The crisis deepens in the West Australian wheat lands

One economist says that if rural Australia were a member country of the euro zone, 
international financial markets would be refusing to finance the sector

The closer West Australian farmers get to seeding time, which is any time after the end of April, the more intense the debate becomes whether the eastern Wheat Belt will ever be the same again.

Now there are reports of farmers abandoning their land and walking off. Enough is enough for some. The old men are retelling their father’s tales of when the land was cleared with horses and of the Great Depression that followed.

Times are tough and show no signs of improving.

Breakfast meetings are being organized where men can meet at dawn, cook breakfast over a barbecue with their mates, drink coffee and tea and most importantly, talk. Then they go back to their farms, aware, comforted that they are not on their own — they are in this together — absolutely no one must feel lonely.

The recent forecast of low wheat prices for 2014 is making a grim situation worse for those still waiting for budget decisions from their banks. Do you believe the forecasts? Do you revise down? These are the questions on everyone’s lips.

“It’s the economy stupid,” is a famous saying from the Clinton era and it is applicable to not only the viability of growing wheat in the east of the West Australian Wheat Belt, but, if we are honest, to all Australian agriculture.

Agriculture in this country is suffering from self-inflicted (financial) injury. Emulating Admiral Lord Nelson at the Battle of Copenhagen, successive federal and state governments, have turned a blind eye on agriculture’s debt.

Nelson won his battle; farmers are going to struggle to staunch the bleeding while their battle continues.

What’s the problem? It’s simple really, basic economics. For the last 30 years the gross value of farm production in Australia has almost flatlined and rural debt has, literally, gone through the roof. Banks have kept on lending and farmers have kept on borrowing and now the lender is getting worried about the borrower, and this is the reason why:

Like many crises, the first reaction from those involved has been to try and convince everyone, anyone, that they didn’t see it coming. With a graph like the one above, pleading debt-myopia is stretching the bounds of credibility with most observers, including me.

I believe it cannot be repeated often enough — farmers asked for money, the banks lent them what they wanted and farmers have not repaid those debts as and when they have fallen due. Now their industry is in serious trouble.

Rural loans have been securitized. Do we have a mini subprime mortgage scandal on our hands? Nobody knows; A$66.2 billion is a lot of money to have lent to an industry that isn’t going anywhere and where the value of the main security for the loans, land, has done a rapid about- face and is now falling in value.

It’s a real catch-22. Banks get tough so more farms are forced on the market. There aren’t any buyers – this depresses land values, which changes the debt-to-equity ratio for the rest, and then some fall over the credit limit cliff and they have to sell… and so on.

Pouring kerosene on what is becoming a fiery debate is septuagenarian, economist and farmer from Queensland, Ben Rees, who believes in calling a spade a shovel. Ben produced this ‘chilling’ graph of farm production and debt.

Ben argues, on those numbers, if Australian agriculture were in the euro zone it wouldn’t get finance. That’s scary stuff.

There are those who disagree with Ben’s analysis and comments. The numbers Ben has used came from the Australian Bureau of Agricultural and Resource Economics, so the numbers are the numbers and not a figment of his imagination.

As Ben has shown, no one today can plead ignorance because in 1994 concerns regarding rural debt were being raised and nothing was done. That’s nearly 20 years ago. The complete paper can be found at: www.benrees.com.au/.

The Troika to which Ben refers are state and federal politicians and farm leaders. Many have been ‘around’ since the 1990s. Some have bristled at Ben’s comments and as far as I know haven’t provided an alternative to a bailout.

The paradox to this crisis is Chinese interests announced last week they will be increasing their land holdings and so exporting ever-increasing amounts of grain direct to China from their farms in Western Australia. They also want to buy grain from other farmers. This move will bypass the state-wide, farmer-owned co-operative monopoly on grain handling in Western Australia.

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