Friday, February 23, 2024

Survey shows financial pressures on the rise

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The latest Federated Farmers banking survey shows that while farmer satisfaction with their banks is relatively stable, more are feeling under pressure and the cost of finance is on the rise.

The survey for May shows food producers are feeling the same inflationary pressure as other businesses, Federated Farmers president and economic spokesperson Andrew Hoggard said.

“For farmers, higher interest rates are coming on top of significant hikes in the cost of other farm inputs, including freight, fertiliser, fuel and labour. 

Information from Beef + Lamb NZ’s Economic Service this week is that on-farm inflation has hit 10.2% – the highest that it’s been since 1985-86. Ultimately, all of this will impact food prices.”

The survey has been held twice-yearly since 2016. 

It drew responses from just over 1000 farmers from around the country, with 64% saying they were very satisfied or satisfied with their bank relationship. 

This was down three points from the previous survey in November 2021. 

Arable farmers were most satisfied of industry groups, while sharemilkers were the least satisfied, with fewer than half saying they were very satisfied or satisfied, he said.

Just on 14% of farmers perceived they had come under undue pressure from banks over the past six months, up slightly from November. 

Sharemilkers felt the most under pressure at 21%.

Overall, banks’ conditions for lending became tougher rather than easier for all farm types, with 4% reporting easier conditions and 21% reporting tougher conditions. 

This was particularly the case for sharemilkers and ‘Other industry group’ farmers such as deer or goat farmers or beekeepers.

Over the past six months, the average farm mortgage value has increased from $3.6 million to $4.1m while the median increased from $2.10m to $2.25m.

The average mortgage interest rate increased to 4.58% from 3.95% in November, showing the impact of OCR increases on lending rates.

“Last week the Reserve Bank put up the official cash rate 50 points to 2% and signalled more 50-point increases are in the offing. For a farm with a debt of $4m, a 100 basis point increase in the lending rate translates as $40,000 extra in interests costs a year,” Hoggard said.

The survey showed that overall, 71% of farmers were paying a mortgage interest rate of less than 5%, down from 89% in November. 

No farmer was paying a rate higher than 10%, as was the case in November.

Satisfaction with bank communication continued to be stable, although slowly declining over the past five years. 

At the top end, 57% said their bank communications had been very good or good, down slightly from November. 

Arable farmers rated their quality of communication the highest; sharemilkers were the least satisfied, with fewer than half saying they were very satisfied or satisfied. 

Those without bank loans were particularly unhappy with communication.

“The comments from respondents show that personal contact from bank staff had declined and most farmers were not happy about it.

“High staff turnover, rural bank branch closures with consolidation of staff into bigger branches and regional centres and covid work policies were all cited as reasons for reduced personal contact,” he said.

Just on 75% of farmers had an overdraft facility, similar to November. 

The average overdraft limit was $283,000, a $102,000 increase, while the median limit increased from $70,000 to $125,000. 

Overdraft interest rates also increased, with an average rate of 7.10% compared to 6.28% in November. 

Sharemilkers had the highest average of 7.97% and arable the lowest of 6.55%.

Although most farmers had up-to-date budgets for the current season, fewer farms had an up-to-date budget for the upcoming 2022-23 season, the survey found.

“With the pressures coming on to the sector, farmers would be well-advised to have detailed up-to-date budgets and to be ready to raise any concerns with their banks or financial advisors earlier rather than later,” he said.

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