PAUL CULLIVER: We’ll get it on the radio when we can, but why not crack on when we’ve got someone right in front of me that can tell you all about what they’re up to at the National Drought Forum today. It’s a very good morning to John Howard, the CEO of the Regional Investment Corporation. John, good morning to you.
JOHN HOWARD: Good morning, Paul. Thanks for having me.
PAUL CULLIVER: I want to get into a bit about what the Regional Investment Corporation does and some of the programs that you’re offering. But could we just start with sort of broad view – we are at the National Drought Forum. It’s happening at Rockhampton. What’s your feeling, what’s your hope for what we’re going to get done today?
JOHN HOWARD: The great thing that people or one of the thing things that people look for is clarity in what’s available as far as help in preparation, recovery, what are the practices that can be put in place, getting visibility of those things. And that’s one of the good things that comes out of these events for myself, is giving visibility of what’s available to people out there.
PAUL CULLIVER: Well, let’s do exactly that then. What is the RIC, the Regional Investment Corporation? What do you do?
JOHN HOWARD: Sure, we’re a federal – we’re part of the federal government, coming in under the Department of Ag and Department of Finance. And we provide concessional loans into the primary producer segment. So we’ve been in operation for five years now. We’ve got $3.2 billion in loans that have been deployed to circa 3,000 customers across Australia. And those loan products are there to assist in the recovery from droughts, natural disaster events, biosecurity events as well as we have a product that helps with – called AgriStarter, which helps with succession planning or new entrants into ag.
PAUL CULLIVER: Okay. So it’s not – and correct me if I’m wrong – it’s not something like, “I just want to buy this new big, you know, agtech new tractor,” or whatever it might be. “I want to get a loan from RIC.” That’s not what the kind of stuff you’re going to do?
JOHN HOWARD: No, but one of the – you know, on major use of funds when people actually come and meet our eligibility criteria, so we’re not for everyone, is definitely there to help people prepare for the next event that may come along. So it’s not just about recovery; it’s also helping people enable activities to prepare for upcoming droughts or events are outside of their control.
PAUL CULLIVER: Yeah, John, can you explain a little bit about that underpinning of why these concessional loans are useful in terms of obviously anyone that runs any kind of business knows that supply of money is so crucial.
JOHN HOWARD: Sure.
PAUL CULLIVER: But why in some of those scenarios where you are, providing those loans to farming businesses, why that’s going to make a difference?
JOHN HOWARD: Sure. The nature of our loans are they’re a 10-year loan. The structure of those is five years interest only and then five years principal and interest, with the principal being a third of – in that repayment period. But the major attraction for it is the concessional nature of the interest rates. So currently our rate is at 4.52 per cent. That gets reviewed every six months, so six monthly. So there’s certainty for cash flow management with that review period. The difference with ours are it’s calculated off a 10 year bond, not the cash rate. So when you look at how the movement of the 10-year bond has been against cash rates, it hasn’t moved up as much, hence why we’re at 4.52 per cent, which is probably, you know, got a 2.5, 3 per cent degree of concessionality. So that helps with the cash flow management. It’s a lower cost of capital for those trying to recover from events or prepare for future ones.
PAUL CULLIVER: Yeah, it’s really interesting, that model, to have five years of interest only because I’m sort of curious when you sort of look at a loan, “I need this money,” but you also need to pay it back immediately, and you go, “Well, no, no, I need the money to spend on whatever I need to do first and then the returns will start to come.” So is that the model that you’ve sort of figured out that is, generally speaking, when people are taking those loans by that five-year mark are most farmers able to then start paying back from that point?
JOHN HOWARD: We’ve only been going for five years, so we’re actually – so we’re only really about to move into that cycle in about 12 months’ time.
PAUL CULLIVER: Yeah, right.
JOHN HOWARD: But what we’re definitely seeing is – because we go and survey our customers each year because we’re very keen to understand what the benefit is of our product. And overwhelmingly assisting them – when you’re recovering from an event your cash flows are under pressure. So if you can help provide a product that helps minimise that cash flow drain with a concessional product like ours, then an overwhelming response has been that, that has really been a critical enabler for them moving forward.
PAUL CULLIVER: I’m just curious – and this perhaps will remain to be seen given the relative newness of RIC – if interest rates – if the cash rate starts to come down, does that mean that you are in a position where your concessional loans actually might be more than the sort of market rate?
JOHN HOWARD: It would be an interesting one to see. There’s quite a differential there at the moment, so the movements would have to be substantial.
PAUL CULLIVER: Sure.
JOHN HOWARD: But, you know, so there’s the interest rate component, but there’s also the structure part of it with the 10-year tenure and the five years interest only.
PAUL CULLIVER: Right.
JOHN HOWARD: But it’s the sum of all the parts.
PAUL CULLIVER: Sure. Let’s get into some of that eligibility. Who is going to benefit from RIC? Who is going to be able to access that money?
JOHN HOWARD: Yeah, look, the easiest – we’ve got a range of products. We’ve got a drought loan, we’ve got a farm investment loan, which is there to support those, you know, recovering from a natural disaster or biosecurity or an event outside of their control. The easiest way to go is to our website – really clear to understand eligibility criteria is almost mapped out there. So RIC, ric.gov.au. And you’ll be able to go to our loan products and get a very clear understanding of it. It’s not there for everyone. You know, we’re there for – you have to be in financial need and demonstrate that process. But very clear eligibility. Go to our website, again, ric.gov.au.
PAUL CULLIVER: Yep. And can I understand when people are getting – you’re talking about cash flow is under pressure when you’ve been hit by a disaster or a drought, what are people typically – are people just paying invoices, covering operational costs when they get that money? Is there an expectation of investment and changing your business? What does RIC require there?
JOHN HOWARD: There’s a lot of flexibility in there. So from refinancing existing debt. You know, one of the eligibility criteria is we can’t be more than 50 per cent of someone’s debt profile, so you have to have debt elsewhere. But refinancing that, therefore, lowering that cost impact. But we’re also seeing people spend money on improving on-farm infrastructure to prepare for future events. So confinement feeding yards, you know, improved watering points, additional fencing. Some of the efficiency – you know, one of the impacts through drought is how do you actually get access to labour. So, you know, efficiency projects on farm, you know, improved yards, that type of thing. So we’re seeing a range of activities that are being enabled by our product.
PAUL CULLIVER: Yeah. And, John, being in the room today at the National Drought Forum, what are you hoping to learn, to hear that we’ll make your job sort of, I suppose, more effective?
JOHN HOWARD: I think the main thing for us is – and I’ll touch on a farm relief tool that we’ve come out and launched just recently – and what we’ve identified and what I’m looking for today is that there’s visibility to what is required to actually help prepare or recover through events like drought, which is quite pertinent at the moment with the announcement last week of La Nina (sic) coming into play —
PAUL CULLIVER: El Nino.
JOHN HOWARD: El Nino, sorry – wrong one – coming into play. So it’s where can people actually go to get help, where do they get identification of what can be done to actually help prepare. And as I touched on, our farm relief tool, which we’ve recently launched with the federal Department of Agriculture, as well as NEMA, the National Emergency Management Agency. Again, people can get access to that at events like today or through their rural financial counsellors. And what that farm relief tool does is provide easy access and visibility of where people can go to to get assistance and help in times of drought, natural disaster, biosecurity event. And with that – within that is also access and visibility to mental health agencies to help you through, because that’s a significant part of that preparedness and awareness and support that people need in those events.
PAUL CULLIVER: So it’s effectively sort like a one-stop-shop or if you might want to put it that way where you kind of go, “I’m going to need some help. I don’t know exactly who I need help from,” and that’s going to push you out to the right places, you know, in your food chain?
JOHN HOWARD: Absolutely. Absolutely.
PAUL CULLIVER: Yeah.
