From: Michael Byrnes
Published October 24, 2007 04:41 PM

Australian farmers face bankruptcy from drought

WEST WYALONG, Australia (Reuters) - Farmer John Ridley won't be harvesting so much as a bag of wheat this season from fields that stretch to the horizon as Australia's worst drought in 100 years takes its toll on the country's grain belt.

Beneath a cloudless sky, 60-year-old Ridley, a descendant of one of Australia's pioneering farming families, pulls a clump of brittle stubble from the dusty earth.

"It should be this high, waving green in the breeze," he says. "Farmers are in a stunned state at the moment. In a state of disbelief, shock, helplessness."

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Ridley's farm is in the epicenter of devastation from the drought, about 500 kilometers (310 miles) west of Sydney. Prime wheat growing territory, the district normally grows much of the wheat that makes Australia the world's second-biggest exporter. Yet this year the district will produce almost nothing.

Drought which has struck intermittently since 2002, and which farmers hoped had ended in April with rains that prompted them to sow their fields, returned three months ago and devastated the crops of entire farming communities.

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This is the first time in over 40 years of farming that Ridley will not harvest any wheat from the 2,500 hectares he planted at a cost of around A$500,000 ($445,000). It is a total loss, and it follows drought which fried last year's crop too.

Farmers say that even after the massive financial loss of crop failure and the hollowing out of social structure in the countryside, it is the swirling clouds of dust from the parched earth that finally cracks nerves.

"I've never experienced so much wind in my life," Ridley says, batting at a swarm of flies buzzing around his face.

TRICK OF NATURE

It is like a cruel trick of nature, the normally laconic Ridley says. Good early rain in the planting season encouraged farmers to plant big crops to attempt to make up for losses inflicted by last year's drought.

Then drought struck to kill the crop, pushing already-indebted farmers to the brink of financial collapse. It costs around A$250 a ha for fertilizer and seed to plant wheat and Ridley's plant of 2,500 ha is typical of medium-sized farms.

Dan Mangelsdorf, chairman of the Grain Growers Association and another West Wyalong wheat farmer, says he does not know of even one farmer who is not significantly in debt.

National Australia Bank recently said that average Australian farm debt was A$412,000, up from A$150,000 in 1990. Many farms now owe much more than this, often millions, farmers say.

"No crops. No pasture. Fodder all gone. And no money," Ridley said. "Those of us who can, will face up to one more year and I reckon that will be it," he said.

Others have lost much more than Ridley.

Around 50 kilometers away near the dying town of Barmedman, population around 200 and falling, Angus McLaren planted 5,000 ha at a cost of over A$1 million.

"It's pretty much all lost," he said, batting at flies on a dirt road next to his failed crop.

"It's unprecedented. We need a good year next year. We're just sliding into debt. At some stage you have to say 'enough is enough'," he said.

Ridley, McLaren and other farmers all say they will plant another crop next year.

"Go to the banks and have one more throw of the dice," McLaren said. "Plant wall-to-wall. How are you going to repay debt if you don't have a crop?" he asked.

But many may not be able to borrow enough to plant a full crop, Mangelsdorf said. The drought is beginning to eat into the structural size of Australia's A$4 billion wheat export industry.

CRUNCH TIME

Christmas will be crunch time. This is when farmers normally count their wheat harvest tonnages and start to talk to the banks about next year's finances.

"I'm fearful about what happens after Christmas," said Bland Shire Mayor David Bolte, himself a wheat grower.

"People will see how much money they need to survive. Do they go back to the banks and ask for more money? Do they plant again?" he asked, speaking over the kitchen table in his farm.

Bolte spent A$1 million to plant in the latest year, for virtually nil return. There is no way to cut the cost, he said.

Banks are so far supporting farmers but this may not last forever, Bolte and other farmers said.

The banks realized that it was not in their own interest to see property values collapse with foreclosures, and also felt safe because of high levels of equity, of around 60 percent, held by most growers in their farms, they said.

But farmers are also nervously conscious of falling levels of equity ownership, as bank debt mounts.

"If equity falls below 50 percent they panic," Ridley said of the banks. "Then if everyone sells, prices crash," he said.

So far farm prices are holding up well, at around A$400 an acre. But with foreclosures and forced sales, prices could easily crash to A$100 an acre, as occurred in the late 1980s.

Hard-headed farmers reject the notion that the drought is a product of climate change, and speak of weather cycles. Bolte points out that severe drought hit between 1895 and 1902 and that an 1830 drought forced farmers to flee to the coast.

This is producing visions of an eventually bright future.

"But getting through the next 12 months will be hard," McLaren said.

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