Policy Guidelines applying to interest rate subsidies for farmers in New South Wales

The policy guidelines below apply to the following areas within New South Wales:

Bundarra and Eurobodalla.

Policy Guidelines applying to Interest Rate Subsidies for farmers in New South Wales under the Exceptional Circumstances (EC) provisions of the Rural Adjustment Scheme (RAS) for declared areas in New South Wales (including the Australian Capital Territory).

I, Conall O'Connell, Secretary of the Department of Agriculture, Fisheries and Forestry, pursuant to clause 6(2) of the Agreement between the Commonwealth and the States and Territories (Agreement) made under the Rural Adjustment Act 1992 hereby establish the following policy guidelines (Guidelines) as to interest rate subsidies (Support) to Farmers in areas of New South Wales (including the Australian Capital Territory) (State).

Interest Rate Subsidies

1) Interpretation

a) In these Guidelines, unless the contrary intention appears:

i) Applicant means a person who applies for Support under the scheme established under the Agreement.

ii) Farmer means a person engaged in the farm sector in a State, but does not include a person whose business consists principally of the provision of services.

iii) Eligible Farmer means a Farmer who satisfies the criteria for eligibility set out in clause 7 of the Agreement.

iv) Suitably qualified adviser means a person who:

(a) has relevant financial qualifications; and

(b) is a member of a professional association whose members normally provide financial advice.

But, if an applicant whose residence is away from a population centre is not practicably able to seek advice from a person referred to in the definition above then, a suitably qualified adviser is a person who:

(c) has experience in financial matters because of his or her occupation (whether or not he or she normally provides, or provided, advice); and

(d) is a member of a relevant professional association.

Occupations that give a person experience in financial matters include the following:

(e) accountant;

(f) bank manager; and

(g) tax agent.

2) Purpose of Support

a) Pursuant to sub-clause 5(2) of the Agreement, the purpose of the Support is to:

i) assist Eligible Farmers in areas of the State specified in Schedules 1 and 2 to these Guidelines during the period 29 June 2010 until 30 April 2012, and who would otherwise have prospects of long-term profitability and sustainability, but for the exceptional circumstances which have detrimentally affected the Eligible Farmer’s income, leading to financial difficulty; and

b) The Support will facilitate one or more of the following strategies:

i) improvements in productivity, including for recovery purposes;

ii) the provision of carry-on finance; and

iii) debt restructuring.

3) Payment of Support

a) The Commonwealth will contribute 90 per cent of the Support, and the State will contribute 10 per cent of the Support provided under the State component of the RAS;

b) Support is subject to the following conditions:

i) the Applicant for Support is an Eligible Farmer;

ii) the support during the first tranche will not exceed 50 per cent of the interest payable on, and associated costs of, the borrowings being subsidised;

iii) the support during the second tranche of assistance will not exceed 80 per cent of the interest payable on, and associated costs of, the borrowings being subsidised;

iv) where a property has been purchased since EC was declared, the property purchase price shall be deducted from the level of commercial borrowings to be supported in an initial application unless the purchase took place more than 12 months prior to the date of application;

v) any commercial borrowings or associated costs of borrowings already subsidised by the Commonwealth will not be considered for Support;

vi) the period for which a subsidy is provided will be determined in each case by the New South Wales Rural Assistance Authority (NSW RAA), subject to clause 2)a), and will only be available for a maximum period of 12 months in respect of each application;

vii) a maximum of two tranches of Support are available to Eligible Farmers. The first tranche will be from 29 June 2010 until 28 June 2011 and applications must be received no later than 28 days after 28 June 2011. The second tranche will be from 29 June 2011 until 30 April 2012 and applications must be received no later than 28 days after 30 April 2012. In addition:

(1)   eligibility must be assessed in each EC tranche; and

(2)  the provision of Support in previous years does not guarantee support in a subsequent year or part thereof. Farmers not receiving support in the declaration year may be eligible in the subsequent year(s).

viii) to be eligible to apply for Support over a cumulative total of $300,000 applicants must have a viable farm enterprise. In addition:

(1) Viability of the farm enterprise is to be determined by an independent business assessment, conducted by a suitably qualified adviser who neither:

(a) has an interest in the farm enterprise; nor

(b) has had professional dealings with the farm enterprise within the past five years.

(2) The determination of farm enterprise viability in an independent business assessment undertaken by a suitably qualified adviser does not guarantee support. The final decision to provide support will be determined by NSW RAA in accordance with these guidelines.

ix) in determining the amount of Support to be paid, NSW RAA will take into account the level of assistance which has already been made under the RAS; accordingly the total amount of Support payable in each EC Year, or part thereof if the declaration is less than 12 months, may not exceed $100,000 (pro rata) per Eligible Farmer or a maximum cumulative total of Support of $500,000 over five years.

c) Support may be paid to the lender or the Eligible Farmer;

d) Farmers receiving other support under the Rural Adjustment Act 1992 may also be eligible for this Support;

e) Farmers can apply for an additional interest rate subsidy within the same tranche as their last successful interest rate subsidy application, provided that this is for additional debt incurred in relation to drought carry-on, with the subsidy calculated on a pro rata basis and the total amount of support payable within a tranche does not exceed $100,000. A farmer located in an EC area can apply for another tranche of interest rate subsidy no earlier than three months prior to the expiry of the current tranche of support.

4) Assessment Criteria

a) In assessing the eligibility of an Applicant for Support, NSW RAA must be satisfied that:

i) the farm enterprise is located in the area specified in the relevant Schedule to these Guidelines and meets the conditions specified in that Schedule;

ii) the farm enterprise is in financial difficulty due to exceptional circumstances, defined in clause 2;

(1) on considering whether a farm enterprise is in financial difficulty, NSW RAA must consider:

(a) the total amount of interest payable per annum;

(b) the estimated farm surplus over the medium term;

(c) the Applicant’s equity in the farm enterprise in relation to the amount of current and future indebtedness, together with both farm and off-farm assets and income.

(2) when considering whether a farm enterprise is in financial difficulty due to exceptional circumstances, NSW RAA must disregard the ability of the farm enterprise to purchase farming property since the beginning of the drought.

iii) the provision of the Support is necessary to achieve the strategies as outlined in clause 2 of these Guidelines;

iv) without the Support the farm enterprise would not have the capacity to achieve or maintain sustainable long-term profitability. In addition:

(1) in assessing the likelihood of the farm enterprise being profitable in the long-term, the following factors must be taken into account:

(a) the expected future capacity of the farm enterprise to operate profitably (without Government assistance) as measured by its ability to meet, from estimated surpluses, its future financial commitments relating to:

(i) the farm operating costs;

(ii) living costs of the farm family;

(iii) servicing of the farm debts;

(iv) future capital requirements for plant and improvements; and

(v) investment requirements to return the farm to profitability.

(b) the long-term economic trends which impact on the farm enterprise;

(c) the demonstrated technical, financial and business management performance of the Farmer responsible for the relevant farm enterprise; and

(d) the provision of financial support for the farm enterprise by commercial lenders through the exceptional circumstance and beyond.

v) the Applicant has disposed of:

(1) all non-essential farm assets;

(2) up until 30 June 2011, off-farm assets such that the net value of off-farm assets is not in excess of $750,000;

(3) where an application is received after 30 June 2011, off-farm assets, such that the net value of off-farm assets must not exceed double the Newstart Allowance Assets test for homeowners (partnered).

Note: investments in bona fide insurance and superannuation funds are exempt from the off-farm assets test.

vi) the disposal of assets has been on commercial terms and the applicant has applied the proceeds to the farm enterprise (except where this would result in extreme financial hardship to the Applicant);

vii) under normal circumstances, the Applicant contributes at least 75 per cent of his/her labour to the farm enterprise, at least 50 per cent of income is derived from farming, and has been a Farmer for at least two years;

viii) the Applicant’s property was affected by exceptional circumstances as defined in clause 2;

ix) loans supplied by a commercial institution, vendor or by private arrangements, are provided on commercial terms at arms length and the interest rate charged by the lender is competitive with that which is generally applicable to the type of loan(s) being subsidised.

5) Level of Support

a) The level of Support to be provided to an Eligible Farmer will be determined by the extent of Support needed for the strategies as outlined in clause 2 and will be subject to clause 3; and

b) the level of Support will be determined from budgets for the farm enterprise which make due allowance for financial demands on the enterprise appropriate to the exceptional circumstance (including an assessment of the living expenses for the farm household at the relevant Newstart Allowance rate).

6) Terms and Conditions to Attach to Support

a) NSW RAA must obtain agreement from the Eligible Farmer that the Eligible Farmer will use the Support only for the purposes specified in clause 2;

b) the period of Support in respect of any application is limited to a maximum period of 12 months or part thereof if the declaration is less than 12 months, in accordance with clause 3;

c) NSW RAA may terminate Support where the Eligible Farmer does not rectify breaches of the relevant terms and conditions of that Support;

d) NSW RAA may attach other terms and conditions to the Support considered necessary for the particular case subject to obtaining the prior written consent of the Commonwealth; and

e) the Eligible Farmer and the relevant financial institution must agree to the terms and conditions of Support before the payment of Support.

7) Outcomes Expected from Support

a) The outcomes expected from the Support for the Eligible Farmer include:

i) a program has been undertaken or maintained to increase farm productivity which will lead to improved sustainable long-term profitability and financial self-reliance;

ii) increased farm productivity;

iii) the restructuring of debt has been implemented;

iv) the financial demands on the farm business are reduced;

v) a farm enterprise which can be demonstrated by the Eligible Farmer to the satisfaction of NSW RAA to be productive, profitable, sustainable and financially viable (without Government support) in the long-term is maintained in the farm sector; and

vi) the farm enterprise is assisted to recover from the exceptional circumstances.

8) Variation or Revocation

a) The Commonwealth reserves the right to revoke or vary these Guidelines at any time.

Dated this................................day of ..................................2010.

Conall O'Connell
Secretary, Department of Agriculture, Fisheries and Forestry

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Schedule 1

Description of the Bundarra Declared area in New South Wales affected by Exceptional Circumstances

All producers whose properties are Exceptional Circumstances affected and located in the Bundarra declared area of New South Wales described below and who provide information to the satisfaction of the New South Wales Rural Assistance Authority that their income has been affected by the impact of Exceptional Circumstances.

The area includes:
That part of the Bundarra District within the following Parishes in their entirety: Abington (Hardinge); Aston (Hardinge); Buchanan (Hardinge); Bundarra (Darling); Bundarra (Hardinge); Cameron (Hardinge); Chigwell (Hardinge); Clare (Hardinge); Clerkness (Hardinge); Clive (Gough); Cooper (Hardinge); Copes Creek (Hardinge); Darby (Hardinge); Darbysleigh (Hardinge); Drummond (Hardinge); Drummond (Murchison); Furber (Murchison); Keera (Murchison); Laura (Hardinge); Mayo (Hardinge); Mckinnon (Murchison); Mehi (Murchison); Munro (Murchison); New Valley (Hardinge); Swinton (Hardinge); and Tienga (Hardinge).

Schedule 2

Description of the Eurobodalla Declared area in New South Wales affected by Exceptional Circumstances

All producers whose properties are Exceptional Circumstances affected and located in the Eurobodalla declared area of New South Wales described below and who provide information to the satisfaction of the New South Wales Rural Assistance Authority that their income has been affected by the impact of Exceptional Circumstances.

The area includes:
The whole of the Eurobodalla Local Government Area as defined at 1 July 2009, except for a small part which is in the south-east of the Braidwood EC declared area.