Australian farm debt has blown out well beyond $110 billion after a nine per cent leap in borrowings during 2021-22, and key indicators showing it leapt again in 2022-23.
With interest rates at historic lows and many farm earnings at historic highs, the cumulative value of farm sector loans outstanding jumped from $100.7b in June 2021 to $109.9b 12 months later.
The biggest increases in borrowing activity were in Victoria and Tasmania, both up 14pc.
Australian Prudential Regulatory Authority data showed farmer borrowing activity stayed on a rising trend during 2021-22, having rapidly gained pace annually over the past five years.
Not even the sudden rise in interest rates during 2022-23 slowed the sector's appetite for borrowings, particularly for land acquisitions and working capital for on-farm investment, according to latest Reserve Bank of Australia figures.
In the nine months to March this year the RBA estimated aggregate lending to the farm sector grew about 7pc - effectively pushing agricultural debt to around $118b.
As a comparison, the percentage annual rise in farm debt back in 2016-17 was just 2.9pc, then 3.7pc the following year.
By 2019-20 farmer borrowings were growing by almost 6pc a year.
Executive director of the Australian Bureau of Agricultural Resource Economics and Sciences, Dr Jared Greenville, said rising land prices and low interest rates, until recently, had provided farmers with greater equity to support increased borrowings.
High farm incomes in most agricultural industries had also substantially improved farmers' ability to service their debts.
However, ABARES also noted nearly half Australia's broadacre and dairy sector had very little, or no debt at all in 2021-22.
A high proportion of the industry's aggregate debt was held by a small number of "very large farm businesses which generate high cash flows, on average, to service debt".
Dr Greenville said for broadacre and dairy farms - which collectively accounted for more than two thirds of the value of farm output in 2021-22 - the two main reasons for borrowing had been to fund land purchases and for working capital.
"Debt finance is of critical importance, both to fund new investment and manage variability in revenue and profit," he said.
"Analysis of ABARES farm survey data shows that much of the increase in borrowing has been for on-farm investment, particularly land purchases."
In 2021-22, the average proportion of income consumed by interest payments was 8pc for broadacre and dairy farms - an historical low.
However, Dr Greenville said this proportion would likely have increased with recent interest rate rises.
"The impact of higher interest rates will be felt by some farms more than others," he said.
"Those farms with relatively high debt servicing burdens will be most susceptible to interest rate increases, and if this were combined with a downturn in farm cash income it would impact their ability to service debt."
Until the end of 2022, the average proportion of farm cash income consumed by interest payments had been trending down over several years due to improved farm incomes and lower interest rates.
The proportion of broadacre and dairy farms with relatively low additional borrowing capacity, or equity of less than 70pc, and relatively high debt servicing commitments (more than 40pc in interest payments) was only about 1pc in 2021-22.
That compared with a 20-year average of 7pc.
Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
