Tougher times ahead for growers
THE Queensland Rural Adjustment Authority (QRAA)'s Rural Debt Survey released last week showed that total rural debt for both Queensland tree crops and vegetables increased in 2011.
The total rural debt for the tree crops industry is $590 million (up about 2% from $577.4 million in 2009) and $595.6 million (up about 19% from $500.6 million in 2009) for the vegetable industry.
The major driving forces include significant input cost increases and extreme weather events.
On a positive note, capacity to service debt is still strong with the proportion of borrowers with 'A' and 'B+' rated debt above 90%.
On a more sombre note, the financial times have just got tougher for growers.
The introduction of the carbon price this week means increased cost for key inputs.
Growcom has prepared a report for Horticulture Australia Ltd (HAL) showing detailed economic modelling of the carbon price impact in the horticulture sector.
For the six case farms studied, the carbon price will increase farm input costs - for example, electricity, fertiliser, chemicals and packaging - by between $5000 and $42,000 per year in 2012, which equates to between 0.3 and 0.8% of gross farm income. By 2020, input costs may have increased by between about $7000 and $56,000, or up to 0.94% of gross income.
Given the typically slim margins of most fruit and vegetable farms, these cost increases represent a significant reduction in farm profits.
The largest impact on fruit and vegetable farms will result from the increased cost of electricity (estimated at about 10%) which powers cold storage facilities on farm and irrigation.
Some larger fruit and vegetable producers are facing increases of several thousand dollars a month, solely as a result of the carbon price.
Of course, electricity prices will actually increase by considerably more than that, due to the state government's decision to adopt the recommendations of the Queensland Competition Authority.
Growers who drip-feed irrigate at night using Tariff 62 will face a 10% increase in the next 12 months, followed by a 62% increase when Tariff 62 is abolished next year and growers are forced on to Tariff 22.
Transition from Farming and Irrigation Tariff 65, which is also being abolished, to Tariff 22 will increase the cost to farmers by 39% over two years.
All this comes before the anticipated major water price increases scheduled for 2013.
Most growers will be unable to pass these increased costs on. While the government has provided assistance measures to households and polluting industries, there is relatively little assistance available to growers, despite the government's commitment to expanding agriculture.
The major retailers seem intent on doing business with a declining number of contractors for unsustainable prices. At the same time, tighter bank lending criteria and declining asset valuations have seen financiers more actively managing borrowers.
In recent months, we have seen several long standing horticultural enterprises move into administration. These larger players could have been expected to weather the financial times better than smaller concerns.
In combination, these changes will present new challenges for food producers. These trends can be expected to continue and seem to indicate industry contraction in numbers of enterprises rather than expansion.
