Australian ag must find ways to smooth 'bumpier ride'

Better risk management needed for affordable ag loans

Agribusiness
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Australian agriculture has many opportunities in a hungrier, wealthier world, according to Rural Bank chief operating officer Will Rayner, but he warns the sector is in for a "bumpier ride".

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FUNDING FUTURE: Rural Bank chief operating officer Will Rayner says Australian agriculture has a strong reliance on bank debt and may benefit from more diverse funding sources.

FUNDING FUTURE: Rural Bank chief operating officer Will Rayner says Australian agriculture has a strong reliance on bank debt and may benefit from more diverse funding sources.

Australian agriculture has many opportunities in a hungrier, wealthier world, according to Rural Bank chief operating officer Will Rayner, especially with much of the two billion population growth forecast for the next 30 years to occur in Asia.

But Mr Rayner - who was among the speakers at last month's Growing SA conference - warns the sector is in for a "bumpier ride" with not only production and market risk but also climate, geopolitical and institutional risks.

Therefore, farmers must become better risk managers to access affordable loans.

"The riskier a lend, the higher interest rate you get charged, that is something the regulator explicitly expects to see in a book, but the safer a loan the less capital you have to hold against it and lower interest rates you can charge," he said.

Rainfall is the biggest variable facing Australian farmers, Mr Rayner says, and risk management tools such as multi-peril farm insurance would "shift the dial" in terms of the cost of capital to the sector.

But he acknowleged there was no "silver bullet" answer.

What data can we gather to then create intelligence that smooths the volatility in some of our production systems, or at least serves as a better predictor of production outcomes? - Will Rayner, Rural Bank chief operating officer

"The United States government spends upwards of $US3 billion a year subsidising multi-peril insurance for its farmers while the government here has neither the will or the means to do the same," he said.

"So how do we create a deep and commercially viable insurance program in Australia that helps our farmers deal primarily with rainfall variability, and how do you ensure the ubiquity of that product, and what role can the government play in this?"

Mr Rayner says technology will also have a vital role to play in enhancing on-farm decision making.

"What data can we gather to then create intelligence that smooths the volatility in some of our production systems, or at least serves as a better predictor of production outcomes?," he said.

The outlook is bright with a recent Regional Australia Institute and Rural Bank report showing 93 per cent of farmers were looking to invest, consolidate or grow their businesses.

Mr Rayner says introducing more diverse sources of funding for ag could break down the high cost of entry for young farmers and allow intergenerational transfer of wealth needing to occur as 'baby boomer' farmers look to retire.

"Ninety-eight per cent of all Australian farmers fund themselves through four major banks plus Rabobank and Rural Bank, and while we as a bank are personally thrilled with that and would like to continue to grow our lending, (farmers) being so reliant on bank debt does have some flow-on issues," he said.

"Bank debt by definition has a monthly claim on your cash flows, whereas some other patient forms of capital may not."

In comparison, in US agriculture about half of the funding comes from non-bank funders, such as superannuation funds, endowment funds, land trusts and direct government support.

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