Seasonal factors in debt
Many Australian farmers have at times been crippled by the impact of bad seasons or prices on their bank loans. That has a lasting impact that will not always be overcome by later good seasons or prices. A drought, flood, fire, commodity collapse or government decision can create its own ongoing debt situation with necessary bank loans or inability to pay suppliers.
While sheep and cattle prices are booming, that does not always save those who are frantically rebuilding stock numbers decimated by the drought, flood and fire disasters of recent years.
Banks have been lending to Australian farmers for over 100 years but still fail to take account of all the circumstances that affect farming. It only takes a few weeks of heavy rain to do a lot of damage. A long dry summer can completely alter input costs and commodity prices. Drought can kill stock, cut their value and boost operating charges. Bushfires are brutal and devastating but government policy, whilst not so obvious, can be just as destructive, as the wool price collapse of the 1990’s and suspension of the live cattle trade in 2011 proved.
The fight for a fair go
It is for that reason that our group works hard to encourage governments to be fair in their policy-making and banks to be fair in their lending. For governments to be fair, they need constant interaction with actual farmers who are voters. Peak bodies like NFF do a tremendous amount of good for farmers. I once chaired a large District Council in NSWF, but they never hit the “ballot box” nerve like actual farmers do. Voters Network and FairGO specialise in giving every farm family a very effective chance to inform and influence the parliamentary decision-makers.
GBAC is the specialist that gives farmers a unique chance to inform and influence their bankers in a way that other avenues do. This is an aspect of profitable farming that is usually left untouched by farmers. They feel they do not have the ability or authority to get the best results from bankers.
As a city bred 4th generation farmer I bought my first farm at Tullamore NSW to grow wool before banks were de-regulated, but as deregulation bit from 1987 on and banks became more focused on profits than customers, I felt the impact and was also being approached by chicken growers for assistance in dealing with totally unaffordable loans cause by bank foreign exchange loans. At the same time I was being approached by Australian apple and pear growers for whom we convinced governments to take precautions against Fire Blight which threatened their profitability.
By the time in 1990 I bought the beef cattle property started by my great-grandfather near Braidwood, banks were in full flight robbing trusting farm families and paying big commissions to bank managers who sold huge unaffordable loans to expansionary farmers. A quick look at major bank profits ($27 billion in 2019, a 900% increase on the $1.8 billion profit in 1986 before deregulation) will let most farmers understand that it could not possibly be happening if banks were looking after the customers interests as much as their own.
I have learned that exactly the same techniques I used for moving sheep and cattle made banks move to where the farm customers wanted them.
Farmers make profit from banking transactions by taking control from the start and continuing to hold control until their loans are repaid. Those who do that, do well. Those who do not have time in their busy farm life to do it ask GBAC to assist them to do it. When you borrow, think “Moneylender” rather than “banker”.
Banks behaving badly
Some major banks have dishonest and ruthless directors setting deceptive bank policy and others have dishonest and ruthless executives or managers further down the line who trick customers with false and misleading information and promises.
The recent Royal Commission has forced major banks to pay huge fines and repay large amount of money illegally taken from customers.
However, banks wield enormous pressure on politicians for a variety of reasons. The Royal Commission did not address many of the dishonest practices of Australian banks in farm lending. I must say that most of the major banks have learned the lessons from negotiations and mediations we and others have conducted since de-regulation in the 1980’s. Banks from whom we negotiated debt write-offs of 25% to 50% of the loan value, have learned the lesson that loan crime does not pay.
They have generally lifted their game and avoided deliberately leading farmers into debt traps. Some lower ranking banks, however, have not been so careful because they did not have the customer base of the big banks to abuse early on or they did not even exist before deregulation. Dishonest brokers plus farmers who trusted them, have themselves contributed to many debt disasters we have had to unwind.
Stand up to the bank & GBAC will stand with you
There are laws to protect bank customer and there is a Code of Practice that banks have drawn up to essentially protect themselves, whilst appearing to protect customers. That can give farm borrowers a very good foundation for beating a bank at its own game. So does the Trade Practices Act.
Is some cases borrowers have been discretely threatened with dire consequences if they fight or report unfair or dishonest bank practices to authorities. “You will never get another loan from any bank” is a common and frightening threat, but it is just “hot air”. Banks in their role as moneylenders will always lend to people who will honour their agreements to repay the loan and interest on time. They will not be put off by a farmer who has had a disagreement with a competitor bank. They love to pick up business from other banks. The secret lies in the words “on time”. There are certain clauses that farmers should always insist be included in loan agreements and certain other clauses that they should cross out as unacceptable.
Many fish in the ocean and many banks seeking farm customers
Remembering that there are many banks keen to lend to farmers is the most important factor for converting debt to profit. Only the fairies still believe in “bank loyalty” factors. Loyal customers are treated badly by banks simply because they put up with it. It is “easier” than changing banks. But it is usually very unprofitable. It enriches the banks and impoverishes the farmers. Don’t put up with it, because changing banks is much easier and profitable now.
Our next two hints will deal with how to convert excessive farm debt into farm profit through some unusual strategies.