An association submission to the Senate Standing Committees on Economics in early 2014 highlighted the cattle farmers’ plight. It said cattle prices have been low for so long farmers have been unable to farm efficiently and reinvest. They have been unable to build up financial and physical reserves to handle provision for adverse climatic events such as drought and flood.
“A decade of poor returns has resulted in debt levels that cannot be serviced in the short term and perhaps never paid off in the longer term.”
Economou, who also publishes the Australian Meat News, said debt figures used in the submission focused on Queensland but would be typical across Northern Australia.
The association said it was unlikely Queensland cattle producers would ever be able to repay the debt out of income. Many would struggle to meet their interest repayments.
There is a growing tension between the demands of debt servicing, the need to maintain assets and to reinvest to improve farm productivity.
Economou said cattle producers were struggling to survive on a daily basis and unable to invest in their future.
Long and short-term debt owed by Queensland cattle producers has increased from A$2.2 billion to A$9.2b from 2001 to 2011. Cattle numbers in Queensland between 2001 and 2011 lifted from 11.3 million to 12.6m but the average debt rocketed from A$191 a head to A$727 a head in the same period. The association said the debt now exceeds the value of the livestock inventory.
In 2013, debt servicing (excluding capital repayments) swallowed up 38% or A$254 of each sale whereas it was 9% (A$67) in 2001.
The submission also used data from the Queensland Rural Adjustment Authority, which has commissioned a debt survey on a biannual basis since 1997. Economou said the 2013 survey was not carried out because lending institutions would no longer provide updated data. It was most likely that debt levels have increased.
The cattle industry debt is about 54% of Queensland’s total rural debt. Queensland accounts for 43% of Australia’s cattle inventory and a similar share of production.
In real terms cattle prices have declined 30% but costs have increased about 30% in the decade to 2013 (40% since the beginning of 2001).
The association says the situation is unsustainable. Eventually, even the most efficient producers will be faced with negative margins.
It said the cost-price squeeze cannot be solved by productivity gains. It was impossible for individual businesses let alone an industry to achieve the annual 2-3% productivity gains needed to maintain or improve margins.
The association said the Australian beef industry had potential to deliver better returns to farmers especially with exports. But the debt burden was draining cattle producers and unlikely to be resolved if left to farmers and financiers.
The association supported the establishment of an entity to manage an outcome in the best interests of farmers, financiers and the wider Australian economy.
