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The recent decision by the Reserve Bank of Australia (RBA) to raise interest rates by 25 basis points to 4.35% has undoubtedly caused ripples throughout the country's economy. While households and small businesses brace for the impact, there's also a significant group feeling the pinch – grain farmers. Let's explore the consequences of rising interest rates on grain farmers, both locally and globally.
For grain farmers, the effects of an interest rate hike are two-fold. Firstly, elevated borrowing costs add to already high farm expenditures, particularly in view of still inflated input prices. Whether it's purchasing land, equipment, or other essential inputs, loans have become more expensive, making financial decisions a lot more challenging.
Secondly, the rise in interest rates impacts those who rely on external finance to bridge the gap between harvest and grain sales. While this year's earlier harvest may provide some relief, the higher interest rates increase the costs associated with on-farm grain storage. This is particularly pertinent for those who need to invest in capital to hold unsold grain until market conditions are more favorable.
The good news, however, is that many grain farmers in the Esperance region and surrounding areas are in a robust financial position after experiencing a couple of bumper harvests and record farm incomes. Healthy balance sheets reduce the risk associated with increased operating costs, but challenges remain.
The impact of rising interest rates extends beyond the local level, affecting farmers on a global scale. When interest rates rise, liquidity decreases, making it harder for farmers to convert grain into cash without affecting market prices. This often results in a rush to sell grain, causing a decline in grain prices and complicating price determination.
Furthermore, increased interest rates have an impact on currency exchange rates. With the rise in Australian interest rates, the Australian dollar (AUD) strengthens, which, in turn, raises expenses for nations importing Australian grain. Low-income, food-deficient countries that depend on these imports for sustenance may face challenges due to increased costs.
The initial interest rate hike was made in response to inflation concerns, but it's becoming evident that returning to price stability will require more extended efforts. This means that high interest rates are likely here to stay, along with their potential adverse impacts on agricultural markets.
While not all farming businesses across the country will be equally positioned to withstand consistent interest rate increases, the grain sector in Esperance is relatively well-prepared to mitigate some of these challenges. Thanks to a series of successful harvests, many local farmers are in a strong financial position, which should help them weather this economic storm.
As the RBA's decision to raise interest rates reverberates through the Australian economy, it's clear that grain farmers, both locally and globally, will be significantly affected. The increased borrowing costs and potential repercussions on grain markets and international trade are challenges that grain farmers must navigate. While the sector in Esperance may be better positioned than others, the impact of rising interest rates is a reminder that even in the agricultural sector, economic policies have far-reaching consequences. So, whether you're a grain farmer or just someone who appreciates their hard work, let's wish them a "barking-great" harvest season.
The Government has reinvigorated the 120% skills training and technology costs deduction for small and medium business.
An election ago, the 2022-23 Budget proposed a 120% tax deduction for expenditure by small and medium businesses on technology, or skills and training for their staff. This proposal has now been adopted by the current Government and details released in recent exposure draft by Treasury.
From 1 July 2022, the standard Superannuation Guarantee (SG) rate increased from 10% up to 10.5%. It’s part of the government’s commitment to increase the SG by half a percent each year until 2025, when the SG rate will reach 12%.
The Australian Federal Budget 2022 was delivered on 29 March 2022 by the Federal Treasurer Josh Frydenberg.
See our breakdown of the tax measures impacting small business in Australia.
Smith Shearer, in collaboration with Kitto and Kitto Lawyers, will be hosting the ECCI Business After Hours on 12 August 2021
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