Banks are putting pressure on struggling dairy farmers after Fonterra slashed its payout figure last week, a rural banking lawyer says.
Fonterra's lower forecasted dairy payout figure has squeezed dairy farmers struggling with high levels of debt.
The dairy co-operative issued its dramatically reduced milk forecast payout of $3.85 per kilo of milk solids - down from $5.25 - on Friday
Average operating costs for New Zealand dairy farmers is about $4.50 per kilogram of milk solids, and promises of interest-free loans from Fonterra may not be enough to save many farms, with mortgagee sales on the rise
Lawyer John Waugh, who specialises in rural banking issues, told Nine to Noon this morning that farmers with high levels of debt are being told by their banks that those levels were unsustainable and they were being invited to "consider their options".
He said this was usually a request to refinance, but this was not an option in the current environment.
"Banks do try to work with their customers to reduce debt, but pressure does mount and the bank will invite them to look at asset sale as a final option."
He advocated for an orderly asset sale, rather than a mortgagee sale, with the aim of protecting the remaining equity as much as possible.
Mr Waugh said the interest free loans were an "interesting" offer, but that he still needed to see more of the details and it could be "too little, too late" for some.
"Particularly for some of the farmers I'm working for, whose debt levels are unsustainable, I don't think it's likely to change any banks' view over the sustainability of the farming exercise."
He added that generally banks were supportive of farms, as most were well managed with sustainable levels of debt.
But Jeanette Walker, a rural debt negotiator in Blenheim, said there was little difference between a mortgagee sale and a planned asset sale, because both had the the same end result . She said there needed to be a fairer process for farmers.
"Banks have a lot of power and farmers feel really disempowered through the whole process."
Ms Walker, a former Wairarapa farmer who saw her equity eroded over several years, said farmers with a debt equity greater than 50 percent could roll overdrafts over to core debt once or twice, before their debt got out of hand.
"I thought I had good equity, and it all turned to custard pretty quickly.
She said farmers, particularly in Northland, were feeling the pressure from banks, especially with calving season kicking in when they were "simply overworked".
Ms Walker said once the calving season was finished, banking activity would increase and there would be a reassessment of debt-heavy farms going forward.
"They're fearful of what the future is going to be, and fearful of losing their livelihoods."