Whether you believe in climate change or not, one thing is certain: farmers are constantly at the mercy of the elements and extremes of weather. Too hot or too cold environmental temperatures can seriously damage the viability of seasonal crops. This leaves a lot of farmers in a precarious legal position and end up with a lot of debt.
Reasons Why Farmers Incur Debt
In the U.S., debts incurred by farmers can seriously affect not only the agricultural industry, but also the country’s economy. But why do farmers get racked up in huge debts?
One reason cited by the Federal Reserve Bank of Kansas City is that crop growers expend their wealth rather than their revenues in funding their agricultural endeavours. This can lead to accumulation of debts, bankruptcy or worse, being driven off their land. Most farmers use their lands as collateral when applying for farm loans. If their ventures fail, they will be in serious debts. The threat of ever-increasing loan rates adds up to the burden of crop growers.
While in the United Kingdom, dairy farmers start to exit the industry as their arrears climb to critical levels. Over the years, the rise and fall of the wholesale price of milk forced a lot of dairy farms to operate at a loss. With the increase in operation costs, debts continue to stack up.
In India, severe drought affects the country’s yield of cotton, rice, etc. As a response, the government increased their budget on irrigation and crop insurance; however, these measures have little effect on the farmers’ plight. They still owe banks and moneylenders huge sums. Indian farmers use their loaned monies in procuring seeds and fertilisers. But because of erratic weather conditions and minimal crop harvest, they accumulate debts. Most farmers who cannot overturn their situation end up hanging themselves.
Farm debts in Australia have swelled by 75 percent in just a decade. In 2004, debts were recorded at A$40.4 billion. After ten years, it grew to A$70 billion. When venturing for new machineries, technologies or farm expansion, crop growers rely on debts as their fund resource. But because of high equity levels, debts are becoming a severe problem. For instance, the value of agricultural lands climb but the ratio of debt to equity remains the same.