Australia's #1 industrial directory for equipment & suppliers

Stable farming economies key to rural Australia

07 June, 2013

Rural Australia will suffer from its own 'sub-prime' mortgage crisis if systemic economic issues are not dealt with quickly.

Dr Mark McGovern from the QUT Business School this week outlined the steps that need to be taken for the industry to restore profitability and a sustainable future.

"Today, large parts of Australian agriculture are economically and financially unstable," he said.

"Returns are inadequate and unbalanced while risks are needlessly high. Droughts and other adversities have seriously worsened the problems, but are not the principle cause.

"Despite public statements that 'all is fine', internal bank documents and actions on the ground prove otherwise."

Dr McGovern said competently addressing debt deflation and foreign investment issues were two crucial steps.

"Under some circumstances, such as current high domestic finance costs, the only real solution appears to be to ban foreign investment until local investors are able to obtain finance on comparable terms," he said.

"Foreign inflows will maintain unjustifiably high property values and privilege foreign access to farmland while funnelling income offshore.

"As Australia is increasingly a deeply indebted nation, all possible incomes need to be held if the nation's external downward trend is to be broken."

Dr McGovern said problems arise when:

  • income fluctuations cannot be realistically handled by available financial products;
  • distortions from opportunistic strategies are not curbed;
  • assets from failed businesses are dumped on markets;
  • investments are made with mixed motivations;
  • funding and market power are unbalanced or biased; and
  • policy perceptions are distorted.

All are evident in Australia's farmlands today.

Sensible, strategic long-term thinking and a 'prepare just in case' attitude is needed to stabilise the industry.

"Dreaming of just maintaining the pre-GFC practices is now just dreaming dismal economic nightmares. We all need responsible actions, not more empty dream talk," he said.

"If systemic issues are not addressed then a contagion effect could see rapid degenerations with at least some areas of rural Australia dealing with 'sub-prime' mortgaged properties.

"There are prudent ways forward. Current high interest rate practices need investigation, as do the situations of larger debt holders. Rural reconstruction and a well-constituted Development Bank are part of a viable solution.

"Opportunities to develop sustainably profitable enterprises can then be sensibly taken up.

"Much distress and destruction of wealth can be avoided if we act insightfully — and quickly, as a falling Australian dollar may well trigger opportunistic foreign purchases."

Have your say...

We welcome thoughtful comments from readers
Reload characters
Type the characters you see in this box. This helps us prevent automated programs from sending spam.