While many would argue that 2020 has been an annus horribilisfor Australia’s agricultural sector – from the worst bushfire season on record to floods, the outbreak of the COVID-19 pandemic and ongoing trade tensions – the sector has remained one of the nation’s brightest lights.
Overall, the outlook in the agricultural sector is, and will continue to be, a very positive one. The impact of the current crisis is likely to be much lower than in most other parts of the economy. That being said, some areas of agriculture are likely to fare much better than others.
I recently spoke to Gus Pettitt, Victorian-based agri broker and partner at Nimbus Agri and Commercial Broking and Advisory, who said it had been business as usual for many of his clients.
He noted that significant widespread rainfall, strong commodity prices and increased consumer demand for staples like grain and red meat had been propping up optimism and they were likely to remain more resilient than premium produce. Meanwhile, areas like wool and cotton had been affected by the downturn in discretionary spending.
Seasonal fluctuations in the agricultural sector can have a devastating impact on the credit quality of clients, and therein lies a huge opportunity for brokers to work alongside their clients as trusted advisers. Furthermore, this is where working in partnership with a lender who truly understands the sector has its benefits. As Australia’s largest agricultural bank, NAB provides almost one third of lending to Australian farms.
Another challenge confronting agri brokers is putting down business foundations in rural Australia. Naturally, residential brokers who diversify into commercial require an enhanced skill set and business acumen. However, for brokers diversifying into agriculture, the barriers to entry are higher, requiring a background in both agriculture and agri finance.
To help brokers overcome these barriers, NAB facilitates regular seminars in its business banking centres, almost half of which are in rural and regional Australia; these unpack complex financing options such as trade and invoice financing.
Before opening his own business, Gus was an agri banker for more than a decade. He said the agricultural sector didn’t have a long history of broker support, and educating farmers on the value brokers bring to their business was essential. With such low penetration came good growth opportunities.
Farms are undergoing a ‘productivity revolution’ – a trend that is set to continue. Technology is playing a big role in making farms more efficient and helping farmers navigate the challenging external environment. For brokers in the space, this is where some of the major funding opportunities lie as farmers increasingly look to invest in cutting-edge technology to protect their farming practices.
Seasonal fluctuations in the agri sector can have a devastating impact on the credit quality of clients, and therein lies a huge opportunity for brokers as their advisers
As farming businesses continue to grow and become more complex, farmers need to ensure their attention is squarely on their business. Therefore the value of a trusted adviser in this space cannot be overstated.
Indeed, broking businesses serving the agriculture sector are well advanced and switched on to local conditions and their communities. Gus describes himself as a “one-stop shop” for many of his clients, who come to him for various financial solutions, from asset finance to succession planning.
Word of mouth is important to residential and commercial brokers. However, it takes on an elevated significance in the agricultural sector. In fact, it is the most powerful marketing weapon to secure new business.
In this space, brokers have an even more intimate relationship with customers; they get to know not only the structure of their businesses but their families too. Gus says it is not an unfamiliar scenario for brokers to do business around the kitchen table.
Where reputation is everything, agri brokers and bankers must have their ears to the ground and truly understand how what happens on the farm can have a flow-on effect on the local community, which relies on the farm’s viability for produce and employment.
Diversifying into agriculture may not be for everyone, but there is significant reward and satisfaction for brokers who take the time to invest in the necessary skill set. After all, our rural and regional areas are not only an important part of Australia’s identity but are integral to our continued growth as a nation, contributing around 30% to GDP.
Looking forward, we expect this sector to continue to thrive despite current tough conditions. Brokers will play an increasingly essential role in building a more dynamic rural and regional Australia, delivering tailored on-the-ground support and helping the sector remain viable for the long term by leveraging technological innovation.