultural and Resource Economics and Sciences estimates farm debt across Australia at $66 billion, with some farmers paying interest rates of up to 16pc.
"The peak overseeing body (the Australian Reconstruction and Development Board, or ARDB) said it needed to be dealt with and pushed through immediately; if not, that $3-5b contested debt could be $10b within six months and spiral out of control," Mr Smith said.
"If the solution is not supported, the challenges with the farming community will flow out to the business community, which is known as rural and economic collapse."
However, RFR chairman Rowell Walton said Mr Smith's $10b bad debt forecast was "conservative".
"Falling values post global financial crisis are problematic.
"The National Farmers Federation president (Duncan Fraser) commented that he had been told by the banks they owned more equity than farmers indebted to them," he said.
"Part of the problem for agriculture has been the mismatch of finance to the very high volatility of prices and production.
It is anticipated ARDB (a third board of the Reserve Bank) will draft the final legislation but Mr Walton said with Parliament closing tomorrow, the issue would be stalled on allowing a political battle between parties until after the Federal election.
