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					Agricultural Banking without
  Government Payments:
The Australian Experience
Agenda

Agricultural Banking In Australia
Campbell Chambers
Head of Agribusiness Strategy & Operations
National Australia Bank


Agriculture, Support and farmer reaction
Graham Jennings
General Manager Agribusiness
Westpac Banking Corporation


Case studies in Market Reform & current position
Stephen Carroll
Director Rural & Regional Banking Policy
Australian Bankers Association Inc
Australia’s Banking Sector

        Banks operating in                                                                A$b*
         Australia offer a wide
                                                   Commonwealth Bank of
         range of products and                                                             280.4
                                                   Australia
         services                                  National Australia Bank                 268.1
           • Banking                               Westpac Banking
                                                                                           223.7
                                                   Corporation
           • Funds management
                                                   ANZ Banking Group                       214.7
           • Insurance
                                                   St George Bank                          86.3
           • Financial advice
                                                   Suncorp-Metway                          41.0
        Major banks have an
         investment grade                          Bank of Western Australia               35.4
         greater than “A”                          Macquarie Bank                          47.1

                                                   ING Bank (Australia)                    32.2

                                                   Deutsche Bank AG                        22.1
* Total resident assets = sum of assets adjusted
for provisions for impairment
                                                             Source: APRA Monthly Banking Statistics (July 2006)
Agribusiness Banking Sector



                Specialists




Major Banks                   Regionals
Agricultural Finance in Australia

                                                                                                                 CAGR
                                                                                                                  10%
Credit Outstanding $43b                   CAGR            CAGR                CAGR            CAGR
                                           2.9%            8.6%                14.4%           13.3%

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



                        Debt as % Farm Income (RHS)




                   Ave Debt per Farm (LHS)




                                                      Source: NAB Economics
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



       Farm Income – with debt




                                    Farm Business Debt




       Farm Income – with no debt




                                                         Source: ABARE
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
Agriculture in Australia


 Farm production: $35b


 Farm dependent
 economy: 12.1%
 670,000 employed


 131,000 farm
 businesses
Major Agricultural Industries




                                Source: ABARE. Westpac Economics
How Prices are Determined

Industry     Domestic        Export            Reference
                                               Saleyard prices
Beef         Saleyard        US, Asia          Export contracts
                                               Domestic pools, trades
Wheat        Local traders   Global stocks     CBOT futures
                                               World indicator prices
Dairy        Major producers Europe, Asia
                                               Eastern market indicator
Wool                         China
                                               Saleyard prices
Sheep meat   Saleyard        US, Middle East   Export contracts


                                               Supply contracts
Wine         Supermarkets    UK, US mkts       Export contracts
                                               Cotlook „A‟ index
Cotton                       Asia mkts
                                               World indicator price, NY
Sugar                        Asia mkts

                                               Source: Westpac Economics
Government Support for
Agriculture




                         Source: ABARE. Westpac Economics
Government Support by Industry




                          Sources: ABARE, Productivity Commission. Westpac Economics
Farm Subsidies Inflate Prices




                                Source: OECD
Australian Farmers Terms of Trade




                                    Source: ABARE
Terms of Trade - the reality

 In 1950




  In 2006




                               Source: NAB Economics
How Farmers are meeting
the challenge


   Farm consolidation

   Alternate income sources: off farm employment and off farm
    investment

   Farm expansion

   Productivity improvements
Farm Consolidation




                     Source: NAB Economics
Off Farm Employment


    % Share Income from   % Farms with off-farm
          off-farm              incomes




                                              Source: ABARE
Off Farm Investment




                            No farm
        60% farm          investment
       investment
      40% non farm
       investment
                        All farm
                      investment




                       Source: NAB Economics
Farm Expansion



                        Resulting increase in
 Farms acquiring land      capital value




                                                Source: ABARE
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
Sugar Activity Reforms 2004

   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
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 Bank
T +61 3 8634 1699
campbell.j.chambers@nab.com.au


Graham Jennings
General Manager Agribusiness
Westpac Banking Corporation
T +61 2 8254 1083
gjennings@westpac.com.au


Stephen Carroll
Director Rural & Regional Banking Policy
Australian Bankers Association Inc
T +61 0500500408
scarroll@bankers.asn.au

				
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