Farmers wanting to expand and make their operations more sustainable are finding it increasingly difficult to borrow money due to a perfect storm of rising interest rates and higher input costs.
Dairy farmer Kate Hand said it was preventing farmers like her from making their operations more efficient, environmentally sustainable, and comfortable for their animals.
Since Ms Hand and her husband Phil took over the family farm near Kempsey on the NSW Mid North Coast, they have been buying machinery and livestock using an interest-only overdraft.
They pay tens of thousands of dollars a year to service their business rate, which has grown from an initial 4.5 per cent to 7.5 per cent.
The couple are chasing a loan for $1.5 million to build a shed and to automate the dairy, but their bank is asking them to review the quotes to bring the loan amount down.
"We don't even have a green light from the bank as such," Ms Hand said.
Ms Hand said her bank was concerned about their ability to pay back the loan, and the impact it would have on their debt-to-equity ratio.
"We're investing a lot just in the planning before we can present a project plan and budget to the bank to see if they might actually finance it," Ms Hand said.
"Who knows what interest rates might be then and if we can even afford it."
Risky business
Agricultural loans nationally total $94 billion, according to the most recent figures from ABARES, with dairy farmers and grain growers the biggest borrowers.
Rising property values and a couple of good seasons have put farmers in a good position to borrow more.
Data from the Reserve Bank of Australia for 2021-22 showed debt from the agriculture sector had risen 12 per cent, but that could be changing as rising interest rates make borrowing more difficult.
Economist Brendan O'Keefe from the New South Wales Farmers Association said it was getting harder for farmers wanting to invest in capital rather than property.
That affects intensive farms such as dairies, which usually don't have as much equity as bigger farms because their properties are often smaller but they have higher equipment and infrastructure costs.
"It's just a bit of a perfect storm at the moment," Mr O'Keefe said.
As well as increasing interest rates, he said input costs for things such as fertiliser and fuel "are going through the roof at a faster rate than prices [farmers] are receiving are increasing".
And rates for investment loans are higher than home loans.
"Agriculture is risky, so interest rates are higher to account for that [and] tighter margins are making banks nervous about lending," he said.
For Ms Hand she may not be able to raise the finance for her dream of a robotic dairy.
"There's not a lot of wiggle room. There's not a big return on assets in our industry, there's not a lot of margin to just swallow these increased costs of finance," she said.
Animal welfare and going green
Ms Hand said she wanted to build a compost shed and an automated dairy, but has had a hard time convincing the bank was a good idea.
"We've invested in irrigation and we've done some dairy upgrades but we do need to actually replace the old dairy," she said.
"It's more than 40 years old. It's just not efficient enough, and there's no room to grow the herd."
She wants to put her cows in a barn, which will protect them from the weather, reduce disease in the herd, improve milk production and help improve the environment on the farm.
"It'll enable us to better manage the effluent and the nutrients on the paddocks and manage run off into the waterways," she said.
Having the cows near the dairy instead of grazing in the paddocks will reduce the distance they walk by a couple of kilometres and increase the amount of milk they produce by up to six litres a day.
Building a compost barn would also help the Hands to reduce emissions from the farm and manage effluent from the cows.
It is part of their plan to farm sustainably.
"We've got a lot of tree lines through the creeks and we've got a lot of tree cover on the ridges," she said.
"That's something that we're really proud of, that we are good stewards of our land."
