Insights and learnings
Last year, we founded Hillridge on a premise: farmers need new financial tools to manage the natural volatility that comes from the weather. To test our hypothesis, we interviewed over 200 farmers from across Australia to see if there is any appetite for a new approach to managing weather risks.
We spoke with a wide range of agriculturalists from every state in Australia: broadacre crop farmers, graziers, irrigators, horticulturalists and livestock farmers. Their properties ranged from small blocks focusing on high-value crops and livestock, to vast sheep and cattle stations. And their personal circumstances were equally diverse: from those supporting the family farm early in their career, through to those nearing retirement.
What we found informed our understanding of the hopes, doubts and fears of our agricultural community. And frankly, what we found came as a shock.
Irrespective of the sector, whether it be dairy or wheat, beef or cotton, dry-land or irrigated, all Australian farmers are acutely aware of how the weather impacts them. For broadacre farmers, a bumper yield can mean 2-3 times an average year’s revenue. A drought can mean no income at all. For graziers, a drought can increase feedstock costs dramatically, as they keep their core herd alive. Irrigators suffer when water allocations are cut. And horticulturalists are affected disproportionately when heatwaves, frosts and hail strike. Almost all farmers said they had been adversely affected by the weather disasters in the last 10 years, and were likely to be affected again in the future.
Against this volatility comes a surprisingly rigid financial situation:
68% of the farmers we interviewed rely on their farm as the only source of income for their family.
74% have large amounts of debt, following the conventional wisdom to invest to become more drought resilient, gain scale, and take advantage of new equipment and technology. The average farmer in Australia has debt of nearly $900,000, equating to 117% of an average year’s revenue.
Farmers have high fixed costs. Over 40% of a broadacre farmers’ costs, for example, are incurred at the beginning of the growing season on seed, fertiliser and sprays.
The financial services offered to farmers are equally rigid. Some banks are still resisting offset accounts for agricultural loans, and instead encourage farmers to take on more debt in bumper years. Traditional crop and livestock insurance products, which could be designed to reduce volatility, simply don’t cover many of the major weather risks, especially drought. And neither the banks nor the government provide incentives for farmers to take out weather insurance that would lower their credit risk.
Many farmers adapt to weather volatility in ingenious ways. One farmer we spoke with had an innovative approach to reduce impact tilling. Another shifted their stock to drought-hardy breeds. Others alternated crop cycles to reduce soil impact and degradation. More established farmers have built up financial reserves that they draw down on during harsh times. Larger players move stock around properties to mitigate local weather impacts.
But for many farmers, when the inevitable weather disaster strikers, they are forced to rely on the goodwill of banks to renegotiate the terms of their loans. This power imbalance between lender and borrower can lead to systematic failings, as showcased by the recent Royal Commission into misconduct in the financial services industry.
As a result, more than half the farmers in every sector we spoke with are interested and willing to pay for a product that mitigates the financial volatility that naturally comes from the weather. Such a product would bring financial stability, peace of mind, and allow farmers to safely take on the financial risks that come with expansion, drought-proofing, modernising and diversifying their farming operation.
This gap in the market highlights why we are so passionate at Hillridge about changing the status quo. When farmers succeed, we all benefit.