The additional land acquired was used to gain economies of scale and larger farms have indeed shown a greater ability to service their debt as a result.
“Australia's high cost of labour, transport and inputs means savings from scale are critical for us to be able to compete against low cost competitors,” Wall says, with the added caveat, “...it is equally important to note that small agribusinesses can still be very profitable if they don't over capitalise and get their business model right. It is the mid-sized farms which are too big to be boutique and too small to achieve scale, that will struggle.”
There are though significant challenges: “Achieving scale often entails taking on high levels of debt which adds to business risk. Some agribusiness operators simply do not have the business skills to manage this risk.”
Graeme Ford, CEO of the Victorian Farmers Federation, says a farm’s capacity to cope is not just weather related but also connected to the skills of the farmer “If you over-leveraged in striving for growth and economies of scale and then faced 10 years of poor conditions that put considerable amounts of pressure on the farm,” he says. “Some did better - and business management skills are an increasingly important factor in success or failure.”
Farm debt doubled in the 10 years until 2009 but it has declined since. A complicating factor was that increases in average debt size during that period partially arose due to the exit of small farms with little to no debt at all, creating an apparent boost in average debt across the sector.
Average farm debt also varies significantly by type of farm with average dairy farm debt almost double that of broadacre farming in 2012-13 (which is in fact a decrease over recent years).
Much recent popular coverage of the agri-sector has centred on falling land values as the reason behind struggling farm performance and the limited ability of farms to raise capital.
Yet while land values have fallen on average since the highs of 2007-08, the degree of that fall varies greatly depending on the zone of land. Moreover, measured over even the last decade, land prices are still higher despite having fallen off the rather extraordinary highs of 2007-09.
Land used for the production of wheat and or sheep has fallen the most while that in pastoral zones has hardly fallen at all. Indeed land prices in general seem to be trending back to the average rate of growth between 1980 – 2002.
“Land devaluation has been an element down in the south west (of Victoria) where it was more of a correction. There had been inflation in the value of the land due to managed investment schemes for timber with government tax benefits, and dairy farmers had to compete against it,” Ford says.
Land prices for Broadacre farms, by zone