By Andrew Goode, Partner, Mellor Olsson
The Hon, Barnaby Joyce has persuaded the ANZ Bank to introduce a 12 month moratorium on forced farm sales in Queensland and New South Wales.
While Bank shareholders expect a good dividend, I expect most ANZ shareholders and the employees would welcome that decision.
Some years ago I queried whether the American writer John Steinbeck would support national competition policy. In his book “The Grapes of Wrath” he wrote about the forced eviction of farmers in Oklahoma in the 1930s. One of the book’s themes dealt with people hired by the banks to force the Okies (as they were known) off their farms.
The bank’s representative explaining the situation to an Okie said of the banks “They breed profits; they eat the interest on money. If they don’t get it, they die the way you die without air, without side meat. It is a sad thing but it is just so.”
The farmers asked whether they could hang on and the answer was “The bank – the monster has to have profits all the time. It can’t wait. It’ll die. No, taxes go on. When the monster stops growing, it dies. It can’t stay one size”.
I reckon Steinbeck would support a farm moratorium in the current circumstances.
During the Great Depression the Governor of Louisiana, Huey Long, (who was allegedly corrupt), created a debt moratorium which gave families a grace of period, thereby saving thousands of farmers from losing their homes and lifetime investments.
There is a case for SA also to look at NSW’s Farm Debt Mediation Act (“the Act”) which I have written about in the past.
That Act allows a farmer to require a lender to participate in mediation before the lender can sell the farm, or otherwise face a substantial delay in taking possession. A NSW university report on the Act noted “More than just a consequence of losing your business (If I do not have my job, how will I make my mortgage payment), a farm foreclosure has the potential to take a person’s house away. As such, this direct threat to their business impacts their entire life, eliminating any safe haven to escape”.
Although farm debt may not be as much of an issue in this State at present, who knows what’s around the corner.
Another right that banks maintain, which has always seemed unfair to me, is the right to impose much higher interest rates if there is a default. While the banks should have the right to recover unpaid interest, and their enforcement costs, I have never understood why they should be able to charge a much higher interest rate.
If a borrower is already struggling to pay the debt, a much higher rate is likely to sink the business. As my dad found when he was flying his Sunderland bomber in WWII, if it started to run out of petrol, the only way to keep flying was to throw everything out to reduce its weight, not add to it.
Although banks need to make profits, sometimes there needs to be a compromise like that provided by the ANZ.
Banks perform a valuable service and we would not function without profitable banks.
Nonetheless, a Farm Mediation Scheme might help South Australian farmers at a later date, and legislation limiting higher penalty interest rates might save some farmers. The banks are still likely to spread any additional cost across their customers without ending up out of pocket.
Perhaps Christmas reading for politicians and the board members of our banks should include “Grapes of Wrath”. It would certainly give them another perspective.
My own reading over the break includes (as well as the new crime thriller by Michael Connelly) a book on General Douglas MacArthur, the American WWII General.
A quiz question: At which South Australian town did General MacArthur get off the train and say the famous words, “I came out of Bataan [in the Philippines] and I shall return.”?
For more information contact:
Andrew Goode, Partner
08 8414 3411
or visit www.mellorolsson.com.au
Practice Area: Farm Law