Farm debt and rural finance options are consistent themes of discussion within agriculture. With Australia's farm debt worth more than $60 billion, largely financed through bank debt to fund on-farm investments and maintain working capital, the relationship between the banks and agriculture has never been more entrenched.
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The recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry exposed ongoing issues with agribusiness lending practices. Unsurprisingly for the agriculture sector, the commission heard how farmers were forced to sell property and other assets to avoid insolvency due to the questionable conduct and culture of some financial institutions, while there was a lack of expertise in dealing with the specific challenges experienced by the rural sector and remote communities such as in accessing basic banking services.
The commission recommended a National Farm Debt Mediation Scheme be established, that 'specialised' agricultural bankers manage distressed farm loans, that banks not charge default interest during drought or natural disasters, and only appoint receivers as a remedy of last resort. In addition, the Australian Financial Complaints Authority now allows aggrieved farmers to seek redress from the banks for incidents stretching back to January 1, 2008, where the right to seek redress would usually end after six years.
Recognising the importance of Australia's agriculture sector and its farmers to the country, ANZ has since implemented eight principles for managing business lending to family farming customers in financial distress. They have committed to engaging with farmers in a 'fair, reasonable and ethical manner' and understand that farming is subject to seasonal conditions and external events that cannot always be anticipated. As well as offering early mediation and not charging default interest, ANZ now includes agri bankers in their lending services team and ensures enforcement action is a measure of last resort.
As farm businesses are capital intensive, often asset rich and have limited options for alternative sources of finance, it's imperative that farmers receive financial advice and assistance from their banks during times of difficulty. While we all work together get the regulatory framework right, like ANZ, the rest of the banking sector must get on board.
