Cows as collateral: Young Victorian dairy farmers may soon be able to ‘borrow a cow’ to get into industry
Young Victorian farmers may soon be able to borrow a cow from a more established dairy farmer in an effort to assist them to get into the industry.
United Dairyfarmers of Victoria (UDV) said it was planning to set up a ‘cow loan’ scheme which would help new farmers get started.
Damian Murphy, a dairy farmer from Gippsland and policy councillor with UDV, said buying a farm and cows could be incredibly difficult for people who did not inherit a farm from family.
“It’s easy enough to be in the industry up to a point,” he said.
“You can be an employee and work your way up to management, but the problem comes when they want to take that step from being a manager to running their own share farm.
“When they need to purchase dairy specific assets, that’s when it becomes difficult; it’s very expensive.”
Cows as collateral sweeten loan applications
Mr Murphy said the scheme would work by allowing older, more established farmers to offer a cow as collateral for a younger farmer’s loan application.
“So I’d offer up a cow; it would actually stay on my farm, and get milked and everything like that, but it would able to used as guarantee on part of a loan,” Mr Murphy said.
“The only reason it would leave or be sold to be cashed [would be] if the young farmer defaulted on their loan.”
The younger farmer would be able to use the value of the cow as an asset to approach a bank with the backing of a number of older farmers providing collateral.
“Traditionally, banks have loaned about 30 to 50 per cent of the value of a cow, so the young farmer has had to come up with the other 50 per cent in cash,” he said.
“We’re actually looking at the banks moving to 50 per cent and then the UDV, through the cow loan scheme, will [go] guarantor on about 20 per cent, and the young farmer will come up with the rest.”
Mr Murphy said he did not think the system would pose a significant risk for established farmers who nominated to be part of the system.
The scheme is now being drafted by the UDV and will seek agreements from the large banks soon.
SOURCE: Nikolai Beilharz, ABC Rural http://www.abc.net.au/news/2016-04-18/cows-as-collateral-young-farmers-borrow-a-cow/7334854