The Finance Perils of Farming !

The farmers of Australia have long complained that the policies of the banks are geared towards the finance needs of manufacturing industry and bankers fail to understand the vagaries of farming finance which tends to even out over a number of seasons.

This Royal Commission on banks is uncovering unethical conduct which has forced farmers off their land in instances where ANZ bank admitted that its actions fell below community standards and expectations or was in breach of the Banking Code of Practice.

There were 268 submissions before the Royal Commission and 32 related to the ANZ acquisition of Landmark in 2010.  At that time ANZ acquired 7124 farm loans with a value of $2.3 billion.  The Royal Commission heard testimony from a 87 year old Queensland farmer who was forced off his property despite never missing a mortgage payment.   The bank simply  devalued the property due to the drought and this lower valuation brought the loan below the loan to value ratio demanded by the bank.

The risks of farming are many and varied.  Drought can sharply curtail income, but droughts eventually end and most farms need to endure these cyclical variations which do not apply to conventional manufacturing industry.   The price of wool, grain and livestock are all subject to price rises and price falls due to demand, and that is often the result of world events that range from wars to fashion.  That is why the mixed farm is so prevalent in Australia.  It spreads the risk, but it still requires a banker with patience.

That Landmark acquisition revealed a sad story.  By 2013 a third of the farm loans - 1050 accounts - were considered impaired or high risk.  Their valuation had decreased to $722 million and farmers were being forced to sell their properties.  It was clearly a case of loans being transferred from a lender that understood farming, to a lender with a rigid and uncompromising attitude dictated by a scant knowledge of farming practice.

The Commission heard evidence where farms were allowed to trade for the rest of the season on the understanding they would sell assets in 2011 to clear the debt.  However, by October 2011 they were given just two months to sell their properties under this asset management agreement, and if it did not sell at auction they would need to surrender their properties to ANZ within seven days of ANZ's demand.

People who had farmed successfully for many generations were facing oblivion because the finance for farms was changing from banks and finance organizations with a close affinity to farming to big city financiers who applied the criteria applicable to an entirely different type of industry. In particular, this was playing into the hands of foreign governments who were seeking food production assets in Australia and other countries in expectation of future world food shortages.

It seems to be quite clear that the banks were neither fair or reasonable in their application to farm finance.  Now we await the action the Royal Commission may put in place to correct that situation !