25 Feb 2016

Dairy industry's $38b debt problem

2:48 pm on 25 February 2016

The future of the dairy industry in this country is looking depressing as farm debt reaches $38 billion, an agribusiness consultant says.

Organic Jersey cow on a Rongotea farm.

Photo: RNZ / Alexander Robertson

Minister for Primary Industries Nathan Guy has met with three major banks to discuss the dairy debt, as a Federated Farmers poll last week found more than one in 10 are now under pressure from banks over their mortgages.

Mr Guy said the banks told him they would be standing by struggling dairy farmers, and he believed the medium- to long-term outlook for the sector was incredibly rosy.

But agribusiness consultant Alison Dewes was not so sure.

"My view is quite sobering. I think all farmers are going to be under pressure if they haven't already shifted their systems into lower cost and potentially even diversify farm systems.

"So at a $4 or $4.50 payout, I would argue that 80 percent of farmers are going to be borrowing to keep going.

"We've got most of our dairy farmers that will really struggle to survive ... their financing costs and cost or production is $1.50 above what they're going to get this year and next year, you can only keep going for a certain amount of time when the situation's like that."

Ms Dewes said she believed farmers were facing a payout under $4 this year and next.

"So that'll be almost entering, for most farmers, a third year of hard difficulty."

She questioned what would make the industry bounce back.

"We've got a large amount of inventory around the world now. Maybe we're not hearing that completely in New Zealand at the moment - and we've got other competing countries that can keep turning the taps on harder and produce at a cost that's potentially $1 a kilo less than our New Zealand current cost of production."