Trends in farm debt: Agricultural lending data 2022–23
Agricultural lending data 2022–23
Debt is an important source of funds for farmers to develop their farm business and for ongoing working capital. Information on trends in the use of debt financing provides context for understanding longer term changes in farm financial performance and the drivers of future productivity growth.
This report includes analysis of recent developments in agricultural lending using data provided by the Australian Prudential Regulatory Authority (APRA), the Reserve Bank of Australia (RBA), the Regional Investment Corporation (RIC) and ABARES farm surveys. More detailed analysis, a glossary of terms, and further information about the data sources can be found in the report download.
Summary
- Debt financing is of critical importance to the farm sector, both to fund new investment and to help manage variability in farm revenue and profit. For broadacre and dairy farms—which collectively accounted for around 68% of the value of farm output in 2021–22—the two main reasons for borrowing are to fund land purchases and for working capital.
- The latest agricultural lending statistics provided by APRA show an increase in aggregate lending to the farm sector in 2022–23 of 6% (in real terms). The aggregate value of loans outstanding increased from $114.2 billion at 30 June 2022 to $120.5 billion at 30 June 2023.
- The 6% increase in aggregate lending to the farm sector in 2022–23 was less than the increase in the previous year (9%), but similar to that recorded in the two years prior to that (5.7% and 5.6% respectively).
- Analysis of ABARES farm survey data shows that much of the increase in borrowing in recent years has been for on-farm investment, particularly land purchases. Rising land prices and low interest rates provided farmers with greater equity to support increased borrowings, while historically high farm incomes in most agricultural industries substantially improved farmers ability to service debt.
- Lending to the farm sector increased in all states and territories during 2022–23, with the largest percentage increases in real terms occurring in Tasmania (9.6%) and the Northern Territory (7.7%).
- The average proportion of gross cash income (total cash receipts less total cash costs excluding interest payments) consumed by interest payments―the interest coverage ratio―has generally trended downwards over the last decade due to higher farm incomes and lower interest rates. Higher interest rates in 2022–23 saw the average interest coverage ratio increase to 12% for broadacre and dairy farms, compared with 8% the previous year. Despite the increase, the average interest coverage ratio in 2022–23 remained below the levels recorded in much of the previous decade (where it averaged 16%), and well below the peak in 2006–07 when it reached over 50%.
- The distribution of debt across farms is very uneven. In 2022–23, 5% of broadacre and dairy farms (mostly very large farms in terms of turnover) accounted for just under 40% of aggregate debt, whereas nearly 50% of broadacre and dairy farms had very little or no debt.
- The number of farms in financial stress due to debt remained comparatively low in 2022–23. For example, the proportion of broadacre and dairy farms with relatively low additional borrowing capacity (equity ratio of less than 70%) and relatively high debt servicing commitments (interest payments greater than 40% of gross cash income) was just under 1% in 2022–23—compared to an average of 7% of farms over the last 20 years.
- The aggregate value of loans and leases that were more than 90 days past due decreased by $142 million from $817 million in 2021–22 to $676 million in 2022–23. When expressed as a share of total lending, loans more than 90 days past due represented 0.6% of total loans and leases in 2022–23 compared with 0.7% in 2021–22.
- Monthly data published by the Reserve Bank shows that aggregate lending to the farm sector continued to grow in 2023–24, increasing by around 6% (in real terms) between 1 July 2023 and 30 June 2024.
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