17 Jul 2015

Farm mortgagee sales climbing

5:56 pm on 17 July 2015

Farm mortgagee sales are climbing, and some in the sector are calling for mandatory debt negotiation, which would force banks to talk with farmers before they become insolvent.

The size of the latest drop in international dairy prices has taken dairy farmers and commentators by surprise.

The size of the latest drop in international dairy prices has taken dairy farmers and commentators by surprise. Photo: 123RF

Rural debt negotiator Janette Walker said one bank in particular had been sending letters to farmers cutting off their credit, leaving them with no cash to pay staff wages, ACC, feed costs, power bills, rates insurance and mortgages.

She said this left farmers with the stark choice of finding an alternative lender, which is nearly impossible, or selling up, and it was "inhumane" of banks to communicate this via a letter.

"They don't know what his stress levels are, and they don't know what's going to push him over the line, and I will say in terms of suicide.

"And what we saw in 2009 to 2011, was farmer suicides quadruple."

Ms Walker said the Government urgently needed to introduce debt mediation legislation.

She said the New Zealand First Bill did not go far enough because mediation should be triggered before farmers hit rock bottom.

She said about 40 percent of dairy farmers would not making any money this year.

Figures supplied by the property analytics company Corelogic show there were 19 farm mortgagee sales in the three months to the end of June, a big jump on the first three months of the year in which there were six.

But the levels are still well below the peak in 2011, when there were 137 farms on the block.

Independent farming consultant Doug Avery, who once came close to financial ruin himself, said he tells struggling farmers that if their business model was not working, they had to change it.

"And sometimes that can mean selling up.

"And I think bankers are like anyone else. They sell money and they will do their best to protect the money they've sold at any given time. It sounds tough, but it's part of our business cycle."

A professor of Agri Business at Massey University, Hamish Gow, said the dairy bubble had burst and times were likely to get tougher.

"That's the million dollar question, how low will dairy prices go?

"I think they will stay low, some people think they will go higher. Will they go back up to $8? Absolutely not."

Westpac Bank declined to comment, but other banks spoken to by Radio New Zealand said they were comfortable extending credit to farmers in most cases as land prices remained high.

The head of country banking at Rabobank, Hayley Moynihan, said the downturn in dairy prices was well signalled and the bank has been talking with farmers about the best way to weather it.

"But for some farmers that means farms will be sold, and that happens on a case by case basis.

"And that happens even when milk prices are good, let alone when milk prices are down, so it's part of the normal cycle that businesses come under stress."

The national manager for agribusiness at the Bank of New Zealand, John Janssen, said more than half of the country's 13,000 dairy farmers would lose money this season, but the vast majority were financially stable.

He said for the estimated one percent who were so heavily indebted that their business was under threat, it was usually the farmers' own decision whether to ride it out or leave while they still had some equity to cash up.

"At other times, the risk of loss for us becomes too great. At the end of the day, it's our deposit holders' money that we're losing, it isn't the bank's so to speak, so we have to act.

"But those times are very, very minimal."

Mr Janssen said he had "an open mind" on mandatory debt negotiation, which is in force in some states of Australia, but warned it did not always work in farmers' favour.

He said compliance and bureaucratic processes could mean it took longer for farmers to get the credit they needed to keep their farms in business.

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