BANKERS won't admit it out loud, but they are cutting interest rates to debt-stretched farmers in an effort to avoid losing loan business to the federal government's cheap farm concession lending package.
If a farmer isn't satisfied with what their own bank is doing, they can shop around
The 4.5 per cent concessional loan rate to "viable" producers is about 2.5pc below average interest charges on agribusiness borrowings.
"I can't say if banks are actually matching the government rate, but I have heard it (rate discounting) is happening," said Australian Bankers' Association (ABA) chief executive officer Steven Munchenberg.
"If that eases pressure on borrowers it's a positive result."
Canberra's $420 million Farm Finance Concessional Loans Scheme, administered by State governments, has offered five-year loans to producers for debt restructuring, or productivity enhancement spending or drought-proofing.
Farmers must prove long-term viability to qualify for the deals which work in association with an existing lender so the scheme can take over some debt at a concessional loan rate, or provide extra funds to invest in assets such as water improvements.
"In many ways the situation is no different to farmers telling their lender that a bank down the road is offering a better deal and they want the same offer," Mr Munchenberg said.
"If a farmer isn't satisfied with what their own bank is doing, they can shop around for a better arrangement."
Typically agribusiness lenders currently charge farmers an average around 7pc interest for term loans according to the National Farmers' Federation (NFF), although premiums also apply to individual borrowers based on risk factors such as earnings flow and debt to equity positions.
NFF's agribusiness loan monitor puts average farm base rates roughly on par with residentially secured business loans and at least 1pc more than home owners pay for standard variable mortgage rates averaging under 6pc.
Federal Agriculture Minister Barnaby Joyce recently confirmed banks were telling the government they were "desperately upset about having to match our (concessional loan) rates at certain times".
"It makes me desperately happy to know this is happening," Mr Joyce quipped.
The federal government is also poised to extend last year's Farm Finance Concessional Loans Scheme with new drought crisis loans to eligible producers at just 4pc interest.
Promised in February, the details are to be confirmed with at least some State distribution authorities this week releasing drought relief loan help to farms where drought conditions have reached a once in two decades trigger.
Viability requirements will remain central to the offer.
NFF president Brent Finlay said despite Australia's record low official interest rates, few farm sector borrowers had room to move on farm costs.
Any leverage or downward pressure on farm borrowing expenses made possible by government loan initiatives was "very pleasing to hear about".
"While we are mindful that half the ag sector carries no debt at all, total agricultural borrowings have risen significantly in the past decade and are trending towards $70 billion."
With serious drought and/or debt burdens still hurting certain sectors - notably the northern beef industry, some horticulture regions and parts of northern NSW - the NFF was in close contact with banks about their approach to debt issues and rate relief.
Western Australian Agriculture Minister Ken Baston has also confirmed anecdotal cases where he understood banks told farmer customers "not to bother" applying for the concessional loans because the institutions would match the terms.
But some farmer groups are angry banks have only now begun cutting rates because of potential competition from the emergency scheme, claiming lenders have been profiteering at the expense of rural communities.
Mr Finlay said there was clearly a major confidence issue around managing debt in parts of the sector, however "banks are not talking about this as a debt crisis".
"Getting good rain would be a significant boost for those areas in most trouble - and fortunately in some other regions we've seen the best planting season start in living memory."
ABA's Mr Munchenberg reiterated banks were generally "not seeing any big problems around servicing farm debt" and in many cases farms with the biggest borrowings were making the biggest returns because they had used the funds to improve their efficiency.
Banks were naturally careful about ensuring their comments about farm lending did not undermine confidence, but talk from others about the debt problem was often well out of proportion with reality.
"The way some people talk you'd wonder why anybody would ever want to invest a cent in agriculture, and that's it's entirely counterproductive to what everybody wants for the industry."Author : ANDREW MARSHALL is the national agribusiness writer for Fairfax Agricultural MediaSource : The Land