There will be no interest payable over the first two years of the loan, the government said. Farmers across Australia's east coast have been battling drought conditions for more than three years.
Australia will offer farmers hurt by drought up to $688.10 million in cheap loans, Prime Minister Scott Morrison said on Thursday, as the government seeks to curb rising discontent from rural voters.
Farmers across Australia's east coast have been battling drought conditions for more than three years, wilting agricultural production and leaving some towns on the brink of running out of drinking water supplies.
With growing anger amongst the conservative government's traditional voter base, Morrison offered new financial aid, including temporary interest-free loans, designed to allow farmers to stave-off bankruptcy.
"What this is doing is supporting farmers and graziers who know they have a future in the sector and are committed to getting to the other side of this drought, and knowing that better days are on the other side," Morrison told reporters in Canberra.
"This gives them a massive breathing space."
Any small business deemed to be dependant on agriculture will be eligible for a concessional loan of up to $345,000 (A$500,000), payable over 10 years.
To ease the financial burden, the government said there will be no interest payable over the first two years of the loan, while businesses will then pay only interest on the loan between years three to five. Principal and interest payments will then be due from year six.
The industry body representing Australia's farm industry, the National Farmers Federation said the aid was especially needed as the drought shows little sign of abating.
Australia's Bureau of Meteorology expects just a 40 percent chance that the country's east coast will record average rainfall between December 1 and February 28.
Lose market share to Indonesia and South Korea
The financial aid package is being announced just weeks before the grain harvest, which typically begins in December.
Australia is among the world's top 10 exporters of the grain, the largest part of the country's agricultural sector that typically contributes about 2 percent to GDP.
But with almost no rain in recent months across New South Wales and Queensland, farmers do not expect to harvest any meaningful supplies, curtailing rural exports.
INTL FCStone on Wednesday said its poll of an unspecified number of clients pegged Australian wheat production at 15.54 million tonnes, 19.1 percent lower than Australia's official estimate of 19.2 million tonnes.
With lower production, Australia — typically one of the world's largest exporters — is also likely to lose greater market share in lucrative markets such as Indonesia and South Korea at a time of falling prices.
In addition to offering cheap loans, Morrison said the government will also sell 100 billion litres of water at discounted rates to farmers for growing up to 120,000 tonnes of fodder.