Lack of water can be the least of a farmer’s worries in times of drought. Predatory banks can be just as deadly to a farmer’s livelihood.

Former Queensland farmer and grazier Lynton Freeman has become increasingly anxious about the financial tightrope being walked by Australian farmers as the record floods of 2011 have given way in only three years to savage drought. He fears for hundreds of family farmers at risk — not from lack of water, but from lack of knowledge in how to manage their businesses through the drought and keep their heads above the financial water that will threaten many before this drought breaks.

Freeman’s concern is born of experience. During the 1990s drought, his farm was declared viable and qualified for the federal government’s drought assistance package. Freeman was granted an interest subsidy, to help with payments to his bank on a $500,000 loan against his $2.5 million property.

His finances were robust, as he had five income streams — a herd of 2500 head of beef cattle, grain cropping, timber harvesting, a heavy earth-moving contracting business and mining royalties for gravel sales — three of which were drought resilient. He didn’t miss a payment, yet his banker would not accept the government subsidy and tried to force him to sell up in 1998.

Freeman’s background in accounting and in law as a court registrar gave him a rare perception of the struggles ahead when his bank did not accept his government drought interest subsidy.

His struggle continues despite 15 years locked in litigation, but he remains hopeful of a resolution. “I haven’t won, but I haven’t lost, either. I’m still fighting,” he told Crikey.

His first court case led to a judgment in favour of the bank, which he believed was not just. He dissected the judgment clause by clause and systematically addressed each part over the following years in an attempt to prove to the courts, the bank and government inquiries and commissions that there had been several mistakes in not only his case but in many others as well.

He identified systems within the banking industry and their corporate cultures that he believes are toxic to the sustainability of Australian farming business enterprises — especially when they are stressed by the financial risks of the familiar cycle of drought and flood in this country.

His contention is that when swathes of country are drought-stricken, banks don’t foreclose on every over-stretched loan, because this would jeopardise real estate prices. Instead, he believes prime rural properties — those with drought-resistant incomes — are targeted for bank loan enforcement because of their superior resale potential during a drought.

These properties are also more likely to be ruled viable, qualifying the owners to receive government assistance. Yet the banks can subsequently rule the properties unviable and foreclose.

His cash supplies long gone, Freeman represented himself in the Queensland Supreme Court and Court of Appeal from 2001-2010 and the Federal Court of Australia from 2001-2012. He took his case to the High Court in 2003.

Freeman has documented his experience and his analysis of problematic banking and judicial processes in reports and submissions to the Australian Prudential Regulation Authority, the Australian Securities and Investment Commission, the Australian Competition and Consumer Commission, the Productivity Commission and various parliamentary committees.

“These submissions have contributed, he says, to rulings that have required bankers to refund more than $1 billion to 400,000 customers so far.”

These submissions have contributed, he says, to rulings that have required bankers to refund more than $1 billion to 400,000 customers so far.

Despite gains in competition policy, Freeman is fearful there will be another spate of rural bankruptcies as the speed of the drought-flood cycle increases due to climate change, putting added — and in some cases, insurmountable — strains on farm businesses that have been able to cope in the past.

While floods can cause costly damage and stock losses, they also yield crops and feed for stock in the longer term. Droughts, on the other hand, don’t have an upside. Droughts also have a sting in the tail — no one knows when the drought will end, so anyone trying to keep livestock alive has to make the invidious decision week by week to spend money they may not have to feed their core herd. Or watch them starve. Or make a safe financial decision, stop spending money on fodder, and sell or shoot their stock.

Government drought aid in the past has combined interest subsidies, fodder and transport subsidies and in some cases exceptional circumstances payments, the equivalent of unemployment benefits. The difficulty for farmers, bankers and governments during droughts is that decisions about whether a property is viable cannot be known until after the drought ends.

Recent court cases in England, Ireland and the United States have made rulings against the same types of banking practices that have been used in the past against Australian farmers.

Freeman sees many failings in the current system in which banks and courts process farmers out of business in a court system that he believes is heavily stacked against the farmers’ interests. In a bid to remove what he sees as the worst of the injustices, he has compiled a list of suggestions, which he has dispatched to Agriculture Minister Senator Barnaby Joyce.

Freeman’s plan calls for a system of mortgage guarantee insurance and income equalisation deposits that would buffer primary producers from the vagaries of climate risk and would support or replace drought interest subsidies.

The benefit would be more certainty for both farmers and banks, reducing the risk of banks leaving the rural sector because of the increasing riskiness of agriculture.

Freeman also sees positive flow-on effects. “If the income equalisation deposits are used as a seed capital borrowed by a mortgage guarantee insurer, through assignment it may create capital equivalent to a sticky deposit under APRA tier-two guidelines,” he said.