Federated Farmers poll last week found more than one in 10 dairy
farmers are now under pressure from banks over their mortgage.
for Primary Industries Nathan Guy met with three of the big banks
yesterday to discuss dairy debt and said the banks had told him they
will stand by struggling dairy farmers.
Guy said the medium-to-long-term outlook for the dairy sector was
incredibly rosy but some dairy analysts said it was anything but.
consultant Alison Dewes is one who believes the industry is
undergoing a structural change rather than experiencing a short cycle
of low prices.
to Noon the
average dairy payout of $4.50 may never recover to even the $6 mark
and widespread farm foreclosures were inevitable.
said banks had been front footing it with farmers where they could,
and working with those that had been showing a moderate level of
"But we're getting to a point now where
things haven't played out quite as predicted. We're seeing what's
potentially a structural change in milk price rather than a cyclical
change where we're moving into almost three years of $4 / 4.50 payout
and average farms can't just keep weathering this and we actually
have to possibly face some quite difficult times ahead for New
said one of the reasons why New Zealand was getting into difficulty
was that it was no longer as competitive on the global stage.
Zealand's no longer a low-cost producer, and there's nothing holding
back further production coming out of the States, who can produce
milk cheaper than we can now ... similar situation in Europe, and
Australia - you can purchase farms, rain-fed, land there for half the
price of New Zealand and be receiving a $6 to $6.50 milk price."
said there was no reason to believe New Zealand would suddenly
capture more of the global market when its competitors were able to
produce more quantities and cheaper milk.
Dewes said while banks had been working closely with some farmers to
make their farms more efficient and get cost structures down, there
was only a certain amount they could do to shave costs.
said most farms could cope with taking on more debt for one or two
years but some would reach a tipping point soon.
think all farmers are going to be under pressure if they haven't
already shifted their systems into lower cost and potentially even
diversified farm systems so at a $4 or a $4.50 payout I would argue
that 80 percent of our farmers are going to be borrowing to keep
believed dairy farmers potentially faced even less than $4 price
this year and next.
that will be almost entering for most farmers a third year of hard
difficulties. So I think that although we're talking about 12 percent
of loans being non-performing now ... we're potentially looking at
that number being more like 40 percent in a couple of years time."
said there was a lot of hype in the industry when dairy farmers were
getting high prices and farmers were encouraged by central and
regional government to intensify when the common belief was that
economic wealth could be achieved from doubling agricultural output.
were allowing permissive development schemes, irrigation schemes ...
it factors into farmers psyche so the central government and the
regional governments were pretty much facilitating permissive
said farmers borrowed to facilitate higher intensification but the
by-product of that was farms operated under a higher cost structure
and marginal herds.
actually completely lost the plot in New Zealand on this sugar rush
diet that we were on and we didn't understand what true profit is."
Dewes said three years ago she was telling her clients that the
country had to sensitise the milk price back to $4.50.
people think you're a fruit loop when you do that but the reality is
that your days in the sun don't always last. We always have to
prepare for a year that we're not sure how things are going to be."
said some farmers were starting to realise they could improve their
chances of survival if they moved to a system of home grown feed and
shed some of their stock.
said it would almost be a paradigm shift in farm systems to what
dairy farmers were doing in the late 90s and early 2000s before palm
kernel came into the country.
we end up is fundamentally a shift to better, fewer, well fed cows,
doing more per cow and sure you might not get the same per hectare
but your cost structure moves down and you focus more on doing the
best you can with what's left."