The Australian Prudential Regulatory Authority’s (APRA) most recent agricultural lending figures showed aggregate farm sector lending increased by 9% in 2021-22, ABARES reported.
According to ABARES Executive Director Dr Jared Greenville, the total value of loans outstanding has risen from $100.7 billion at the end of June 2021 to $109.9 billion at the end of June 2022.
“The data also shows lending to the farm sector since 2016-17 has increased at an accelerating rate each year,” Dr Greenville said.
Dr Greenville stated that the two primary reasons for borrowing for broadacre and dairy farms, representing around 68% of the value of farm production in 2021-22, were to support land purchases and operating capital.
“Analysing of ABARES farm survey data shows that much of this increase in borrowing has been for on-farm investment, particularly land purchases. Debt finance is of critical importance, both to fund new investment and manage variability in revenue and profit,” he added.
He said until recently, rising land values and low-interest rates provided farmers with more equity to sustain increased borrowings, while historically strong farm earnings in most agricultural industries have significantly enhanced farmers’ capacity to repay debt.
“Up to the end of 2022, the average proportion of farm cash income consumed by interest payments had trended down in recent years due to higher farm incomes and lower interest rates,” he stated.
He added, “In 2021-22, the average proportion of income consumed by interest payments was 8% for broadacre and dairy farms — an historical low. However, this proportion is likely to have increased since as a result of recent increases in interest rates.”
He noted that higher loan rates will have a greater impact on certain farms than others. He explained that those farms with relatively large debt servicing loads will be particularly vulnerable to interest rate rises, which, when paired with a decline in farm cash flow, will impact their capacity to pay debt.
This report draws together data gathered by APRA on behalf of the Australian Government‘s Department of Agriculture, Fisheries, and Forestry. Data is also gathered from the Reserve Bank of Australia, the Regional Investment Corporation, and ABARES farm surveys.
