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Lending to Australian agribusiness has increased by almost a third over the past year as businesses seek new opportunities post-pandemic, according to the latest banking data.
The latest data from the Australian Banking Association (ABA) found that demand for agribusiness loans went up 29 per cent on average in the 12 months to February 2022 to $4.2 billion.
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ABA’s Agribusiness Report 2022 that looks at data from its member banks reported the average monthly lending to small agribusinesses grew 7 per cent to $280 million, compared with an average of $261 million in the 12 months prior.
Whilst many industries have been affected by the COVID-19, particularly the construction industry, the agricultural industry has remained largely unaffected.
Speaking to The Adviser broker Deb Purvis at Robinson Sewell, which specialises in agri lending, said agribusiness has enjoyed a period of business growth.
“Low interest rates, good commodity prices and favourable seasonal conditions across much of Australia has seen record investment in land, equipment, and capital improvements,” Ms Purvis said.
Given the improvements across the sector off the back of bushfires and droughts, Ms Purvis said new lending across property purchase and equipment finance loans have been popular, with many agribusinesses taking advantage of the instant asset write-off scheme.
“The instant asset write off is a pretty attractive tax tool when things have been going pretty well in the agri sector for the last couple of years,” Ms Purvis said.
Equipment delays impact agribusiness
While the sector has been mostly unaffected by rising interest rates, the impacts of equipment delays due to COVID-19 and the Ukraine war and increased input costs such as fertilisers and fuel have made their mark, Ms Purvis explained.
“To order a piece of machinery can be anything from 12 to 18 months wait time,” Ms Purvsis said.
Further, equipment delays can prevent finance opportunities as rates change before the equipment can be confirmed.
“An equipment finance loan might be at 4.5 per cent, but in 18 months time it could be more like 6 [per cent],” Ms Purvis said.
“They haven’t got the opportunity to lock it in a rate on purchase of a piece of equipment.”
Ms Purvis added while there is some uncertainty ahead, the opportunities over the last few years “have set farmers up” for the years ahead.
“The low interest rates, commodity prices and [positive] seasons have managed to set farmers up,” Ms Purvsis said.
“At the end of the day, agriculture feeds the world and it’s not going away any time soon.”
Positive outlook for the agribusiness sector
Given the strong position the industry is in, Australian Banking Association (ABA) chief executive Anna Bligh said the agribusiness was “well positioned” to play a leading role during the long-term recovery period.
Also noting the important role agriculture plays in the economy, Ms Bligh said Australian banks have been deeply invested in ensuring the success of the agri sector and in regional Australia.
“Whether it’s support alongside government incentives to purchase new farm machinery or loan deferrals during COVID and more recent floods, Australian banks stand by their customers and their communities,” Ms Bligh said.
This year’s South Australian regional broker of the year Sharyn Gommers added that while strong demand and prices across the sector have given producers “a lot of confidence” to move forward uncertainty remains around rising interest rates.
“I am constantly discussing rates and offering to connect my clients with interest rate specialists in the banks to ensure they are well informed and have the ability to withstand increases whilst maintaining profitability,” Ms Gommers.
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