A senior federal minister is expecting a significant default on farm sector loans and backing plans for a dedicated rural bank.
The Australian reported that Barnaby Joyce, the minister for agriculture, told a forum in Queensland over the weekend that "with rural debt, we have a major crisis on our hands."
"If we just let an [unfettered downwards] correction to land values happen, we will have complete and utter financial meltdown."
"Once it became obvious that someone's debt was now [higher] than the value of their asset [farm], the banks would call in their debts and want their money back, farmers would be unable to pay and would walk off their land, and we would have a run on the banks," the newspaper reported that Joyce said.
"This is a massive crisis; agriculture is a viable industry with a tremendous future [so] we must come up with a plan of how to deliver better outcomes for farmers that keep people on their land right now."
The newspaper reported that Joyce endorsed calls for a Rural Reconstruction and Development Bank to be formed within the Reserve Bank of Australia to buy troubled rural loans from the private sector at a discount.
In December, independent Senator Nick Xenophon and Democratic Labor Party Senator John Madigan introduced a bill into the Senate that seeks to create an Australian Reconstruction and Development Board under the umbrella of the RBA.
The two senators' bill mirrors that introduced in the House of Representatives in May by lower house MP Bob Katter.
The RBA estimates aggregate rural debt at A$64 billion, with $60 billion provided by banks.
Joyce predicted at the weekend that 10 per cent of this would not be paid back.
Bank lending to agriculture, including fishing, has increased by seven per cent over the last five years, or three times the rate of growth of broader lending to business.