Farm management deposit offset plan to reduce lending costs

FARMERS will be able to ­receive interest-free loans up to $800,000.

Crops Harvest. North Central Victoria.

FARMERS will be able to ­receive interest-free loans up to $800,000 under the Federal Government’s farm management deposit offset scheme.

Changes proposed in the Government’s agriculture White Paper will allow farmers who make deposits under the FMD scheme to take out ­interest-free loans equivalent to the level of the deposits with the same financial institution.

The Government last week also announced it would lift the maximum deposit limit from $400,000 to $800,000 from July 1 next year.

An adviser to Federal Agriculture Minister Barnaby Joyce confirmed farmers would be able to borrow up to $800,000 interest-free if they had that amount in a FMD with a financial institution.

RELATED COVERAGE

Agriculture White Paper contains a financial nugget in the slurry

Tough week for Barnaby Joyce after launch of Agriculture White Paper

Agriculture White Paper reveals the future of Australian farming

Agriculture White Paper: ACCC to appoint agriculture commissioner

Agriculture White Paper: Finally a plan, now for action

A farmer taking up the new maximum FMD limit into an accredited scheme with a bank will normally earn about 3 per cent interest on the deposits.

But if the same farmer had a $1 million loan with the same bank, paying interest of about 8 per cent, he would be entitled to the first $800,000 of the loan interest-free and pay ­interest only on the $200,000 portion. The farmer would forfeit the 3 per cent interest he earnt on the FMD.

Northern NSW farmer Xavier Martin said it could be a “game changer” in helping to reduce the borrowing costs for primary producers.

Mr Martin said the savings to a farm operation could be significant and spur investment in small-farm businesses.

He said the savings could potentially be higher if a ­husband-and-wife farming partnership resulted in each partner depositing $800,000 in FMDs.

Suncorp Bank Agribusiness Victoria and South Australia manager David Charge said an FMD offset account would work similar to those in place for home loans.

“If you have a home loan of $100,000 and you have $20,000 in deposits, you only pay interest on $80,000,” Mr Charge said.

“What happens in the scheme announced in the agriculture White Paper will be similar. We’re exploring ways to bring this to life.”

As at May this year, farmers had collectively held $3.55 billion in FMD holdings ­nationally.

Mr Joyce’s adviser said the Australian Bureau of Agricultural and Resource Economics and Sciences had estimated the savings to farmers from the offset scheme to be about $150 million a year.