ACCESS DENIED – SA grain producers facing trouble at the Bank

Access to finance and credit – a “troubling” picture for SA grain growers

A Grain Producers SA (GPSA) survey has revealed that one in two South Australian grain producers are currently facing difficulties accessing finance or credit during the drought. 

The survey of more than 130 grain producers highlights that high levels of 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. 

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 statewide 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 right across South Australia.” 

Of those who reported difficulties accessing finance – 

• Nearly 60% cited issues with bank lending, followed by commercial lending (13%) 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%), approval processes (24%), increased interest rates (17%) and stricter lending criteria (9%). 
• Almost 10% said their bank required a formal drought declaration before assistance would be considered. 
• Nearly 70% of respondents said they have a dedicated bank manager, with 18% stating they used to but no longer do and 10% do not have one. 
• The overall average experience rating for grain producers dealing with their bank or financial institution during drought is 5 out of 10.
• Only 15% of grain producers surveyed said their banks proactively offered drought related support options. 

Mr Perry said responses from the survey show a lack of consistent drought relief options through financiers was compounding financial stress. 

“It is highly concerning that the survey found there are still financiers telling some of 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.”

The survey also found – 

• Just 33% of respondents had used Farm Management Deposits (FMDs), with many citing they never had the sufficient surplus required to do so. 
• Only 28% 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% had used the Rural Financial Counselling Service in the past 12 months with only 2% engaged in Farm Debt Mediation. 
• Nearly 60% of SA grain producers who filled out the survey rate their own level of financial literacy as ‘Very High or High’. 38% rate themselves as having a ‘Moderate’ level. 

Mr Perry said GPSA would be providing the results of the survey to the State and Federal Government, and again writing to banks and financiers to highlight 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. 

GPSA attended a State Government instigated Agribusiness Finance Forum late last year, chaired by Primary Producers SA and the Minister for Primary Industries Clare Scriven, and also wrote to individual banks seeking greater support and understanding for grain producers during the drought. 

Comments from some of the grain producers surveyed – 

“As a 20-year account holder, I can’t get (my bank) to supply an Account Manager” 

“Our issue has been that we have had four droughts in the past seven years, plus two years of sub average rainfall and an above average season which favoured late sown crops” 

“Our drought has been ongoing with seven out of eight years being significantly below average production due to lack of rainfall. This has created large cashflow issues, but also big credibility issues.  Proving you can grow a crop of certain yield is getting harder to justify” 

“(Our bank) has made us pay monthly interest on machinery and slogging massive fees” 

“(Our bank) have been really proactive in approaching us to see how we are likely travelling throughout the season and whether we may need to extend our overdraft” 

“The bank is insisting on taking drought cropping and livestock income, which includes destocking etc, as part of historical data when assessing an application for an overdraft extension. This has a significant impact on our application when we have never had any difficulty meeting all financial obligations in the past decade” 

“We are selling our land to get by and using high interest credit to put a crop in this season” 

“We had no income from the last harvest. Our overdraft has reached its limit. Also, we’ve had to redraw on all existing loans to their maximum. (Our bank) staff are frequently changing. Nobody seems to know what’s going on or making any commitment in helping with long term assistance” 

“I tried to get on the front foot and have discussions with our bank and was told our rural finance manager has retired and the bank at this stage will not replace him. We have had to utilise savings earmarked for retirement to put a crop in” 

“We were told there will be no extension of lending capacity due to the risk. They looked at the last two years of data and deemed we weren’t profitable” 

“Our bank understands our position and appreciated us flagging our needs earlier in the piece” 

“Our bank advised that if a drought declaration is made then that gives them more scope for hardship lending”

“We are grateful that our agricultural bank understands that drought occurs unpredictably and looks at the long-term sustainability of our business when determining eligibility for finance extensions” 

“Banks are expecting us to sell assets to reduce debt but who has the money to buy in current circumstances? It’s just unrealistic” 

“I’m very concerned that our bank is requiring our overdraft to be reduced by the end of this year. This will put a lot of pressure on the grain market” 

“We need understanding and not judgement. Benchmarking rations do not apply in years like this”