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Rural Debt: O’Sullivan seeks senate inquiry; Gulf group surveys 600 producers

Beef Central, 30/07/2014

The Queensland Nationals are pushing for a Senate Inquiry to investigate rural debt issues and rural lending practices.

The move comes as a new group recently formed to represent Queensland Gulf cattle producers also seeks to draw attention to rural debt and viability concerns via a new survey.

One of the key areas of focus for Queensland Nationals Senator Barry O’Sullivan since he joined the Senate earlier this year has been on the issue of rural debt loads and the financially stressed nature of many northern cattle operations.

He is now seeking support in the Senate for a push to launch a new inquiry to explore the size and scope of rural debt issues and rural banking practices.

Senator O’Sullivan says a clear contradiction exists between Australian Banker’s Association comments that there is no rural debt crisis and the continued trend of financially-stressed Queensland rural properties being forced onto the market.

The Senator has questioned why rural banks have declined from participating in rural debt surveys since 2011, which he says play a crucial role in measuring debt levels and providing context to assist public policy decisions.

The last Queensland rural debt survey conducted three years ago highlighted a 300 percent increase in the average debt of beef industry borrowers in Queensland from 2001 to 2011.

Senator O’Sullivan said another alarming statistic showed that agricultural output per dollar of debt peaked at $3.12 in 1980, and had fallen to an unsustainable 64 cents by 2010.

The Senator says that wherever he travels across Queensland he is confronted by stories of producers staring down foreclosure, which he describes as the aftermath of the ‘get big or get out’ mantra that prevailed during the 2000’s property boom.

He maintains that banks were compliant in causing a rural debt problem by easing loan requirements to escalate borrowings and maximise their own business growth.

He says a failure by financial sector employees to declare when providing advice and negotiating loans that the more money a customer borrowed, the more that lending staff would be rewarded, contributed to the escalating levels of debt during the 1990s and 2000s.

“My office has been inundated with stories about lenders throwing themselves at primary producers during the past two decades,” Senator O’Sullivan said.

“Most affected borrowers say there were never discussions, nor modelling carried out, with the banks to determine the servicing capacity on the loans when – not if – the property faced drought or low commodity prices or other events of force majeure.”

The Senator says loan products offered to rural businesses also tended to ignore the unique aspects of agriculture.

The introduction of interest-only loans in the rural lending space about 10 years ago had led to major problems for many landholders following the 2008 global credit crunch and the dramatic reductions in property values and debt-to-equity ratios that have occurred since that time.

The Senator said interest only loans often did not take into account the seasonal variations unique to rural businesses and did not include contingency provisions for fluctuations in currencies and loss of markets to which customers had strong exposures, such as the live export trade.

“No doubt some people borrowed more than they should. But the bankers’ hand also signed the paper,” Senator O’Sullivan said.

Senator O’Sullivan is seeking the support of other Senators to pass a motion in coming weeks to launch an inquiry into rural debt and rural banking practices.

Qld Gulf Cattlemen launch debt survey

In the meantime a newly incorporated group representing the cattle industry in Queensland’s Gulf is surveying 600 local producers to gather evidence on rural debt impacts before meeting with Government representatives in Canberra next month.

The group was previously called the Northern Gulf Grazing Group but is in the process of becoming an incorporated entity that will be known as Gulf Cattleman’s Association.

President and spokesman Barry Hughes said the group is calling for producers to respond to the surveys as quickly as possible to ensure it can provide an accurate picture of debt issues in Canberra.

Mr Hughes said the recent MLA Northern Beef Situation Analysis report released in April showed that most northern beef businesses were struggling due to increased debt burdens with no increase in income or profit.

He said producers were looking for a more collective and cohesive approach to managing rural debt issues with both Government and the finance sector.

“We’re trying to highlight the pressure that our industry is under from a financial point of view and in going down this path we would hope that it opens the door for closer involvement with the banking sector and being able to get the banking sector back to the table.

“Without the banking sector there, the pieces of the puzzle are still scattered all over the table, and the debt burden is only part of that.”

 

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