Western Australia farmers reap $7b grain harvest, big tax bill

14.02.2019

Farmers in Western Australia are facing tax headaches that have highlighted shortcomings in government and bank initiatives aimed at helping them cope with seasonal volatility after celebrating what is being hailed as the most profitable year on record.

The Grain Industry Association of WA has declared the 17.9 million tonne crop, the second biggest in the state's history, worth $7 billion based on strong prices fuelled by export demand and unprecedented shortages on the east coast.

Financial advisers said farmers in WA were turning their attention to tax and risk management after their wheat crop topped 10 million tonnes for the third time in seven years despite a reduction in hectares planted.

Western Australia is awash with grain after a near record harvest sent farm profitability soaring.  Bloomberg

WA also produced its biggest and best barley harvest on record, 5.1 million tonnes at an average of 3.19 tonnes a hectare and with the percentage of the crop rated malt grade up 10 per cent on historical averages.

Veteran agribusiness banker Andrew Clark said there were few "poor operational farmers" left and the majority had reaped the rewards that came with good decision-making, the rapid adoption of technology and timely rain.

"The cash inflows that we have seen, and that is the easiest way to measure it, are unbelievable," the NAB managing partner for agribusiness in WA's Wheatbelt said.

"Talking to many of our customers and many farmers it is the most profitable year they have ever had.

"I'm sure there are exceptions to that, but we know a lot have deferred grain payments until July because of tax implications and we think that tax management is going to be a very big issue this year."

Increasing land values

Mr Clark, a director of the Rural Financing Counselling Service and chairman of WA's Rural Business Development Corporation, said the federal government's farm management deposits (FMD) scheme, which offers concessional tax treatment on deposits of up to $800,000, would figure prominently despite having some limitations.

Western Australia is awash with grain after a near record harvest sent farm profitability soaring.  Erin Jonasson

"We are convinced we will see FMDs increase again and we are seeing increasing land values and leasing rates," he said.

"All the indicators are demonstrating how strong this year has been."

Australian farmers had a combined $5.46 billion held in more than 51,000 FMD accounts at the end of October. NSW topped the list for FMD holdings with $1.4 billion, followed by Queensland with $1.2 billion, Victoria ($1.1 billion), South Australia ($898 million) and WA ($745 million).

Major banks bowed to pressure to offset the deposits against interest on loans last year as the drought crisis in NSW and Queensland deepened, but complex ownership structures involving family trusts and shelf companies mean many farmers can't take advantage.

Agribusiness accountants have told some clients they don't see enough advantage in the interest offset to realign loans held under existing ownership structures with FMD accounts which must be held by individuals.

Smarter farming

WA Farmers' Federation grains section president Duncan Young said the latest harvest reflected the middle tier of farmers closing the gap on the top tier in terms of adopting best practice and using technology.

Mr Young said greater use of break crops like canola, no-till seeding, better grain varieties and improved timing with nitrogen and trace element applications were examples of smarter farming for better results.

"The top 20 per cent of farmer have been doing this for a long time and continue to stay ahead of the pack," he said.

"The middle 60 per cent are now catching up to where the 20 per cent were 10 years ago. That has been the real kick.

"Farmers have more understanding of how the season is going because they are using technology. They've got multiple weather stations across their farms and moisture probes strategically placed across farms. They're using apps.

"There is a lot of data out there and they're using that to make better decisions."

Mr Young said WA farmers now had a significant drought cushion as they looked at options to pay down debt, change over machinery, reinvigorate paddocks and put money into livestock and infrastructure.They were also keeping large volumes of grain on farm as a drought safety net.


afr.com
 

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