Farm debt hit $109.9 billion in 2021-22, primarily driven by the strong demand for land.
According to the Australian Prudential Regulatory Authority, lending to the farm sector increased by 9 per cent from $100.7b in 2021-22 to $109.9b at June 30, 2022.
ABARES executive director Dr Jared Greenville said the increased debt had been driven by broadacre and dairy farmers, who accounted for around 68pc of the value of farm output in 2021-22.
"Up to the end of 2022, the average proportion of farm cash income consumed by interest payments had trended down in recent years due to higher farm incomes and lower interest rates," Dr Greenville said.
"In 2021-22, the average proportion of income consumed by interest payments was 8pc for broadacre and dairy farms-an historical low.
"However, this proportion is likely to have increased since as a result of recent increases in interest rates.
"Rising land prices and low interest rates until recently have provided farmers with greater equity to support increased borrowings, while historically high farm incomes in most agricultural industries have substantially improved farmers ability to service debt."
Dr Greenville said the impact of higher interest rates would be felt by some farms more than others.
"Those farms with relatively high debt servicing burdens will be most susceptible to interest rate increases," he said.
"If this were combined with a downturn in farm cash income it would impact their ability to service debt."
The Reserve Bank of Australia's official cash rate currently stands at 4.1pc, up from 1.35pc a year ago.
