Business planning for farms


What do farm cash incomes and debt trends mean for your business?

Agribusiness Bulletin

Using statistics from the recently released ABARES report on the financial performance of Australian farms we take a closer look at farm cash incomes and trends in farm debts.

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What do farm cash incomes and debt trends mean for your business?

Each year, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) releases insights into the financial performance of Australian farms, utilising survey and interview data from nearly 2,000 farm operators. This year’s report includes FY13 (actual results), FY14 (preliminary results) and FY15 (provisional estimates). The data distinguishes between commercial-scale dairy farms and all other farms, so called 'broadacre industries', and in this edition of the Agribusiness Bulletin we take a closer look at farm cash incomes (being total cash receipts less total cash costs) and high-level trends in farm debt.

Farm cash incomes

The most recent farm survey report paints an improved picture for broadacre farms with farm cash incomes continuing to exceed long-term averages as a result of:

  • Generally speaking, a good wheat crop for WA and SA in FY15 (noting this period includes the crop income received in FY15 (i.e. 2014 winter crops and 2014/2015 summer crops) and more broadly, favourable seasonal conditions and market prices for the broadacre sub-sectors (livestock and mixed farms)
  • 2% decline in farm costs, particularly fuel (and associated freight costs) and lower interest payments.

The dairy industry has not had it quite so good:

  • Expenditure on fodder, grain and fertiliser in an effort to lift production and take advantage of higher milk prices in FY14 resulted in a relative over-supply of milk into FY15, and ultimately lower milk prices
  • Whilst interest rates, fuel and cattle prices were lower, the decreases were not enough to offset the lower farm receipts, so farm cash incomes are forecast by ABARES to be considerably lower in FY15.

A summary of the cash incomes and commentary is shown below. 

Farm cash incomes

Source: ABARES Australian farm survey results 2012-13 to 2014-15, Deloitte analysis



FY14 Preliminary

FY15 Provisional


Farm cash income (excluding capital payments and payments to family workers)
By geography (excluding dairy):    
NT    364,980          382,100          680,000 Improved pricing should see average farm incomes improve.
WA    159,430          263,000          211,000 Dominated by grain and sheep production, WA and SA are expected to have lower production in the current year - coming off record grain crops in FY14. Overall, farm incomes are estimated by ABARES to be around 30% higher than the 10-year average.
SA    166,960          168,400          163,000
NSW      95,330          108,000          106,000 Higher livestock prices are expected to lift farm incomes but this is anticipated to be more than offset by expected drier seasonal conditions for cropping farms in the north of the state.
TAS      69,770            71,400          104,000 High value beef, lamb, wool and vegetable products and favourable yields are expected to increase farm incomes. Expenses are expected to be lower, so overall profitability of broadacre farms is expected to increase by ABARES in FY15.
QLD      96,720            68,200            79,000 Dominated by beef and sheep farms, average broadacre farm incomes for Queensland are expected to rise as a result of anticipated higher sheep and cattle prices and continuation of drought-driven herd reduction, offset by lower grain and cropping income (from anticipated drier seasonal conditions).
VIC      87,340            98,900            68,000 Similar to WA and SA, lower grain production in FY15 should result in lower broadacre farm incomes, and more than 10% lower than the long-term average.
Key sectors:      
All broadacre sectors    110,320          124,600          114,000 Farm incomes are around historical highs - around 20% above the 10-year average - driven by increasing farm size, generally favourable seasonal conditions and strong export market demand.
Beef      50,180            50,900            63,000 Average farm cash income in FY15 will be slightly below long-term averages despite expected higher market prices and impacted by herd reduction, particularly in Queensland.
Wheat and other crops    281,170          349,500          225,000 Crop yields in FY15 are estimated to be lower than the previous year, but incomes are expected to remain above the long-term average of c.$195,000. The proportion of farm management deposit accounts increased from 29% to 40%, and average balances increased 50%, between FY13 and FY14.
Dairy      44,130          163,900            97,000 Lower farm gate prices in the dairy heartlands of southern Australia are expected to drive average incomes lower than last year. Conversely, Queensland and Western Australia - servicing domestic milk markets - are expected by ABARES to see higher farm incomes than last year.

Farm debt

Reserve Bank of Australia data, as published by the Australian Bureau of Statistics, confirms that collective Australian rural bank debt reached a new peak in December 2014 (the latest official figures date) of $60.7 billion. This reflects an additional $80 million in bank debt on the previous peak (a year earlier, 2013). Additionally, $2.4 billion in rural debt is issued through government programs (also a new record high) and also $1.5 billion of rural debt through the pastoral houses (this is the lowest level in 15 years, reflecting the structural changes in rural banking as typified by the pre-GFC lending environment and formation of RuralBank via the Elders pastoral book).

Total rural debt is just over $64.5 billion. This is more than three times the total rural debt of 15 years ago. 

ABARES definition of farm cash incomes specifically excludes capital payments and payments to family workers (so is not a measure of pure profitability, for example), and around 1 in 5 farms across Australia are likely heading for negative cash incomes in FY15. This provisional estimate by ABARES is broadly similar proportion to the previous two years, but has that consistency of operating losses resulted in increased indebtedness? Well, it depends on your geography and commodity.

ABARES estimates that 40% of farms actually reduced their indebtedness in FY15, primarily paying down debt from operating cash surpluses but also some asset sales. Farm debt for drought-affected producers rose by 5% in FY15, whilst non-affected producers were able to reduce indebtedness by 1%. The geographic sectors with increased indebtedness correlate closely to those sectors that are feeling the effects of ongoing dry seasonal conditions – such as western and northern Queensland and northern inland New South Wales - with increased indebtedness used to cover operating losses or purchase additional land (presumably offering better pastures, waters or geographic & seasonal diversification). Last year’s excellent wheat crop for WA and SA, and a second strong year for Barkly Tableland (NT) graziers have flowed through to lower average debt levels for wheat and beef industries, likely masking the poorer returns from other primary producers in those sectors but located in other (drier) geographies. 

  • Around 70% of total broadacre debt is held by 12% of farms
  • More than a third of WA broadacre farms and more than a fifth of NT farms have more than $1million farm debt
  • Nearly half of the total dairy sector debt is held by just 9% of dairy farms
  • A quarter of dairy farms have more than $1million farm debt.
Farm debt



FY14 Preliminary

FY15 Provisional

Broadacre farm debt         475,680         512,500         509,000
Farm cash income as a proportion of debt               23%               24%               22%
Proportion of farms with farm business debt >$1million                   15%
Proportion of farms with equity <70%                   10%
Beef farm debt         284,230         332,700         340,000
Farm cash income as a proportion of debt               18%               15%               19%
Proportion of farms with farm business debt >$1million                     9%
Proportion of farms with equity <70%                     6%
Wheat and other crops farm debt      1,117,200      1,173,600      1,152,000
Farm cash income as a proportion of debt               25%               30%               20%
Proportion of farms with farm business debt >$1million                   34%
Proportion of farms with equity <70%                   20%
Dairy farm debt         765,970         821,400         854,000
Farm cash income as a proportion of debt                 6%               20%               11%
Proportion of farms with farm business debt >$1million                   26%
Proportion of farms with equity <70%                   24%


Source: ABARES Australian farm survey results 2012-13 to 2014-15, Deloitte analysis

These sectors and geographies are therefore more exposed to adverse interest rate movements (for example) but are also more likely to benefit from scale (purchasing power and off-take agreements, for example). Given our record low interest rate setting, a key scenario for farm business planning is therefore an eventual return to higher interest rates:

  • Could the business support higher interest payments on the current debt level?
  • What is the maximum preferred level of debt that the farm could support, should interest rates turn higher?
  • In a higher interest rate environment, could the farm business raise additional debt should circumstances change – poor seasonal conditions, emergency property repairs, or external market shock?
  • What proportion of farm receipts should your business be directing to interest payments?

If answering these questions for your farm business makes you uncomfortable or the answers are less than flattering, now is the time to form a plan of action around profitability and productivity gains as a hedge against higher interest rates.

A copy of the ABARES Australian farm survey results 2012-13 to 2014-15 report can be downloaded from the ABARES website


Jackie White

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