Agricultural Banking without Government Payments:
34
Agricultural Banking without Government Payments: The Australian Experience
-
Upload
samanthafox -
Category
Documents
-
view
367 -
download
0
description
Transcript of Agricultural Banking without Government Payments:
Agricultural Banking without Government Payments:
The Australian Experience
Agenda
Agricultural Banking In AustraliaCampbell Chambers
Head of Agribusiness Strategy & Operations
National Australia Bank
Agriculture, Support and farmer reactionGraham Jennings
General Manager Agribusiness
Westpac Banking Corporation
Case studies in Market Reform & current positionStephen Carroll
Director Rural & Regional Banking Policy
Australian Bankers Association Inc
Australia’s Banking Sector
Banks operating in Australia offer a wide range of products and services
• Banking• Funds management• Insurance• Financial advice
Major banks have an investment grade greater than “A”
A$b*
Commonwealth Bank of Australia
280.4
National Australia Bank 268.1
Westpac Banking Corporation
223.7
ANZ Banking Group 214.7
St George Bank 86.3
Suncorp-Metway 41.0
Bank of Western Australia 35.4
Macquarie Bank 47.1
ING Bank (Australia) 32.2
Deutsche Bank AG 22.1
Source: APRA Monthly Banking Statistics (July 2006)
* Total resident assets = sum of assets adjusted for provisions for impairment
Agribusiness Banking Sector
Major Banks Regionals
Specialists
Agricultural Finance in Australia
0
10
20
30
40
50
Less
than
$10
0K
$100
K to $
500K
$500
k to
$2m
Mor
e th
an $2
m
TOTAL
Dec-1993 Dec-2005
CAGR 2.9%
CAGR 8.6%
CAGR 14.4%
CAGR 13.3%
CAGR 10%
Credit Outstanding $43b
Lending Breakdown:
Banks 90%
Pastoral Houses 7%
Government 2%
Annual growth ~ 10% p.a
Source: Agribusiness Banking System Loan Outstandings by Loan Size Source: APRA, RBA, NAB Economics
International Comparison
0
50
100
150
200
250
300
350
400
Nethe
rland
s
New Z
eala
nd
Austra
lia UK
Canad
aUS
Franc
e
Ger
man
yUSD$000's
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
Ave Debt per Farm (LHS)
Debt as % Farm Income (RHS)
Source: NAB Economics
0
50
100
150
200
250
300
350
400
1977-78 1981-82 1985-86 1989-90 1993-94 1997-98 2001-02
Average Land Prices ($/ha 2005-06)
Agricultural Finance in Australia
• Total value of sales Up 34%• Total no. of sales Down 7%• Average sale price US $616,000: Up 44%
Source: ABARE
Opportunity with Change
Rate of return on capital:
Bottom third: 5.8% Middle third: 7.7% Top third: 8.0%
0
50
100
150
200
250
300
350
400
450
1977-78 1980-81 1983-84 1986-87 1989-90 1992-93 1995-96 1998-99 2001-02 2004-05$'000
Source: ABARE
Farm Income – with no debt
Farm Business Debt
Farm Income – with debt
Trends Impacting on the Australian Banking Sector (5 – 10 years)
Macro: Industry consolidation Workforce management Increased security risks Regulation
Greater farmer sophistication Next generation farmer tertiary qualified Strong competition in agricultural banking sector Margin compression High demand for skilled agricultural specific bankers
Brokerage market increasing
Climate variability
Farm production: $35b
Farm dependent economy: 12.1%
670,000 employed
131,000 farm businesses
Agriculture in Australia
0
1
2
3
4
5
6
7
8
9
Sugar Cotton Wine Sheepmeat
Wool Dairy Wheat Beef Totalagriculture
AUDbn
0
5
10
15
20
25
30
35
40AUDbn
GVA industry (lhs)
export share (lhs)
GVA total (rhs)
export share total (rhs)
79% 98%46%
53%
96%
57%
74%
64%
64%
$1.1bn $1.1bn$1.1bn
$1.7bn
$2.7bn$2.9bn
$4.2bn
$6.5bn
$33.5bn
Major Agricultural Industries
Source: ABARE. Westpac Economics
How Prices are Determined
Industry Domestic Export Reference
Beef Saleyard US, Asia Saleyard prices
Export contracts
Wheat Local traders Global stocks Domestic pools, trades
CBOT futures
Dairy Major producers Europe, Asia World indicator prices
Wool China Eastern market indicator
Sheep meat Saleyard US, Middle East Saleyard prices
Export contracts
Wine Supermarkets UK, US mkts Supply contracts
Export contracts
Cotton Asia mkts Cotlook ‘A’ index
Sugar Asia mkts World indicator price, NY
Source: Westpac Economics
0
10
20
30
40
50
60
70
Korea Japan EU US NZ Aust.
% g
ross
farm
inco
me
Government Support for Agriculture
Source: ABARE. Westpac Economics
Government Support by Industry
11
3
15
4 3 4
3732
5459
47
55
0
10
20
30
40
50
60
70
80
Sugar Sheep meat Dairy Wheat Beef Totalagriculture
% gross inc.
0
10
20
30
40
50
60
70
80% gross inc.
Aust. industry support
OECD average (1986/88)
Sources: ABARE, Productivity Commission. Westpac Economics
Farm Subsidies Inflate Prices
0
20
40
60
80
40 60 80 100 120 140
Farm subsidy level^
price level*
^ producer support payments as a share of gross farm receipts* aggregate prive level. OECD average = 100
NZ
Japan
Mexico
Korea
USA
EU 15Germany
Ireland
Norway
Canada
Switzerland
Hungary
Czech
Poland
Slovak
Australia
Source: OECD
0
50
100
150
200
250
300
350
1961-62 1969-70 1977-78 1985-86 1993-94 2001-02
1995/96 = 100
0
50
100
150
200
250index
real value of farm production (lhs)
farmers' terms of trade (rhs)
Australian Farmers Terms of Trade
Source: ABARE
Terms of Trade - the reality
Source: NAB Economics
In 1950
In 2006
How Farmers are meeting the challenge
Farm consolidation
Alternate income sources: off farm employment and off farm investment
Farm expansion
Productivity improvements
Farm Consolidation
Farm numbers by turnover bands
0
40,000
80,000
120,000
160,000
200,000
1987 1992 1997 2002 2007 2012 2017
>$500K
$200-500K
$22-200K
<$22K
Total
Source: NAB Economics
Off Farm Employment
0
5
10
15
20
25
30
35
40
45
50
1993-94 1995-96 1997-98 1999-2000 2001-02 2003-04
Source: ABARE
% Share Income from off-farm
% Farms with off-farm incomes
Off Farm Investment
9.00%
9.50%
10.00%
10.50%
11.00%
11.50%
12.00%
12.50%
0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00%
Risk
Ret
urn
100
%
0%10%20%30%
40%50%
60%
70%80%
90%
Source: NAB Economics
All farm investment
60% farm investment
40% non farm investment
No farm investment
Farm Expansion
0
1
2
3
4
5
6
7
8
9
10
1977-78 1981-82 1985-86 1989-90 1993-94 1997-98 2001-02
%
0
5
10
15
20
25
30
35%
Source: ABARE
Farms acquiring land Resulting increase in
capital value
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Sheep meat Wool Dairy Wheat Beef Total agriculture
% ann. ave.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5% ann. ave.
Industry productivity
Australian Farmers Productivity Lift(average for 80’s & 90’s)
Source: Westpac Economics, ABARE
Agricultural Support
Overall Australia has eliminated most agricultural production and trade distorting support reflecting comprehensive market orientated reforms undertaken over the past 15 years. The level of remaining support is low (OECD 2006)
Removal of Minimum Reserve Price for Wool - 1991
Dairy Industry Deregulation - 2000
Sugar Industry Reform - 2004
Wool Minimum Reserve Price
Commenced in 1971 in response to a severe recession in Nth Hemisphere textile industries
206c/kg clean – 1974 870c/kg clean – 1988 (a 30% increase) Market price fell below MRP – 1989 Abandoned 1991, market price falls to 430c/kg clean Stockpiled wool sold when market price > than 500c/kg clean Stock pile cleared 2001 Current price is approx 840c/kg clean
Dairy Industry Reform
From 1980s phased reduction in assistance for the export sector – Closer Economic Relations NZ
2000 - over night elimination of all price support mechanisms
Adjustment payments for those directly affected
Immediate decline in fluid milk prices, 18% QLD, 12% NSW in the 1sr yr
3yrs latter approx 17% decline in number of dairy farmers
Producers responded to decline in per unit returns by increasing farm output
Larger herds, efficient use of inputs, increased carrying capacity
After initial adjustment milk production recovered and export performance maintained
In response to low world prices and other issues, the Government put together a package of assistance measures that were made available on the basis the industry committed to reform.
The reform included deregulation of domestic marketing arrangements
Assistance measures included a range of short term income support measures, re-establishment grants, training assistance, counselling services, and development industry and local reference groups
Sugar Activity Reforms 2004
Government Support
Agriculture Advancing Australia (AAA) is package of Australian Government programmes to help primary producers in agriculture, fishing and forestry be more competitive, sustainable and profitable FarmBis – education and training activities Rural Financial Counselling Service Farm Help – Short term income support Industry Partnerships Programme - help industry’s manage
adjustment challenges Farm Management Deposits - enables primary producers to set
aside pre-tax primary production income from good years as cash reserves to help meet costs in low income years
Government Support
Exceptional Circumstances (EC) assistance is the Australian Government’s main vehicle for providing assistance to farmers in a region or industry that is experiencing a severe downturn due to a rare and severe climatic or other event.
EC assistance ensures that viable farmers are not forced to leave the land due to events that are beyond the boundaries of normal risk management.
EC are events that occur on average once in every 20 to 25 years and have an impact for a prolonged period
Assistance is available in the form of EC Relief Payments and EC Interest Rate Subsidies.
Thankyou
Campbell Chambers
Head of Agribusiness Strategy & Operations
National Australia BankT +61 3 8634 1699
Graham Jennings
General Manager Agribusiness
Westpac Banking CorporationT +61 2 8254 1083
Stephen Carroll
Director Rural & Regional Banking Policy
Australian Bankers Association IncT +61 0500500408
