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Stable farming economies key to rural Australia

27 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 recently 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, he said.

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."

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Hayrick | Friday, July 5, 2013, 2:08 PM
The writer is right to draw attention to the overwhelming private and commercial debt in Australia. Australia has been sold a pup and become globalised and financialised, drained by exported profits and imported losses. What is left is swept out by our banks that have become the dominant business in our economy. Elsewhere monopolistic privilege is encouraged. Short of a collapse and reset there is not much of a future for small and individual business operating in the traditional sector in a 'take it or leave it environment'. The writer suggests the formation of yet another bank but maybe a solution is the reformation of trade groups made illegal - (or rebellion?) Governments in Australia should re-examine our freehold laws and foreign ownership and distorted policy that is an open door to anyone with a paper money printing press although it is nice to live off the hog - for now!. Allowing foreign troops to be stationed and/or trained here is not encouraging either.