Total agriculture lending in Australia had risen to $131.4 billion by June 2025 from $123.6 billion in the previous year, based on the figures released by the Australian Prudential Regulation Authority. Agricultural lending had been growing in all states and territories, with Western Australia and South Australia witnessing the biggest rises. This growth occurred despite profits falling in certain sectors. The key issue is determining how this has been occurring when margins are being squeezed.
Why Farm Debt Is Rising While Profitability Is Falling?
Land acquisition is the predominant factor driving new agricultural debt in Australia, a trend that remains true across a number of years of government borrowing figures. Borrowing for land acquisition is an investment choice made in confidence and not one out of necessity; it represents a positive debt, despite the negative financial situation in the short term. It is a debt that results from a positive economic growth environment, but one that involves high input costs on the farm despite there being no commensurate increase in revenue certainty.
However, the distribution of debt in the agriculture industry is not balanced. Figures from government show a small percentage of broadacre and dairy farms that account for a large share of total debt, while there are many farms that have little or no debt at all. The result is that the total debt figures appear larger due to the skewness; most debt is not unmanageable, as evidenced by low foreclosure rates that stood below 0.1% of all farm loans in 2024-25.
What Traditional Bank Finance Is Not Providing at Pace?
The use of agribusiness loans for Australian farms through conventional banking sources entails covenant structures and asset valuations that have become increasingly conservative since the low interest rate environment of the early 2020s. The process of credit committee decisions in institutional banks takes weeks rather than days. In the case of a farmer buying up ground on a competitive basis with a second buyer involved, the time frame becomes part of making a bank loan unsuitable irrespective of the creditworthiness of the borrower.
This is also true of the process of infrastructure development. Asset values like horticultural development, irrigation systems, packing sheds, and farm processing facilities need financial backing for staged funding of an asset that grows in value rather than is readily saleable. Conventional banks that focus on agricultural lending as a cash flow exercise do not properly value hard asset values created.
What Growth Capital in Agribusiness Actually Funds?
The land acquisition finance helps in enlarging the productive capacity of the business, consolidation of the nearby lands, or moving into new geographic areas where the availability of water, soil fertility, and climatic conditions favour the particular enterprise. The Western Australia and South Australia regions witnessed the biggest increase in lending in 2024-25, reflecting the expanding capacity in grain and horticulture in those areas.
The infrastructure development finance involves the physical capital that determines the production capacity of the enterprise, namely irrigation, cold storage, grain handling equipment, post-harvest processing facilities, and the supply chain infrastructure. Such investments distinguish the enterprises that participate in the value-added process from those that merely take the prices set in the commodity market. It is important to have a financial institution that would understand the nature of the value-added process and would structure the loan accordingly.
What Experienced Agricultural Lenders Assess Differently?
The stability provided by hard assets in terms of land, water and infrastructure as collateral is far more stable than cash flow agreements in an industry where revenue fluctuates depending on the weather conditions, commodity prices and disease incidents. Lenders who create transactions in terms of the quality and liquidity of the underlying asset and not the revenue of the current year’s crop will make decisions based on the risk that comes with agriculture.
The knowledge that the lending team has in that particular industry is what will determine if the evaluation will take into account the structure of the business. Dairy farming is not the same as crop farming is not the same as horticulture. There are differences in the patterns, assets and markets such that the knowledge of the informed lender makes them apply different risks to the business. The speed with which capital is put into use once the decision has been made is what differentiates the lenders.
