Farm loans set to rise as RIC raises its interest rate

Farmers with loans issued by the Federal Government are set to pay more from August 1 as the Regional Investment Corporation raises its variable interest rate.

Farmers paying off federal government issued loans will be slugged with a higher interest rate this month.

The Regional Investment Corporation today flagged it was raising its farm business loan variable interest rate from 2.31 per cent to 3.04 per cent, affecting customers paying off a drought, AgBiz Drought, AgriStarter and Farm Investment loans.

The RIC forewarned customers three months ago that interest rates on a raft of loans for farms and drought assistance could double by the end of the year, potentially causing pain for farmers.

Unlike commercial loans that are tied to the Reserve Bank of Australia’s cash rate, the RIC’s variable interest rate is linked to the Australian government 10-year bond rate averaged over a six-month period and applied retrospectively.

RIC acting chief executive Paul Dowler said farmers benefit from the concessional nature of the loans, and many were not paying interest at all.

“At 30 June we still had 84.3 per cent of farm business loan customers benefiting from the

interest free terms of their RIC loan,” Mr Dowler said.

RIC loans come with interest-only terms for the first five years of the loan, followed by interest and principal repayments for the final five years of the loan.

The Regional Investment Corporation has issued 2835 loans since it was established four years ago.

NAB agribusiness economist Phil Ziebell said while interest rate rises would impact farmers’ borrowing costs, they were unlikely to be their greatest concern given the steep trajectory of farming inputs.

“The cost of capital would be right up there as a big issue. Clearly these central bank rate hikes will have implications for producers, but the big challenge is in input costs and how that’s squeezing margins,” Mr Ziebell said.

He said while some commodity prices looked to have peaked, namely fertiliser, there was uncertainty ahead due to gas prices and gas availability heading into Europe’s winter.

The interest rate change will be effective from August 1.

Since its inception in 2018, the RIC has approved 2835 loans collectively valued at more than $3.08 billion.