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SIGNIFICANT DEBT AND PRODUCTION DISPARITIES CAUSE CONCERN FOR QUEENSLAND’S RURAL INDUSTRIES

THE growing gap between farm debt and production values, particularly in Queensland’s beef, grain and grain/grazing sectors, forecasts longer term concern over producers’ viability to service future debt and funding security.

Ben Cameron, Managing Director , Bentleys Queensland

Bentleys Chartered Accountants analysed the financial health of 15,822 borrowers as part of the QRAA biennial Rural Debt Survey, finding rural debt now totals almost $17 billion and the average borrower owes $1.073 million.

According to Bentleys Managing Director Ben Cameron, the survey indicated an increase of 361 per cent on rural debt since 1994 to 2011, compared to a 121 per cent increase in gross value of production (GVP) over that same period..

“A significant measure of financial sustainability is the ratio of debt to GVP, which has now increased markedly to 145 per cent," said Mr Cameron.

“The major concern moving forward is that if levels of debt versus production remain disproportionate or widen further, producers’ abilities to service the higher debt might weaken considerably.”

For major debt contributors like the beef industry (which represents 54.1 per cent of Queensland’s total rural debt), grain and grain/grazing, debt levels increased and GVP levels decreased between 2009 and 2011.

“Most definitely, the overall rise in debt can be part attributed to the recent strains faced by many rural businesses - an extended property asset price boom (associated with easy access to credit), significant input cost increases and extreme environmental conditions, including droughts and floods,” said Mr Cameron.

“The resultant figures however do raise the question of whether the increases in debt will be reflected in longer term productivity improvements in future years.

“For example, it appears that significant capital investment in the cotton industry has taken advantage of rising commodity prices, resulting in a 36.9 per cent increase in debt versus a 156.5 per cent increase in GVP between 2009 and 2011.”

“If on the other hand, debt has been used to plug revenue losses and working capital blow-outs, this would have a significant impact on the longer term sustainability of the Queensland rural sector.”

The risk profile of borrowers (another indicator of sector sustainability) was largely positive in 2011 with 79 per cent of debtors rated in category A (strong viability) with a good likelihood of paying back debt.

“In fact there was an increase in A rated viable debt across almost all industry sectors in 2011 while levels of non-performing/non-viable debt dropped on 2009 levels,” said Mr Cameron.

“Our experience indicates that with tighter bank lending criteria and assets valuations drifting down, traditional financiers are generally reluctant to lend more debt to non-performing borrowers.

“Furthermore, financiers are actively managing these borrowers, demanding their debt levels be reduced to more sustainable levels.

“These trends can be reasonably assumed to continue, and in turn, be a predicator for further industry consolidation.”

About Bentleys Queensland

Bentleys is an association of independent accounting firms in Australia with specialist expertise in taxation, business and financial advisory services for the rural and agribusiness sectors.
Bentleys Queensland services key farming and regional businesses across the state, especially those in Central and Western Queensland.
Our team has specific experience in the broad range of agricultural and horticultural sectors and is a proud supporter of numerous regional community initiatives including

• the Young Dairy Network;
• Roma Picnic Races;
• Rockhampton Amateur Race Day;
• and Isolated Children’s Parents Association of Queensland Conference.

For more information, please contact us at rural@bris.bentleys.com.au

	Ben Cameron Specialty: Business Advisory Services Position: Director Phone: 07 3222 9777 Email bcameron@bris.bentleys.com.au

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