PRODUCE price wars have caused banks to slash farm valuations, writes LISA ROWNTREE
If you're "on the land", it may well be a difficult Christmas.
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- Banks squeeze oil industry
- Sluggish olive oil price
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With food price wars in the retail sector and banks devaluing certain agricultural industries, numerous farmers are struggling to meet their commitments.
As an olive industry leader, I am acutely aware of how difficult it is to remain profitable.
The Australian olive industry has experienced very low prices for its olive oil, both domestically and overseas.
Factors such as the financial crises in major producing countries, the high Australian dollar, the market being effectively polluted with falsely or misleadingly labelled products and the "turf war" between our major supermarkets have all contributed to a period when most olive oil in retail and food service has been sold at near or below the cost of production.
The destructive food fight between Coles and Woolworths - who collectively control more than 80 per cent of customer grocery purchases - is having the major impact on many producers and their ability to remain profitable in Australia.
This is not only in the olive industry but in dairy, egg production, baking and others.
Coles and Woolworths continue to use household staples such as milk, bread and eggs along with olive oil as "loss leaders" to lure customers in, hoping that while they are inside they will buy some of the higher-margin items.
Other retailers are forced to follow.
As the price for olive oil has fallen, some farmers have been forced out of the industry.
Sadly this is not the time to be trying to sell a farm; most recent sales of olive orchards have not come close to covering the value of the infrastructure.
This activity has had a flow-on effect, with some banks losing faith in the industry.
Their worry is the current low olive oil price will become the norm largely because of the duopoly's influence on the market.
I have seen the valuations of olive orchards and vineyards around Australia slashed.
Many farmers who borrowed money in good faith to develop their business now face a loan-to-value ratio that no longer meets the bank's requirements.
It is important for banks to understand that in the majority of cases the business plans of olive growers have not changed, nothing on the grove has fundamentally altered except that oil prices are low at the moment.
This is a cyclic product and you don't have to look far to find historical pricing data for extra virgin olive oil, which clearly demonstrates the highs and lows. When oil prices rise in Europe - as they inevitably will - the opportunity for the supermarkets to discount will disappear.
What I believe are knee-jerk reactions by banks in response to short-term profiteering by the duopoly are causing considerable damage to the Australian olive industry; not only for existing growers trying to carry on and trade their way through this down time but also for those growers who need extra investment in their businesses.
We need banks to adopt a longer-term view of the industry and not react so quickly to short-term changes in the market.
- Lisa Rowntree is the chief executive of the Australian Olive Association
