With the breaking of the three-year east-coast drought in 2020, many agricultural regions shifted from poor to good conditions in a single season – and years of record-breaking production have followed.
However, the challenges and uncertainties for agribusinesses remain, and climate variability isn’t the only thing Australian primary producers, and the businesses that support them, need to manage. In this volatile and unpredictable environment, the right agricultural finance is vital for agribusinesses to manage the numerous challenges and thrive.
Here, we examine the key obstacles facing Australian agriculture and explore the agriculture finance options that can best support agribusinesses into the years ahead.
Agribusiness finance: the unique needs of Australian agribusinesses
Australian agricultural activity covers 427 million hectares of land, which equates to more than half of Australian land use. The sector accounts for 11.6% of goods and services exports, and the most recent data suggests it employs about 239,000 people nationally.
It’s an extraordinarily diverse industry that plays an important role in the broader Australian economy – and those operating in the sector face a unique set of challenges.
Agriculture is an inherently seasonal industry. It’s also vulnerable to risks ranging from the weather to supply chain disruptions and natural disasters. There can be high upfront and ongoing costs for insurance and maintenance, as well as long investment cycles.
We spoke with Octet’s Supply Chain Finance Manager, Joe Donnachie, to gain a deeper understanding of the key agriculture industry challenges.
Joe describes the challenges as “incredibly complex and multifaceted. Australia has recently gone from fires to floods and back again. We’ve had population change, volatile food prices and record price peaks. Then you’ve also got shifting dietary demands, which plays directly into the agri space.”
Something that has also significantly impacted agribusinesses in recent times is staffing issues. “Australia’s closed borders during COVID meant that the regular stream of backpackers couldn’t emigrate, and particularly in the Northern Territory and Far North Queensland, they simply didn’t have enough workers to properly staff farming operations.”
In addition, farm loan interest rates in Australia have obviously been rising, and inflationary pressures and tariffs have been wreaking havoc.
“In 2020, China imposed tariffs on Australian barley and a range of other agricultural commodities,” Joe says. “That alone wiped out around $1.2 billion worth of trade a year. In August 2023, the barley tariff was lifted. However, wine, seafood and red meat are all still subject to those restrictions.”
An intelligent supply chain finance partner can add some certainty to the equation in these highly variable and volatile conditions. “It can give a degree of certainty for an agribusiness when it comes to managing cash flow. A tailored working capital facility can assist with the uncertainty and ensure there is sufficient funding to tackle cash flow issues and take advantage of growth opportunities when they arise,” Joe explains.
Agriculture loans: the limitations of traditional finance
Banks were traditionally the first consideration for agribusiness lending, with an overdraft providing a general line of credit.
Traditional bank lending can come with several limitations, however, including:
- Speed: Banks often have slow loan approval processes, meaning you could miss out on time-sensitive business opportunities due to delayed funding.
- Restrictions: Traditional bank loans can come with restrictive covenants and fixed limits on funding. These limitations might not align with the dynamic nature of your business, especially in a rapidly changing sector like agribusiness.
- Security: Banks typically require specific forms of collateral, which might not fit well with the unique structure of your business. This can be particularly relevant for agribusinesses with complex ownership arrangements.
- Technology: Many traditional banks lack user-friendly and streamlined digital platforms for financial interactions. In contrast, non-bank lenders often provide innovative technology solutions that better suit a business’ supply chain needs.
Joe also explains that the challenges most agribusinesses face “make consistent profits year in year out unlikely, and annual profits difficult to forecast”. This can then act as a barrier when applying for traditional bank finance.
Better finance solutions for agribusinesses
These days, innovative finance products and non-bank lenders are available to help agribusinesses both survive and thrive. Octet provides a range of working capital solutions to power Australian agribusinesses, including:
- Trade Finance: This solution is a great way to bolster your business’ purchasing power, with a revolving line of credit, allowing up to 60 days interest free and 120-day repayment terms.
- Debtor Finance: This facility enables you to access unpaid business invoices as an immediate cash injection quickly and efficiently. Octet can help you convert up to 85% of invoices to immediately boost cash flow.
- OctetPay: This allows you to use your credit or debit cards to pay any supplier invoice to an extensive list of countries and currencies. Access market-leading FX rates, Octet’s supply chain technology, plus standard credit card rewards points with this intelligent solution.
When exploring an agriculture finance solution, Joe recommends simply choosing a product that best suits your business. “Don’t be pigeonholed into one product if it’s not suitable – especially where a lender has only one type of facility available. Understand the working capital requirements and the total cost of the facility. Make sure that when it boils down to marginal cash flow, that the facility works for you, and is commercially viable.”
Case study: Trade Finance solutions for a grain trader
One of Octet’s loyal clients, a prominent grain trader, had the opportunity to procure substantially more stock. The business had existing bank loans, however, to obtain another line of credit to purchase the additional grain, their bank would take about six months to provide an answer. Given the cyclical nature of the business, that just didn’t work.
So they discovered Octet, who, in a matter of weeks, provided a $2 million Trade Finance line of credit that didn’t impede upon the client’s existing bank facility. The business used the funds to efficiently pay their grain suppliers and local transport companies that moved the grain.
Weather the storms and make hay with Octet while the sun shines
Your agribusiness needs a strong and flexible finance partner to grow and flourish. Explore Octet’s range of working capital solutions to find the right product for your fast-growing operation. Contact our team of supply chain finance specialists today.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.