Record Harvest and Generous Tax Incentives Mean Australian Farmers are Spending Big

Australian farmers are spending big on items such as tractors following government tax incentives and bumper harvests. The ongoing machinery and storage spending spree has surprised manufacturers and caused supply issues. In some cases this has caused delays of several months in the supply of machinery.

The strength in growth of the tractor market is especially evident in New South Wales (NSW) where at certain points sales have exceeded those of twelve months earlier by 78%. This example helps to show exactly how strong agricultural sector spending is right now.

So, how have tax initiatives and bumper harvests fed into this surge in spending by farm businesses? Taking a closer look gives us a better understanding of the situation.

Key points

  • Australian farmers are spending big as a result of tax incentives and bumper crops.
  • The increased spending is good news for agricultural businesses including tractor manufacturers and suppliers.
  • Free spending in the farm sector looks set to continue for the near future at least.
  • Farmers spending has caused some issues with the supply chain as supply struggles to keep up with demand.

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Tax incentives creating boom in spending

The tax incentives that the government introduced to offset the effects of the COVID-19 pandemic have been a major enabler of increased spending by Australian farmers. Since the initial incentives were announced the instant asset write-off scheme has been extended and changed to provide a significant boost for Australian agriculture.

This scheme originally allowed businesses making up to $50 million per year to write-off purchases of up to $30,000.  It was then changed to allow businesses that made up to $500 million per year to deduct purchases of up to $150,000.

Now, the write-off scheme has been replaced by the Temporary Full Expensing Program which is set to run for at least two years. This program enables certain write-offs for businesses going forward making it easier for farmers to continue investing in machinery such as tractors. This program is therefore a major boost for the agriculture sector overall.

Record harvest helps to boost spending

It’s not just tax incentives that have enabled increased spending by farmers in Australia. Record crop harvests have also been an integral factor. Estimates suggest that crop production for the 2020-2021 season increased by 89% on the season 12 months earlier which was adversely affected by drought. Many farmers believe that the bumper harvests of 2020-2021 will continue for the coming season.

They are also buoyed by healthy grain prices which are at a seven-year high. This optimism is helping to fuel high levels of spending by many farmers.They see a bright immediate future for the industry if seasonal conditions are favourable. This should help to create a positive cycle of spending into the next harvest season and beyond.

Tractors a significant focus of spending

While tractor purchases are not the only form of spending for farmers in Australia, they are a significant focus. Demand has been so high that manufacturers and suppliers are finding it difficult to keep up. A worldwide demand for new tractors is adding to supply issues. Many farmers are finding that they have to wait for a significant period of time before they take possession of their new tractors.

Aside from tractors, other focuses of spending for farmers in the country include grain storage to provide protection against mice and other pests. For many farmers, building grain silos has been an essential investment given the issues the mice plague has caused. These new silos are helping to protect a harvest that could otherwise potentially be completely destroyed by pests.

Seeders are another popular purchase for farmers right now. So much so that there are potential waiting times of as much as six months for this machinery. Given the positivity in the sector, it’s likely that more farmers will continue to look to optimise potential harvests by investing in new seeding machinery.

The rate of spending by farmers is good news for manufacturers and suppliers as their profits have increased as a result. As an example, in May 2021, exhibitors at the Primex field days at Casino in northern New South Wales made more than $50 million in sales. Given this increase in revenue, manufacturers and suppliers are hoping that the positive spending environment for farmers will continue well into the future.

Obviously, there is likely to come a point when Australian farmers are happy with the investments they have made and continued spending becomes less necessary. At this point, it’s likely that purchases will stabilise. However, this is unlikely to happen in the immediate future. For now, the free spending of farmers in Australia is set to continue which is good news for Australian agriculture overall.

 

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