Government offers $500,000 loans to drought-hit farm businesses

17 January 2020, Written by Matt Ogg

Government offers $500,000 loans to drought-hit farm businesses

The Federal Government will be offering loans of up to $500,000 to help small farmers affected by drought pay for operating expenses and refinance existing debt.

Minister for Drought and Rural Finance David Littleproud says the new Regional Investment Corporation (RIC) loan for farm-dependent small businesses will be available from 20 January.

The loans will be interest-free for up to two years, before concessional interest-only payments will apply before principal and interest payments are then required for the second half of the 10-year loan term.

"As drought continues to hit small businesses across rural Australia, the RIC's AgBiz Drought Loans will offer financial relief," says Minister Littleproud.

"Small businesses are the lifeblood of our regional communities and they're doing their best to serve farm businesses also affected by this drought.

"Those businesses - livestock transporters, equipment repairers, harvesting contractors can use these small business drought loans to refinance existing debt or just keep their businesses going until the drought breaks." 

An Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) report from December 2019 notes farmers in drought-affected NSW saw large average drops in farm profits in 2018-19.

The ABARES Insights report pointed to data from BOM and CSIRO showing average temperatures have increased by 1°C since 1950, with a trend towards lower average winter season rainfall in the southwest and southeast of Australia in recent decades.

On average, the bureau found changes in the climate since 2000 have reduced average annual broadacre farm profits by 22 per cent, while the drop was at around 5 per cent for beef farms.

ABARES highlighted farmers tended to hold a higher level of equity compared to non-farm businesses in order to absorb climate and price risk, along with maintaining off-farm income. 

However, the bureau reports smaller farms are generally less profitable on average and are also much more likely experience low cash income and negative profits during drought years.

"Small farms also have a larger share of household income coming from off-farm sources, averaging 50 per cent, compared with 6 per cent for large farms," the bureau said.

ABARES said supporting farm households experiencing hardship was legitimate and important, "but for the long term health of the farm sector this needs to be done in ways that promote resilience and improved productivity, and allow for adjustment and change".

"The Government's Future Drought Fund to support research and innovation is a good example of this approach.

"However, while such investments in future resilience are crucial, they do not provide relief to farm households experiencing hardship today."

Photo: ABARES

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Author: Matt Ogg

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