RURAL LIFE
Some of the reasons why farmers need a new bank

The worsening state of the dairy industry is symptomatic of the broader rural crisis that has just been investigated by Queensland’s farm debt inquiry. That inquiry has recommended the creation of a rural and industries development bank.

Protesting Victorian farmers have called for assistance because prices for milk have declined even as production costs have kept rising. They have called for 50¢ to be paid directly to farmers from each litre of fresh milk sold.

The industry was deregulated in 2000 under National Competition Policy (NCP). Victoria farmers, who make up 60 per cent of the industry, were put between a rock and a hard place. They were told they could deregulation with or without a package.

This left dairy farmers to sell their product to a handful of processors. They sold most processed milk either to two supermarkets, whose skewed market power could determine the price into the domestic market, or onto a highly subsidised world market.

Then NCP saw the deregulation of water. This opened the way for the Murray-Darling Basin plan, which allowed governments to buy back over 30 per cent of irrigation water for environmental flows. This has created irrigation water shortages, making many farms unprofitable as the price of water soars.

In 2000, Australia had 14,000 dairy farmers. In 2015 it was down to 6,300 farmers.

Many rural industries have suffered from radical deregulation policies, and the opening of the Australian market to imports from countries with high subsidies. This result has been mounting debt across the rural sector.

In Queensland Katter’s Australian Party leveraged the Palaszczuk Government to instigate a rural debt taskforce to examine the rural crisis.

The taskforce report said that the compound effect of the global financial crisis, drought and loss of the live cattle export market had generated financial dislocation for Queensland agriculture. It found serious problems in the sugar cane districts and the broad-acre sheep and grain industry.

It cited a Meat and Livestock Australia report: “Average beef producers tend to be spending more than they have earned in six of the last seven years, indicating the northern beef industry is generally in a very unprofitable and unsustainable state.”

Bank foreclosures of farms is a major issue. The taskforce was informed: “One bank is in planning discussions with police officials in a provincial city regarding 53 possible actions in his region when the season breaks.”

An anonymous survey of participants attending inquiry forums found that:

• 25 per cent had been requested by banks to sell off farm assets;

• 19 per cent had been requested by banks to sell by a nominated time;

 • 39 per cent would sell if a fair value were available;

• 57 per cent will need to renegotiate borrowings in 2016.

The taskforce made 14 recommendations to stabilise and reinvigorate primary industries.

It called on the Queensland Government to establish a rural and industries development bank with the “capacity to offer suitably tailored rural loans to businesses along the supply chain (i.e., including beyond farm gate); industry development; a commercial lending ability, including recapitalising for restocking and replanting.”

The taskforce also called for a contemporary farm debt reconstruction authority with the powers to resolve untenable financial arrangements. “A contemporary model must be adopted to resolve fire sale or disputed farm sale problems; to equitably reconstruct financial arrangements, with loans for reconstructed businesses delivered in a viable form, to the commercial arm of the new rural and industries development bank.”

It also called for a royal commission to investigate financial conduct within the finance sector, following verbal reports alleging serious financial misconduct.

The taskforce called on the Government to engage with all stakeholders to facilitate the uptake of a commercial multi-peril insurance (income-protection) product for all primary industries but with particular urgency for grain, cotton, sugar, pastoral industries and horticulture. The Commonwealth and NSW governments have funded such programs.

It also called on the Federal Government to declare a natural disaster for any drought that lasts longer than two years.

The report said that when “‘Exceptional Circumstances’ was removed it followed that risk fell entirely to the producer for changes in climate and for extraordinary conditions”.

The taskforce report is a damning report of the state of agriculture and offers the first policy solutions needed to restore Australia’s farm sector.