Sebastian Calderon, Murray Pioneer

A local finance expert says drought-induced debt, combined with tightening lender risk appetites, are making it increasingly difficult for growers to access the finance needed to keep their businesses running.

Completed by more than 130 producers, a recent Grain Producers SA (GPSA) survey revealed that one-in-two South Australian grain producers are currently facing difficulties accessing finance or credit during the drought.

GPSA chief executive officer Brad Perry said the results paint a troubling picture of grain producers being pushed to the brink in the second-consecutive year of a state-wide drought.

“This survey confirms what we are hearing right across the state – grain producers are being met with more hoops, stricter conditions, and slower processes to secure critical finance to get them through this season and beyond,” Mr Perry said.

“The survey shows examples of grain producers being told they don’t qualify for support due to the drought-impacted seasons, even if they’ve met their financial obligations previously. It’s a precarious situation for grain producers across South Australia.”

Riverland Lending Services senior manager Jeff McDonald said the current scenario is what most farmers have experienced with their banks.

“After the Royal Commission into Banking, new laws were introduced into business finance under the headline of ‘Responsible Lending,'” Mr McDonald said.

“Similar laws have been in place when it comes to consumer lending (home loans) for over 20 years, designed to protect borrowers from banks lending to them when they don’t have the financial support.”

“This has been our life for the last 6 to 12 months – processing loan applications for our farming clients after some very disappointing weather events, and the major proportion of our client base is across SA.

“The biggest change in these laws is the heavy emphasis on repayment ability ahead of security/equity. It is now a requirement of all banks (audited by government bodies), that borrowers can demonstrate the ability to repay their loans from cash-flow/profits over a reasonable loan term.”

According to the survey:

• Nearly 60 per cent cited issues with bank lending, followed by commercial lending (13 per cent), with key concerns raised about overdraft extension challenges.
• The most common challenges experienced by grain producers when seeking finance were a lack of cashflow (29 per cent), approval processes (24 per cent), increased interest rates (17 per cent) and stricter lending criteria (9 per cent).
• Almost 10 per cent said their bank required a formal drought declaration before assistance would be considered.
• Nearly 70 per cent of respondents said they have a dedicated bank manager, with 18 per cent stating they used to but no longer do, and 10 per cent do not have one.
• The overall average experience rating for grain producers dealing with their bank or financial institution during drought is five out of 10.
• Only 15 per cent of grain producers surveyed said their banks proactively offered drought related support options.

Mr Perry said a lack of consistent drought relief options through financiers was compounding financial stress.

“It is concerning that the survey found there are still financiers telling some grain producers they’ll only consider hardship support if there’s a formal drought declaration, while comments in the survey suggest others aren’t even aware of the pressures growers are under,” he said.

Mr McDonald highlighted the financial importance of income stability.

“This has always been the case in home loans, where someone’s employment income is paramount to gaining approval, with the deposit/equity a secondary consideration,” Mr McDonald said.

“In other words, someone who only wants to borrow say $100,000 on a $1m house, and has the rest in cash, cannot get a loan if they don’t have any income to repay the $100k loan.

“The responsible lending laws in business now reflect a similar approach, with a borrower needing to demonstrate repayment ability, and not simply rely on their equity as they have always done so in the past.

“With some good seasons for most rural areas through the 2020–2023 period, these changes haven’t been noticed by farmers as most haven’t had to lean on their bank during the good times.”

The survey also found:

• Just 33 per cent of respondents had used Farm Management Deposits (FMDs), with many citing they never had the sufficient surplus required to do so.
• Only 28 per cent had applied for concessional loans through the Regional Investment Corporation (RIC), with several noting the complexity or unsuitability of the criteria.
• A growing number of grain producers are relying on finance brokers, not banks, due to long delays and lack of agricultural expertise within financial institutions.
• Almost 20 per cent had used the Rural Financial Counselling Service in the past 12 months with only 2 per cent engaged in Farm Debt Mediation.

Mr Perry said GPSA will be providing the results of the survey to the State and Federal Government and writing to banks and financiers highlighting the feedback and concerns from grain producers.

“We need to ensure grain producers don’t just survive this drought but are set up to recover when seasonal conditions improve. Access to finance is a critical part of that equation and these survey results demonstrate that much more needs to be done,” Mr Perry said.

Mr McDonald said “many farmers purchased land in recent/good years at record-high values, at what were historically low interest rates (some around 2 per cent),” Mr McDonald said.

“The cost to service these debts has risen dramatically in the last few years as rates are sitting around 6-7 per cent now, a three-fold increase in interest costs.

“The cost of most inputs (fertiliser, chemical, fuel, power, rates, wages etc) have risen sharply in recent years, putting significant pressure on viability when commodities (wheat, barley etc) haven’t increased in value.”

Mr McDonald said farmers were struggling to demonstrate an ability to repay their debts.

“We (RLS Agribusiness) have seen many cases where a farmer is struggling to gain finance support from their bank,” Mr McDonald said.

“A recent case saw a valuation of $22m on a farm with $3m debt, yet they couldn’t access more money to cover their losses from the 2024 drought. The reason, despite all that equity, they cannot show they can repay the loan.

“This is the law and we need to work within the rules to get what we want.

“We at RLS Agribusiness see this as an opportunity to assist our clients to ‘step up’ a little with their business decisions, considering that no-one chooses to lose money and for most, they won’t lose money in the long term against at least average seasons.

“It’s about becoming more business focused and proving to banks that there is long-term viability in their operations.

This article appeared in Murray Pioneer, 25 June 2025.