March 1st 2014


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Articles from this issue:

COVER STORY: Union-related corruption: the issue that won't go away

CANBERRA OBSERVED: Royal commission will hit unions financially and politically

RURAL AFFAIRS: Push for a rural reconstruction bank

FAMILY LAW: The innocent victims of 'no-fault' divorce

EDITORIAL: Indonesia's elections and Australia's future

BORDER PROTECTION: Abbott stops illegal boat arrivals on Australia's shores

QUEENSLAND: Bill Glasson's support for 'gay' marriage cost him Griffith win

EUROPE: Belgium extends euthanasia to children

ILLICIT DRUGS: The folly of decriminalising cannabis

ILLICIT DRUGS: Crime-fighters brace for swelling tide of 'ice'

CONSERVATION: Eco-activists' bid to protect man-eating predators

WESTERN CIVILISATION: Ronald Reagan on religious tolerance

GOOD FOOD: There are ants and there are grasshoppers

OPINION: Are we really a clever country?

LETTERS

CULTURE: A day for vitriol and Valentines?

BOOK REVIEW Absorbing account of rise of new superpower

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RURAL AFFAIRS:
Push for a rural reconstruction bank


by Patrick J. Byrne

News Weekly, March 1, 2014

Calls for an Australian reconstruction and development bank to take the risk out of $7 billion in bad farm debt has been supported by federal Agriculture Minister Barnaby Joyce.

Further, Senators Nick Xenophon (Independent, South Australia) and John Madigan (DLP, Victoria) have introduced a bill prepared to establish an Australian reconstruction and development bank (ARDB), under the Reserve Bank of Australia, with the task of implementing rural reconstruction and development policy.[1]

Dr Mark McGovern. 

The concept has gained legs after it was floated more than two years ago at a high-level rural debt forum attended by Rowell Walton (who chairs a Rural Finance Roundtable working group), Queensland farmer and research economist Ben Rees and a leading economist from Queensland University of Technology (QUT), Dr Mark McGovern.

The summit, which took place in Brisbane in October 2011, was organised by the federal member for Kennedy, Bob Katter, and the then federal Treasurer, Wayne Swan. Its recommendations have since been supported at five large-scale rural debt forums in regional Queensland, Western Australia and Victoria.

Dr McGovern says that the problems facing the rural sector include unbalanced markets, inappropriate finance, untoward practices and inept policies, which, over 40 years, have led to a squeeze on rural incomes and an asset devaluation crisis across the primary production sector today.

He said that, in the 2000s, many rural operations were encouraged to take on debt that was effectively beyond the capacity of the underlying asset to repay. “A lot of debt was never serviceable because, if you look, the banks didn’t actually ask the question (of) can you repay the debt....

“The two parties (the lenders and the borrowers) convinced themselves that we didn’t have to worry about income; we just had to worry that the assets and liabilities looked nice on the books. This was the build-up to the current sub-prime situation in Australian agriculture.”[2]

A paper presented by Ben Rees at the farm debt summit explained that, from 1981 to 2011, farm debt increased from around $6 billion to $65 billon, with $7 billion being high-risk. Over the same period, the net value of farm production only increased from $6 billion to just over $10 billion.

This means that the ability of farmers to service this high level of debt was greatly diminished.[3] Colin Teese examined this paper in News Weekly.[4]

The 2007-08 global financial crisis (GFC) contributed greatly to bringing this crisis to a head.

Unworkable balance-sheets have led to plummeting farm values, resulting in farmers experiencing soaring debt-to-asset ratios. Now the banks are foreclosing and holding fire sales, which are further depressing regional farm values and worsening the debt-to-equity ratios of all landholders. This threatens a rural economic implosion, if it continues.[5]

In Queensland, the problem is acute. About 70 per cent of the state has been declared to be in deep drought, and many in the north are reeling from the collapse of the Indonesian beef export market.

According to the federal Nationals MP for the seat of Maranoa, Bruce Scott, one-third of family farms in Queensland are now judged to be unviable by the commercial banks.[6]

Another simultaneous crisis is emerging in the Murray-Darling Basin, where the huge government buy-back of water is creating water shortages and forcing up the price of water. Even though major storages sites, such as the Hume and Dartmouth dams, are near full, farmers are struggling to obtain water to finish crops or prepare pastures.

In the years before the buy-back of water, a dry year such as this would have meant that the price of temporary water (purchased for just one season) in Victoria would have been only $10 to $25 per megalitre.

Currently, it’s selling for around $100 per megalitre. This will wipe out the profits of many farmers.

The purpose of the ARDB proposal is to halt the looming rural crisis before it gets too far and to provide the breathing-space required to enable the effective reconstruction of rural enterprises and a transition back to income-based servicing of loans.

Dr McGovern says that the Reserve Bank already has the necessary powers to establish and operate an ARDB as a financial organisation and to offer credit.

This means that, contrary to the view expressed by some critics of the proposal, a rural reconstruction and development bank is not about the government bailing out farmers or handing out taxpayer-funded subsidies to the tune of $7bn.

If the rural reconstruction bank bought all distressed rural loans from the private sector at a 50 per cent discount — and paid about $3.5bn towards buying $7bn of farm debt — it would also hold the title to these properties and enterprises.

It would then be up to the bank to renegotiate finance with the existing farmers, giving it scope to halve the loans held over some properties as well as to offer lower interest rates.

Creating a rural reconstruction and development bank would be an important first step towards a new range of policies to revitalise the rural sector.

Patrick J. Byrne is national vice-president of the National Civic Council.



Endnotes

[1] James Nason, “Push for Reconstruction Bank gathers momentum”, Beef Central (Brisbane), February 3, 2014.
URL: www.beefcentral.com/p/news/article/4206#

[2] Ibid.

[3] Ben Rees, B.Econ., M.Litt.(econ.), Rural Australia: Crisis 2012, an 18-page paper presented to the Rural Debt Round Table, Brisbane, October 17, 2012.
URL: www.farmerpower.com.au/uploads/Rural_Australia_v_Orthodox_Economics__2_.pdf

[4] Colin Teese, “Behind the explosion of farm debt over the last 30 years”, News Weekly, August 17, 2013.
URL: www.newsweekly.com.au/article.php?id=56312&s=cgWbVM

[5] James Nason, op.cit.

[6] Sue Neales, “Banking on a bush lifeline”, The Australian, February 4, 2014.
URL: http://www.theaustralian.com.au/news/features/banking-on-a-bush-lifeline/




























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