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Farm finance: what role do finance professionals play in the agriculture sector?
Agriculture is big money—in 2017, its overall national value hit an all time high of 60 billion dollars, and it has been referred to as one of the ‘five pillars’ of the Australian economy. Not only does agriculture feed the Australian people—about 14 percent of Australia’s total exports are agricultural products, such as beef, wheat, wool, and alcohol. (Fact: Australia makes more money exporting alcohol than from vegetables, fruits, nuts, sugars, or barley.) With so much money at stake, it’s worth asking: where do finance professionals come in, and what do they do?
Understanding the unique challenges of agricultural work
You might wonder why the role played by finance professionals in the agriculture sector is different from the role they play anywhere else: providing guidance and support on a range of issues related to transactions, investments, loans, and other financial processes.
In fact, farms and other agricultural organisations are often in a unique position: cash flow for farms is much more variable than for other businesses, due to unpredictable variables such as pests, disease, and natural disasters. For example, in 2006, Cyclone Larry destroyed $350 million worth of bananas in Northern Queensland, and left 4,000 people without employment. In supermarkets, the price of bananas quadrupled. Farmers, many already bankrupted by the disaster, were faced not only with a massive cleanup operation, but enormous pressure to have new crops ready for harvesting as quickly as possible.
After all, while the success of agricultural operations is unpredictable, the reliance of the Australian people on that success is not: the prosperity and success of Australian farms has a direct effect on food availability, food prices, and other factors that contribute to our national food security. As a result, finance professionals, including accountants and lenders, have had to develop adaptable ways to support agricultural operations.
Developing novel finance schemes
So how do finance providers help agricultural businesses that have highly variable returns? The answers fall into two broad categories: specialised products and specialised services.
In the first category, there are a range of accountants, lenders, investment bankers, and financiers who have developed products to suit the needs of farmers. For example, farmers, and other agriculturalists, can apply to make a ‘farm management deposit’ with many banks. This scheme allows them to make tax-deductible deposits in low-income years so that they can use their cash reserves to flourish when a better harvest comes along. Other products include loans specific to farming equipment, and start-up financing for young farmers.
The second category includes those finance professionals who support farmers by offering specialised services. Generally, these are accountants, bankers, and consultants who focus on the legal, social, business, and financial aspects of the agricultural industry. This enables them to assist with various challenges, including capital raising, due diligence, deal valuation, acquisitions, land licensing, and so on.
Assessing government grant applications
Most of the professionals described above work for banks, lending institutions, or specialized businesses like Rural Finance, which caters specifically to farmers. However, the government too has a vested interest in promoting Australian agriculture.
Consequently, within the federal Department of Agriculture and Water Resources and its state subsidiaries, there are financial professionals whose jobs are to evaluate applications for a range of grants and tenders. This involves checking that applicants meet the criteria for drought assistance, grants for the purchase of pest removal technology, funding to enter international markets, or financial support available through other active schemes.
Fostering agricultural development in other countries
By 2050, farmers will need to be able to feed a global population of nine billion people—this equates roughly to a 70% increase in the need for food, which, in turn, will require around $80 billion in annual investments starting now. As a result, multinational organisations, such as the World Bank and the International Development Fund, are overseeing large scale projects intended to increase agricultural productivity in developing countries.
Financial professionals are central to this endeavour, overseeing loan arrangements, performing valuations, working with various governments, and so on. This involves overcoming three main challenges: the costs of reaching remote or rural populations (especially in countries with poor communication networks); the widespread misconception that farmers make bad lendees, due to unpredictable market fluctuations; and the fact that many foreign financial institutions lack experience with agricultural loans.
Overcoming these obstacles involves more than working with farmers directly. It means investing in infrastructure, such as roads into rural areas or loading terminals and docks; financing the introduction of new technologies designed to increase efficiency and productivity; and helping farmers and lenders respond effectively to issues like climate change and its associated challenges.
Finance professionals can specialise in the agriculture sector, which faces unique industry challenges, both locally and around the globe. Be part of this valuable industry - to search for internships and graduate jobs in the agriculture sector, visit our industry job search page at GradAustralia.