debt and equity - rural

In 1991-92 according to ABARE (Farm Surveys, 1993) the average equity stood at about 87.2%. The proportion of borrowed to owned capital is a measure of exposure to financial risk, the higher the equity ratio of a business, the lower the financial risk it faces. The generally high levels of equity for most broadacre farms is in part a reflection of the high variability of farm incomes and the general risk averse behaviour of farmers (Peterson et al, 1991).

However, there is great variation between the broadacre industries with the average equity ratio for beef being highest at about 91.7% and wheat and other crops the lowest at about 80.2%. This may reflect the large number of smaller family owned and operated farms in the beef industry and the high short term cash flow requirements of cropping farms.

The distribution of farm debt is highly variable with about 1/3 of broadacre farms carrying no debt at the start of 1992-93 and 13% with a borrowings in excess of $250 000. There is a trend towards less borrowing which together with the increasing value of livestock inventories should strengthen the equity position of broadacre farms in 1992-93.