Debt sinkhole engulfing growers, making it hard to invest
The Australian Bureau of Agricultural Resource Economics and Sciences (ABARES) has released a sobering report on the financial and economic state of the Australian vegetable industry.
According to ABARES, the proportion of farm receipts being used to meet interest payments is shown to have increased from 3.2 per cent in 2005-06 to around 4.9 per cent in 2012-13.
“The report indicates that Australian vegetable growers are now spending more, on average, servicing debt than they have since this survey started in 2005-06,” said AUSVEG spokesperson Andrew White.
“The interest to receipts ratio shows that debt has increased, putting strain on our already stretched growers. These results come as no surprise to the vegetable industry, where growers have been suffering for some time due to rising input costs, especially electricity prices,” said Mr White.
AUSVEG is the leading horticultural body representing Australia’s 9,000 vegetable and potato growers.
While debt is an important source of funding for ongoing farm capital and investment for vegetable growing businesses, the report notes that the increase in average farm debt is a result of increased borrowing and a reduced rate of principal repayment.
From 2005-06 until today, the proportion of debt held by vegetable growing farm businesses has shifted. Debt that was attributable to land purchases has declined, while working capital debt has increased.
“Growers are spending more on day-to-day operations, rather than using debt as an avenue to invest in capital equipment and infrastructure that will have long-term beneficial returns to farming operations,” said Mr White.
The ABARES report shows that in 2013-14, average farm cash income is estimated to have fallen to $152,000 for vegetable levy paying growers, 5 per cent lower than the nine year average to 2013-14.
An increase in the area planted and high yields increased overall vegetable production, however, prices were generally lower, particularly for cauliflower, carrots, cabbages and pumpkins.
“The increase in cash receipts was more than offset by increased expenditure on most inputs, meaning that growers are not benefitting from this increased production, but rather still suffering under the weight of rising costs,” said Mr White.
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