AN increase in agricultural sector lending activity has led to encouraging signs of farmers wanting to expand and invest in their own businesses.
Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) executive director Dr Jared Greenville said the increase in debt for farms was no reason to cause concern.
“Because of higher property values, farm business equity has remained steady,” Mr Greenville said.
“Higher commodity prices and two record-breaking seasons have meant farmers have higher incomes to pay down their debts in the short term.”
Mr Greenville said as a result of this, farm incomes would be less vulnerable to rising interest rates than what they would have been in the 1990s or early 2000s.
“Debt is used by farmers for a range of purposes, including purchasing land, plant and equipment and for providing ongoing working capital,” he said.
“The main reason broadacre and dairy farms borrowed money in 2021 was to fund land purchases.
“That shows Australia’s farmers are taking advantage of two record-breaking seasons and are looking to expand and invest in their businesses.”
He added all states in Australia had increased signs of lending to the agricultural sector, but found stronger signs in Queensland and New South Wales with 7 per cent.
“However, it’s good to keep these figures in context. A high proportion of aggregate debt is held by a small number of very large farm businesses that generate high cash flows to finance debt,” Mr Greenville said.
“In 2020–21, 5 per cent of broadacre and dairy farms accounted for around 47 per cent of aggregate debt, whereas nearly 50 per cent of farms had very little or no debt.”
