Federated Farmers national vice-president Andrew Hoggard has no doubt a credit squeeze is being applied in advance of the Reserve Bank’s change in capital requirements for banks.
Banks need to give their farming clients more notice of new, restrictive policies and not just apply them across the board.
“The Reserve Bank has only proposed the change in capital at this stage, not introduced it.
“The banks need to show more honesty with their clients.”
One farmer who contacted Hoggard was worried about nitrogen-loss requirements being imposed by his regional council at the same time as the bank edict – no new borrowing and pay down some of the loan principal.
“His worry was, how is my farm going to remain viable?”
As more environmental policies take shape farmers will worry about the costs of compliance and where that money is coming from.
“Look at the noise about winter grazing at present – all other options require more infrastructure and more capital.”
Hoggard said there isn’t any point in arguing about how indebted farmers got themselves into that position.
“The reality is they are there now so how do we deal with that without throwing them to the wolves?”
His main concern is the fraught transition to a new debt reality without losing a whole lot of farmers, their assets, homes and families.
The loss of about 40% in Fonterra share equity is very serious and compounding the balance sheet problems of dairy farms.
Bank margins are now too high in many cases and less-indebted farmers should look around for a better deal, Hoggard advised.
Federated Farmers Sharemilkers’ subsection chairman Richard McIntyre said his members are under a lot of tension.
Their average debt of $1 million, plus about $150,000 seasonal overdraft, is 80-90% secured against cow values and the rest against plant and machinery.
Any setback in dairying – a lower milk price, depreciating supply shares, weather problems – causes cow values to fluctuate and exposes sharemilkers to debt repayment concerns.
“The banks are keen to court sharemilkers when times are good because they are the future farm owners.
“But now we are seeing proposals being turned down and young farmers concerned about getting funding if they want to enter the industry.”
McIntyre said the bank refusals he had heard about are cases where sharemilking contracts were signed first before the banks were approached and farm budgets written.
“My advice is talk to your banks before starting negotiations with farm owners.”
He also welcomed the Farm Debt Mediation Bill, now at select committee stage in Parliament.
