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Suncorp Bank Level 28

266 George Street Brisbane Qld 4000 Ph: 07 3362 1222

Mr Peter Russo, MP Chair, Finance and Administration Committee Parliament House Brisbane QLD 4000 fac@parliament.qld.gov.au

Dear Mr Russo

Submission to the Farm Business Debt Mediation Bill 2016

Suncorp Bank would like to comment on the above Bill to reiterate its support for mandatory farm debt mediation in Queensland but suggest important amendments to ensure it serves the policy objective of efficient and equitable resolution of farm debt matters between a farmer and their bank.

The Queensland Government’s recent initiatives to support the agribusiness sector through the Rural Assistance and Drought Package are to be commended. The industry initiatives in the Budget as well as this legislation will go a long way towards fostering innovation, financial management and drought resilience through the sector as well as providing safeguards for farmers struggling with debt and drought.

‘Farm debt mediation’ (mediation) should be a key ingredient of any regime set up to support farmers who have fallen on hard times to give them the best chance to get back on a more viable footing or to adjust out of the industry with dignity. If undertaken effectively, mediation helps more farmers to successfully overcome the financial hurdles confronting them and ultimately leads to a more prosperous and sustainable agribusiness sector in Queensland. Mediation laws and regulations that are uniform, or at least closely aligned across jurisdictions, is a sensible approach given farmers may have holdings across states and most banks lend across Australia. The New South Wales legislated scheme is widely considered effective and efficient.

Suncorp is concerned that a number of provisions remain in the proposed Queensland legislation that would create a mediation model that is cumbersome. It could even cause banks to adjust their approach to rural lending in the future.

Mediation should be a process seen by both farmer and bank as a timely and practical way of achieving resolution to farm debt issues, however, we are concerned the Bill will have unintended consequences that are counter to the objectives of the Bill. Suncorp believes the Bill will create a model that is more akin to legal proceedings. We are concerned the Bill departs from the New South Wales mediation legislation on a number of key points, including:

1. Document disclosure requirements that lack certainty around relevance and purpose;

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2. Review and dispute processes after mediation that threaten to significantly delay outcomes; 3. Liability for non-compliance being inappropriately borne by the executive officer; and 4. No requirement for the farmer to use the prescribed form when seeking mediation which

increases the risk of inadvertent non-compliance with the legislation.

Suncorp believes that the New South Wales legislation has worked well for both farmers and banks for more than 20 years and so we prefer that the Queensland Bill more closely resembles that legislation. As such, we support the Australian Bankers’ Association submission to the Parliamentary Committee and would like to highlight the above primary concerns.

Suncorp and its agribusiness

Suncorp is Queensland’s largest company with more than 13,000 employees, nine million customers and $96 billion in assets. We have grown to become a top 20 ASX-listed company and evolved into a unique organisation, delivering highly-valued banking and wealth, and insurance products and services across Australia and New Zealand.

Suncorp is Australia’s fifth largest bank servicing one million personal, small to medium enterprise and agribusiness customers. Our purpose is to Create a better today for all of our stakeholders, including our customers, shareholders, people and communities. This means, we help people live the life they want now and plan for the life they want tomorrow.

With more than 100 years of experience helping Queensland communities through the harshest of weather conditions, we believe we speak from an informed position about farm debt and drought issues.

Suncorp provides more than $2.4 billion in lending to about 2,000 agribusiness customers across the state. We have approximately 20 per cent agribusiness market share in Queensland but our reach extends nationally, with $4.3 billion in total agricultural lending.

We are passionate about supporting the sector and helping farmers achieve their goals. We have long-standing customer relationships across multiple generations in Queensland.. A stronger, more resilient rural sector builds a stronger Queensland economy and we welcome partnerships with Government that work towards this objective.

Agriculture in Queensland

Notwithstanding the current recovery from drought in the state, Suncorp believes the agricultural sector has been, and will continue to be, a high-performing cog in Queensland’s economy.

The total value of Queensland’s agricultural commodities has grown significantly over the past 10 years from $8.8 billion to $12 billion (AUD) in 20151. Queensland currently contributes approximately 22 per cent of the national total value of agricultural commodities.

These figures run contrary to the often reported view that the sector is in ‘a crisis’, especially a ‘debt

crisis’. As Suncorp has stated previously, a true measure of a sector’s health should take into account each unique business’ long-term sustainability and ability to service debt. Only looking at debt raised without considering business growth and return on the asset paints a skewed picture of how well or poorly the sector is performing.

1 Australian Bureau of Statistics, Value of Agricultural Commodities Produced, Australia, 2006-16

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While prolonged drought conditions have had an impact on the sector’s overall viability, it should be

recognised that most farmers continue to operate successfully. Moderate increases in debt levels are often attributed to additional capital required to fulfil forward-looking businesses plans for future expansion and scale. Maintaining manageable levels of debt is undoubtedly important, indeed often necessary, for businesses to take advantage of growth opportunities such as export and other new markets.

However Suncorp, like other banks, understands that agriculture is cyclical in nature and the sector contends with a range of weather impacts that can threaten an individual business’s profitability.

These challenges are complex and far-reaching and to overcome them requires collaborative efforts from industry, governments and community. That is why Suncorp strongly argued for activities that bolster rural resilience in its submission to the Queensland Rural Debt and Drought Taskforce last year (attached to this submission).

Suncorp welcomed the Queensland Government’s Rural Assistance and Drought Package in this year’s Budget. From our relationships and interactions with farming businesses we agree the sector would greatly benefit from direct support and guidance that helps them to manage risks and make the right decisions. Grants for farm financial management, climate risk mitigation and succession planning will make a positive difference to a large number of businesses seeking help. Similarly, stamp duty relief to make it easier for sons and daughters to purchase the family farm as well as relaxing eligibility criteria for concessional loans through Queensland Rural Adjustment Authority contribute to a more favourable environment for agribusiness. These initiatives, combined with a workable mandatory mediation model, should help underpin the ongoing success of Queensland’s agricultural sector.

Suncorp continues to assist and champion agribusiness customers. For the past five years, we have run a successful annual rural roadshow program and calendar of events including resilience workshops which have helped thousands of people in rural communities. This year’s series included former Telstra Australian Business Women of the Year, Dr Judith Slocombe, on successful businesses and entrepreneurship, CEO of ReachOut.com, Jono Nicholas, on the importance of wellbeing, particularly mental health, and senior Suncorp economists delivering their assessments on the overall economy.

This year, we piloted the new Suncorp Agribusiness Mentoring Program. The program seeks to support our customers in their careers and business by enhancing knowledge and skills sharing, encouraging co-operation and contributing to wider, stronger networks across the agribusiness community. By connecting next generation farmers with agribusiness leaders, Suncorp has sought to enhance the industry’s ability to meet growing global demands whilst ensuring businesses remain viable, profitable and sustainable. Seven Suncorp customer pairings completed the program and have provided very positive feedback about their experiences. The program included 12 hours of mentoring sessions; workshops and resources for mentors and mentees; and one-to-one online platform for ongoing communication and goal-setting, articles, case studies and interactive activities on key themes that are important for business and career success.

Suncorp’s approach to farm debt in Queensland

Suncorp is prudent and responsible when undertaking the risk assessment for all farm mortgage loans, considering a range of factors including management ability, current and projected income, market dynamics, past history and seasonal outlooks. As a result, a very small percentage of customers in Queensland are unable to meet all their obligations with us. This should be seen as another indicator that the sector is in good shape.

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For the very small number of customers experiencing financial difficulties, enforcement action is always a last resort, contrary to the misconception that banks regularly force customers to sell their properties. This can be a damaging view for the industry as other customers may be reluctant to raise concerns until major issues arise. Suncorp prefers to work with farmers through their challenges and to engage with them early. A business which is helped back on track or allowed a dignified exit from the industry is a much better outcome for both parties.

Suncorp’s financial hardship package supports customers who are unable to meet their financial

commitments due to circumstances such as changes in employment conditions or serious illness. We ensure that customers are reminded of these options especially following major weather events including drought.

Suncorp extended its financial relief options to drought-declared Queensland, encouraging any customers experiencing difficulties to contact us. Ultimately, banks want customers to be able to make their repayments and build equity in their homes and businesses over the long term.

Customers eligible for Suncorp Bank financial relief may be entitled to:

The temporary postponement of loan repayments; Extending the period of the loan contract and reducing the amount of each repayment due; Extending the period of the loan contract and postponing repayment; Waived early withdrawal fees for those clients wishing to withdraw from term deposits ; and Business and agricultural loan rearranging with loan extensions and without the cost of most

bank fees.

We’ve been an active participant and strong supporter of the Queensland Farm Finance Strategy involving non-mandatory mediation. We commend the Queensland Farmers’ Federation and the Australia Bankers’ Association on this initiative which has worked well for 20 years. The Strategy emphasises early recognition and cooperation to resolve financial problems as they arise.

Suncorp has a strong track record on farm debt mediation across Australia. Since 2012, we have completed 51 mediations with almost all resulting in a Heads of Agreement being signed. This total includes 26 mediations in Queensland and 21 in New South Wales. We will always invest in this process if it means timely and clear resolutions for our customers.

We continue to experience positive outcomes from the New South Wales legislated mediation model , which is widely considered to be best practice by both finance and farming sectors. We continue to advocate that nationally consistent processes modelled on New South Wales would provide the best outcome for Queensland farmers.

One such outcome in New South Wales involved a property which struggled to make repayments a few years ago. The farm consisted of a rural property and residential property and a number of different mortgages over various pieces of farm equipment. The customer operated their own farm as well as working for an employer off farm but ran into difficulties due to adverse seasonal conditions; inadequate financial management and record keeping; and missed payments. Following mediation, a Heads of Agreement saw Suncorp agree to extend the repayment deadline for outstanding amounts.

The customer was assisted by a third party which took a mortgage behind Suncorp over the rural property and lent additional funds. The customer was assisted with their financial management and reporting skills as well as refinancing on their farm equipment which assisted cash flows. The customer has cleared all outstanding arrears payments and continues to meet all commitments since mediation.

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This was a great example of a mediation process working to deliver a positive outcome for al l parties involved.

Outstanding Issues with the Farm Business Debt Mediation Bill 2016

Suncorp supports the objectives of the Bill and believes legislated processes can bring certainty, clarity and confidence in farm debt mediation in Queensland. We welcomed the Queensland Government’s

exposure draft consultation on the Bill last month and believe it has improved as a result of concerns raised by the banking industry and farming groups.

However, there remains significant differences between the Queensland and New South Wales models that threaten to make it too difficult to comply with Queensland’s model. This may have serious knock-on effects for both sectors if the process is too difficult to participate in and banks need to consider the ‘worst case’ scenario that will emerge as a result of the Queensland Bill.

Documents

Suncorp’s key concern remains the lengthy document disclosure requirements. The farmer may ask the bank to provide a series of different documents such as loan approvals, subsequent loan changes and “any other matter prescribed by regulation” (Part 3 s21 clause 4e). This ‘catch all’ provision in the Bill

involving regulations that are not yet known to industry or even the Committee should be a concern for any bank seeking to participate in mediation in Queensland.

Suncorp is happy to provide any document that assists mediation. However a process of producing many unnecessary documents, particularly when most would have been previously provided to the farmer at some point, will be too focussed on looking back at causes and past decisions instead of rightly looking forward and seeking proper resolution. Document requirements on farmers may also be onerous.

Furthermore, banks have 30 business days (or possibly longer if agreed) to provide documents requested by the farmer or be in danger of not acting “in good faith” during mediation (Part 2 s22 clauses 2 & 4). The farmer may then apply to have the bank’s enforcement action suspended. These requirements present a logistical and cumbersome task for banks, including Suncorp. Many loan documents would be kept off-site and must be manually retrieved. This exercise can take many days and consume significant resources.

The Bill specifically states that “Mediation meetings are to be conducted with as little formality and

technicality, and as quickly, as possible” (Part 3 s25 clause 2). The document provisions appear to be contradictory to this objective.

Suggested change:

If document requirements must remain, Suncorp believes the option of a pre-mediation meeting is required in legislation. This meeting would set out the terms of any document requirements of both parties including agreed timeframes for retrieval. The mediator would need to be satisfied that all documents have a specified purpose and that their retrieval will help produce a resolution. A clause should also be included to ensure that neither party is unfairly penalised for not meeting deadlines if they have demonstrated ‘best endeavours’.

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Review processes

The ability to seek internal and then external reviews of mediator decisions is a significant departure from the New South Wales scheme and it could extend debt resolution by more than 12 months.

By seeking an internal review, a customer can delay action for up to 50 business days after the mediator has deemed the mediation satisfactory.

If the farmer is not satisfied with the internal review outcome they can then seek an external review through the Queensland Civil and Administration Tribunal. This can delay outcomes by up to 12 months.

Again, taken with the legal nature of mediation meetings proposed, this process will not allow for efficient and timely farm debt resolution in Queensland. The uncertainty created by the proposed review processes could have adverse consequences for the provision of credit to agribusinesses.

Prescribed forms

The Bill appears to provide the ability for the farmer to seek mediation without having to use the prescribed form. Suncorp is concerned that one sentence in an email or other form of communication from the farmer could be unclear or accidently missed and not carried out, causing the bank to be in breach. Requiring the use of a prescribed form removes the risk of a bank inadvertently failing to action a farmer’s request for mediation, an outcome that would be in neither party’s best interest.

Executive Officer Liability

The legislation again differs from New South Wales in that it appears to place a higher burden of liability on the executive officer.

The word ‘knowingly’ has been taken out of Part 7 s89 clause 1(a) and if applied, could mean the executive officer is liable for any unlawful actions of bank staff whether or not the executive officer was aware of these actions.

Suggested change:

Remove the ability to seek an external review of the mediator’s decision in line with the effective New

South Wales model. Any internal review process should be significantly reduced from the 50 business days proposed in the Bill.

Suggested change:

The Bill should include a clause requiring the farmer to use the prescribed form when requesting mediation to minimise the risk of the request not being carried out.

Suggested change:

‘Knowingly’ should be inserted in clause 1(a) and the words ‘directly or indirectly’ should be removed

from 1(b).

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Rural and Regional Adjustment (Development Assistance) Amendment Bill 2016

Suncorp understands the Farm Business Debt Mediation Bill 2016 is now being considered concurrently with the Rural and Regional Adjustment (Development Assistance) Amendment Bill 2016 .

Suncorp has already commented on the latter and we attach that submission again for the Committee.

In summary, Suncorp does not support measures that may help some farmers in the short term, but could have a detrimental impact on taxpayers and the sector as a whole. Creating a Government-backed Rural and Industries Development Bank raises a range of concerns.

Conclusion

Suncorp is a supporter of mandatory mediation in Queensland and will work with Government and elected representatives to make sure the scheme is balanced, efficient and effective.

A scheme that is encumbered with provisions that are contrary to achieving the Bill’s stated objectives is not in the interests of any stakeholders. Suncorp will continue to advocate for a national scheme as the most efficient and effective way of conducting farm debt mediation in Australia. In the meantime, we recommend Queensland moves closer to New South Wales in refining this legislat ion. For any questions or enquiries about this submission please do not hesitate to contact Public Policy Manager Joshua Cooney on or email: .

Regards,

Kevin Potter

Executive General Manager, Suncorp Bank

Submission No. 33

Submission No. 33

Submission No. 33

Submission No. 33

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Suncorp Bank Level 28

266 George Street Brisbane Qld 4000 Ph: 07 3362 1222

Rural Debt and Drought Taskforce GPO Box 46 Brisbane Qld 4001 ruraldebtsecretariat@daf.gov.au

Dear Mr Katter

Submission to the Queensland Rural Debt and Drought Taskforce

Suncorp Bank welcomes the opportunity to make a submission to the Queensland Rural Debt and Drought Taskforce. I am optimistic that collaborative efforts between governments, industry and communities can achieve meaningful outcomes for the state’s drought-impacted regions.

Suncorp Bank is an integral part of the Queensland banking landscape providing products and services to help aspiring families, farmers and businesses achieve their financial goals. Over recent years we have expanded nationally to serve more than one million customers.

We pride ourselves on the strong relationships we have established with our agribusiness customers and currently have a 20% market share of the Queensland agribusiness sector.

I believe it is in the best interests of our agricultural industries to build financial and social resilience to debt and drought issues in the interest of long-term competitiveness. Agriculture is a cyclical industry impacted by volatile climate and market conditions. As such, we take a long-term view to lending and work with farmers on an individual basis to support them through challenging conditions.

Our enclosed submission includes a range of options that have the potential to address debt and drought issues while maintaining the professional integrity, stability and competitiveness of the industry.

I would welcome the opportunity to further contribute to the development of initiatives that will bolster and support Queensland’s rural communities and associated agricultural businesses.

Yours sincerely

John Nesbitt

Chief Executive Officer Suncorp Bank

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Queensland Rural Debt and

Drought Taskforce Suncorp Bank Submission

18 December 2015

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Executive summary

Suncorp Bank has a long and proud history of supporting regional and rural communities, having commenced operations in 1902 as the Queensland Agricultural Bank. Today, our roots remain firmly planted in Queensland but our reach extends nationally, with $4.3 billion in agricultural lending.

Queensland’s rural debt and drought issues are complex and far-reaching. They will require collaborative efforts from industry, governments and community.

Activities should focus broadly on rural resilience. This includes the economic and social health of rural and remote communities and the industries that support them. While many problems are exacerbated by debt and drought, we do need to consider other contributors such as social isolation and unviable businesses.

There are a range of existing assistance initiatives already available to drought-impacted regions including transport and water rebates, mental health programs, wild dog initiatives and local infrastructure and employment programs. These support measures should be implemented as a priority. Further consideration for long-term water security options should also be explored.

Additionally, opportunities to streamline supporting processes, such as Farm Debt Mediation (FDM) and simplify application processes for concessional loans could reduce administrative burden and raise operating standards.

Banks and other creditors play a significant role in funding the businesses and communities impacted by drought. We take this role very seriously and are continually looking for ways to better meet the needs of our customers. The Taskforce alongside highly publicised drought declarations provides an opportunity to further demonstrate the support that Suncorp Bank and others can extend to rural Queensland.

Australia’s agricultural industry has an exciting future in helping to meet global food supply needs. But, we must acknowledge that drought and other weather events are recurring issues that will continue to impact the industry. In attempting to address current drought and debt issues, we should look to support sustainable businesses.

This submission highlights options to build Queensland’s rural resilience by prioritising the implementation of existing assistance measures and establishing the infrastructure and frameworks that will enable the agricultural sector to thrive well into the future.

Suncorp Bank’s recommendations include:

A nationally consistent and compulsory Farm Debt Mediation (FDM) process to provide certainty for customers and streamline processes for lenders.

Expanding or re-focusing Drought Loan Schemes to include exit and reskilling grants. Improving the access and quality of training and management accounting services

for agricultural businesses, especially in the areas of succession planning, cash flow management and business planning.

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Contents

Executive summary.................................................................................................................... 3

The debt quantum ...................................................................................................................... 5

Queensland’s rural debt profile .............................................................................................. 5

Debt data ................................................................................................................................ 5

Competitive landscape ........................................................................................................... 6

Financial stress relief ................................................................................................................. 8

Farm Debt Mediation.............................................................................................................. 8

Financial hardship assistance ................................................................................................ 9

Loan schemes and drought assistance ................................................................................. 9

Improving rural resilience......................................................................................................... 11

Business capability............................................................................................................... 11

Community networks............................................................................................................ 11

Infrastructure ........................................................................................................................ 12

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The debt quantum

Queensland’s rural debt profile

The recent declaration of further drought-affected regions in Queensland raises a range of concerns for the health and viability of rural industries and communities. While much of the public attention has focused on current debt levels, a range of financial and social factors also contribute to the state’s ability to manage drought.

Rural debt in Australia currently stands at $64.9 billion having increased by 7.3% from $60.2 billion in 20111. Queensland represents around 28% of the national market based on the 2011 Queensland Rural Adjustment Authority (QRAA) Rural Debt Survey2.

Suncorp Bank is focused on ensuring that agricultural debt levels are manageable through the cycle. We work with our customers on an individual basis to help them secure strong future prospects while being able to meet their financial obligations and repayments in the short-term.

Conditions in the Queensland rural sector have been considered a widespread ‘debt crisis’3. A more accurate account of the sector’s health should recognise each unique business’

long-term sustainability and ability to grow and make repayments.

While prolonged drought conditions have had an impact on the sector’s overall viability, it

should be recognised that many farmers continue to operate successfully. The moderate increases in debt levels can largely be attributed to successful businesses improving their efficiency or scale through acquisition or diversification. Significant destocking by cattle farmers has assisted in funding ongoing obligations throughout the drought period.

Maintaining manageable levels of debt is just one of many considerations to improve overall rural resilience and ensure the agricultural sector in Queensland remains capable of withstanding the current and future drought conditions.

Debt data

Banks and other creditors provide a range of lending data to various regulatory and industry bodies, including but not limited to: Reserve Bank of Australia (RBA), Australian Prudential Regulatory Authority (APRA) and the Australian Banker’s Association (ABA). Additionally,

banks publish their financial and strategic reports for shareholders and other stakeholders.

1 d7.3 Bank lending to business – total credit outstanding by size and by sector, Reserve Bank of Australia

(RBA), June 2015, available: http://www.rba.gov.au/statistics/tables/index.html (accessed: 08/12/15) 2 Rural Debt Survey, QRAA, 2011, available: http://www.qraa.qld.gov.au/news-and-events/rural-debt-survey

(accessed: 08/12/15) 3 Rural Debt Tops $60 Bill ion, Queensland Times, 3 December 2015, available:

http://www.qt.com.au/news/rural -debt-tops-60b-rural-sector-faces-debt-crisis/2860777/ (accessed: 08/12/15)

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Lending data provided by banks is one of the more consistent and comparable metrics available. Given lenders apply unique risk assessments, have varying degrees of risk appetite and have different customer segments, finding other industry-wide comparable information can be problematic. Queensland’s rural debt levels should be considered in the

context of viability and profitability through the cycle, and requires an understanding of an individual business’ circumstances.

The most recent Queensland Rural Debt Survey was conducted by QRAA in 2011. A current view of the relationship between rural debt and drought conditions could be useful to inform both public and private policy changes.

Conducting a survey or collating industry-wide data may present some challenges in maintaining customer confidentiality and ensuring that data is comparable without lenders being subjected to overly cumbersome reporting requirements.

Competitive landscape

Interest rates across all segments are currently at historical lows. This improves the accessibility of funds for investment and provides the opportunity for rural businesses to build equity.

A number of banks and other lenders are competing for business across Queensland. There are strong, competitive options for viable agribusinesses. In the past 12 months, lending to the agricultural sector in Australia has grown by 3%.

If agricultural businesses were better supported to improve their cash flow management skills, develop robust succession plans and account for weather-related risks, more customers may meet banks’ credit quality standards.

Almost 50% of Queensland’s agricultural debt can be attributed to beef industries. Many beef farmers have destocked during the drought and face restocking at much higher prices (the price they can get for their produce is also significantly improved). Most lenders to the region are very aware of the potential surge in demand for restocking funds and are working through their own strategies to manage this.

Governments should avoid intervening and allow the finance industry to manage the issue. Farmers who are in good financial health may perceive intervention as an unfair advantage to less viable businesses or be resistant to any mechanisms that would restrict or further regulate their access to funds. The overall goal should be to build long-term viable farming operations. Other short term incentives such as rebates for freight, fuel or pesticide costs would be useful for government to continue focusing their efforts on.

Suncorp acknowledges and accepts that existing Drought Loan Schemes may be utilised for restocking purposes; however, we do not encourage additional and specific government funding for restocking.

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Recommendations:

Focus on building rural resilience rather than restricting the focus to debt management.

A rural debt survey should focus on establishing a view of the relationship between debt and drought and the design should not place unreasonable obligations on creditors or their customers.

Funding that is specifically for beef restocking purposes should be managed by

industry and government intervention should be limited to related costs such as rebates for freight or fuel.

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Financial stress relief

Farm Debt Mediation

Farm Debt Mediation (FDM) is a structured negotiation process that may be undertaken in cases where customers are failing to meet their repayment obligations. The FDM process brings the lender and customer together with an independent mediator to discuss options for managing the debt. In most cases, FDM results in a Heads of Agreement outlining the steps each party will take.

Suncorp has had good success with FDM, which has become standard practice ahead of any enforced action over farming properties. A forced property sale is emotionally charged. It is an absolute last resort and only considered when all other options have been exhausted.

Currently, FDM is managed at a state level with varied approaches. New South Wales (NSW) and Victoria have legislative processes, while Queensland, South Australia and Western Australia each have voluntary schemes. The Northern Territory, Tasmania and Australian Capital Territory have no FDM framework in place.

A nationally consistent and compulsory FDM approach would provide greater certainty for customers and streamline operation for banks, especially when customers’ properties cross multiple states.

Suncorp believes that the NSW scheme is well run and could be expanded to other states. It is operated by the state’s Rural Assistance Authority (RAA) and provides a structured process, referrals for professional mediators and other related support services4.

Overall, the NSW FDM scheme could be considered national best practice; however, there are some further improvements that could be incorporated:

1. Apply minimum and maximum debt levels as a guide, e.g. $50K-$50M, and exclude FDM to ‘family-owned’ businesses. While the cost of mediation is generally low ($2K-$5K), these costs would significantly dilute or outweigh the benefits achievable for any debt under $50K. Further, there are few genuine family farming operations with debt levels in excess of $50M and FDM services are not generally suitable for corporate farming operations.

2. Provide clear definitions for what assets are included in FDM. For instance, FDM could be limited to real property farm mortgages and exclude equipment finance.

3. Greater cooperation with the Financial Ombudsman Service (FOS) to ensure that complaints processes do not unnecessarily delay enforcement activity during which time assets are at risk.

4 Farm Debt Mediation, NSW Department of Primary Industries Rural Assistance Authority, available:

http://www.raa.nsw.gov.au/fdm (accessed: 10/12/15)

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Financial hardship assistance

Banks provide support for customers experiencing financial hardship with a range of features that can be tailored to their needs. This is supported by the Australian Bankers’ Association

(ABA) Doing It Tough consumer website that provides information about how banks can help with temporary financial difficulties.

Suncorp Bank’s financial hardship package supports customers who are unable to meet their financial commitments due to circumstances such as changes in employment conditions or serious illness. We ensure that customers are reminded of these options especially following major weather events including drought.

Recently, Suncorp extended its financial relief options to drought-declared Queensland, encouraging any customers experiencing difficulties to contact us. There is a public misconception that banks regularly force customers to sell their properties, which can make customers reluctant to raise concerns until major issues arise. Banks want and need their customers to be successful and hope to support them to build wealth that can be passed on to future generations. To avoid severe financial hardship, the perception of bank behaviour needs to be changed so that customers feel more comfortable to speak with their banker about any financial issues as soon as they arise.

Customers eligible for Suncorp Bank financial relief may be entitled to:

The temporary postponement of loan repayments Extending the period of the loan contract and reducing the amount of each repayment

due Extending the period of the loan contract and postponing repayments Waived early withdrawal fees for those clients wishing to withdraw from term deposits Business and agricultural loan rearranging with loan extensions and without the

cost of most bank fees.

Loan schemes and drought assistance

The QRAA plays an important role in facilitating financial relief to farmers experiencing drought conditions. Through Drought Loan Schemes, QRAA provided $154 million in assistance last financial year5.

The Queensland and Federal Governments have allocated $52.1 million and $333 million respectively for a range of drought assistance initiatives ranging from freight and water subsidies to mental health programs to wild dog eradication programs6. The recent increase

5 First meetings of Rural Debt and Drought Taskforce, Queensland Government, 9 December 2015, available:

http://statements.qld.gov.au/Statement/2015/12/9/first-meetings-of-rural-debt-and-drought-taskforce (accessed: 11/12/15) 6 Government drought assistance programs – overview, Queensland Government Department of Agriculture

and Fisheries, 12 November 2015, available: https://www.daf.qld.gov.au/environment/drought/assistance/new-package (accessed: 11/12/15)

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Recommendations:

Enforce a nationally consistent and compulsory Farm Debt Mediation (FDM) process to provide certainty for customers and streamline processes for lenders.

Loan schemes and other financial assistance should have simple application processes and support sustainable businesses.

Avoid implementing additional administrative bodies (i.e. Reconstruction and Development Bank) and expand the use of existing support facilitators (i.e. QRAA).

QRAA assistance should be expanded or re-focused to include exit and reskilling grants.

Additional debt should not be funded by governments.

to the Farm Deposit Management Account (FDMA) threshold is a positive step that will assist farmers to better manage their cash flows over a number of years.

The breadth of these initiatives is an important consideration to holistically address the socio-economic issues associated with rural debt and drought. The challenge now is to ensure assistance is allocated in a timely manner to those communities and farmers who need it most. Also of importance is ensuring that relief measures support long-term viability rather than prolonging the operation of unsustainable businesses.

The proposal of a Rural Reconstruction and Development Bank would not achieve meaningful outcomes for drought-impacted communities and would have serious implications for lending practices and credit policies. The infrastructure already exists to facilitate assistance through QRAA and this could be expanded.

Given the nature of the agricultural industry, the appropriate level of debt for farming operations requires careful consideration. The emphasis should be on enabling agribusinesses to manage their finances through the cycle. Funding further debt for rural communities is not a role that should be undertaken by governments. This is best managed by the banking industry and other commercial creditors who have established risk management processes and funding streams.

There is no doubt that the agricultural industry faces many challenges. It is at the mercy of uncontrollable weather, its workers are geographically isolated and it faces unpredictable market conditions. For some farmers, the option of exiting the industry is appealing, but the stigma of doing so and the reality of making it happen can be complicated. Consideration could be given to expanding or re-focusing the assistance provided by QRAA to support exit or reskilling grants. This would support farmers who are looking to leave the industry by providing the opportunity to pursue other meaningful career paths and avoid destitution.

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Improving rural resilience

Business capability

It is widely recognised that food security for the world’s growing populations is required to

minimise poverty and enable healthy communities. Australia’s reputation as a global leader

in fresh produce, advanced production facilities and prime land creates a number of opportunities for local producers.

Agricultural businesses are evolving in terms of innovation and sophistication. The pace is relentless and the competitive playing field is global.

Rural businesses in Australia are largely family businesses. They may be passed on for generations with entrenched historical ways of operating. The new generations of farmers are typically open to innovation, but access to good education and training can be problematic.

Making benchmarking data available and accessible to agribusinesses would provide useful information about the components of a successful and resilient operation. Benchmarking provides a mechanism for achieving sector-wide best practice standards.

Suncorp has observed that failed succession planning as well as the absence of robust cash flow management, business plans and diversification strategies are common contributors to the financial breakdown of agricultural businesses. Improved access to specialist management accounting advice would also help agribusinesses better manage their finances and taxes.

Greater focus and collaboration between governments, corporates, agricultural industry organisations and education providers to implement business capability training could strengthen the industry’s sustainability and global competitiveness.

There also exists an opportunity to expand and specialise financial literacy programs in rural and remote schools to address challenges faced in the agricultural sector. This would support the development of more robust succession plans with agricultural families receiving education about modern-day farming from an earlier age.

Suncorp’s agricultural roadshow program is one example of bringing contemporary topics, such as climate change and succession planning, to remote communities. We have received hugely positive feedback regarding the relevance of these roadshows to customers and rural communities. This program will be continued and expanded in 2016.

Community networks

Addressing social isolation and mental health issues is a critical element of ongoing rural community resilience. It is acknowledged that governments have already provided funding and assistance in this area, but the focus should not diminish.

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For many rural and remote towns experiencing drought, populations are declining, further exacerbating social and mental health problems. Increased stress due to business failures or job losses as well as a reduction in local services impacts overall community resilience.

Governments have committed support for improved financial counselling services, mental health programs and family support programs7. In facilitating these programs, consideration could be given to ensuring they are delivered in a way that creates local employment opportunities and attracts new residents to remote regions.

Additionally, incentives for other businesses to employ people based in regional and remote centres could be explored.

Infrastructure

Regional and remote areas require the necessary infrastructure to improve their productivity and remain connected. This is a long-standing issue that impacts many parts of Australia including drought-affected Queensland.

Some investment in rural infrastructure is underway. The most specific to Queensland includes:

Reliable internet access Fencing to protect stock and land from wild dogs and other pests Improved water security through irrigation and/or dams.

Greater attention could be given to researching the most effective ways to better secure water sources that are resistant to drought conditions.

By investing in relevant infrastructure, communities are enabled to be more productive and competitive, which creates employment and generates tax revenue.

7 Government drought assistance programs – overview, Queensland Government Department of Agriculture

and Fisheries, 12 November 2015, available: https://www.daf.qld.gov.au/environment/drought/assistance/new-package (accessed: 11/12/15)

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Recommendations:

Provide accessible benchmarking data so that agribusinesses can obtain information about the components of a successful and resilient business.

Improve the access and quality of training and accounting services for agricultural businesses, especially in the areas of succession planning, cash flow management and business planning.

Expand and specialise financial literacy programs for rural and remote schools.

Government support to be implemented in ways that improve employment options and infrastructure for rural and remote communities.

Research options for improved water security.

Submission No. 33