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The Achilles heel of farm debt mediation

By Evan Jones - posted Tuesday, 31 August 2010


The scene is rural New South Wales in 1994. Bathurst State MP Mick Clough (“Country Labor”) was confronted with a rising number of distressed farmers who had been foreclosed by their banks. Farmers had long faced an adverse environment - in the 1980s, falling commodity prices combined with draconian financing costs (in conjunction with the omnipresent advice to get big, requiring added debt, or get out); in the early 1990s, recession complemented by drought. As fellow Labor MP Richard Amery noted later in Parliament, “[One farmer] said that he returned to his farm after a weekend away to find that the front gate had been locked. Such stories raised heartwrenching issues.” Indeed they did. Farmer suicides were on the rise.

Labor being then in Opposition, Amery, as Shadow Minister for Fair Trading, initiated farm debt mediation as a private member’s Bill. Drawing on the experience of mediation in American farm States, and with qualified support and amendments from Independents and the minor Parties in the Legislative Council, the Farm Debt Mediation Act was enacted in November. Curiously, the Bill was opposed by the National Party in the Coalition Government, the latter taking instructions from the bank lobby.

Amery became Agriculture Minister in the Carr Labor Government elected in 1995 and oversaw successive reviews and amendments to the Act. New South Wales remains the only State in which farm debt mediation is mandatory.

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Reportage and opinion generally emphasises the positive aspects of the Act’s operation, with a strong current of optimism. The Act’s objective is stated as the “efficient and equitable resolution of farm debt disputes”. The 2008-09 Annual Report of the NSW Rural Assistance Authority notes that 1,106 lender-farmer cases have gone to mediation, with the parties having “reached an agreement in 89 per cent of those cases”. Agreement is perennially graced with the adjectives “satisfactory” or “successful”.

Labor MP Gerard Martin, Clough’s successor in the Bathurst electorate, claimed in the debate on the Act’s Amendment Bill in September 2002: “It has levelled the playing field from being heavily in favour of the banks to giving farmers and people on the land some semblance of a fair go.”

Certainly the system has given indebted farmers “some semblance of a fair go”. More succinctly, as Martin noted in the same speech, “The baying dogs cannot race in to the carcass, if I can put it that way”.

A 1999 report on the Act, reviewing three and a half years’ operations, confirmed positive outcomes for some stressed borrowers - a write off of part of the farm debt, rescheduling or refinancing of the debt by the lender, time allowed to refinance through another lender, etc. These accomplishments are significant for the farmer under duress.

But the Act and the system have decidedly not “levelled the playing field”. The playing out of a recent mediation is instructive. Effectively the mediation manager of the bank (a significant agribusiness lender) dictated the terms of the so-called agreement, the farmers feeling that they had no choice other than to sign it. Said mediation manager ignored reasonable concerns expressed by the farmers and lost his temper in response to a question that exposed the bank’s discriminatory treatment of the borrowers. Oppressive and unnecessary demands for information from the borrower remain in the agreement. The bank’s agents’ sole concession was the desultory shaving of prevailing rates of interest from penalty rates arbitrarily set at debilitating levels.

The bank forces the farmers to travel and to pay for a mediation the outcome of which has been contrived on bank terms, but its local managers decline to visit the farm and investigate the prospects of utilising unprecedented rainfall.

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This is a travesty of the formal desiderata of the system. But the elaborate apparatus of mandatory mediation, under the aegis of the Rural Assistance Authority (RAA), entrenches bank heavy-handedness with a cachet of legitimacy.

During the same debate as that including Gerard Martin, as above, Ian Armstrong, the then National Party MP for Lachlan, inadvertently highlighted the fly in the ointment.

One of the essential factors that is often overlooked in these types of transactions is that a trust must be established between the borrower and the lender. We can pass as much legislation as we like in this place, but unless there is trust - involving professionalism, confidence, honesty and integrity - between borrowers and lenders, the legislation will not work.

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About the Author

Dr Evan Jones is an Honorary Associate Professor in Political Economy at the University of Sydney, where he has taught since 1973. His research interests are in Australian economic history and the political economy of comparative industry and economic policy structures in capitalist economies.

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