There has been much said and written about the dairy industry in the last couple of weeks. Its importance to our economy is now better understood if not appreciated.

The fact we turn sunshine and rain, with good soils and cows, into real wealth for New Zealand is rarely explained.

For most Aucklanders, wealth is created by soaring house values a long way from the mud and milk of a dairy farm. While there is talk of the flow on effects from plummeting returns for milk, the decision makers in the cities are slow to absorb its magnitude.

Questions are being asked as to how dairy farmers got themselves into such a mess. After all, they are business people dealing with large assets and have been seen to splash out on beach property and boats as a sign of their success.


Urban Kiwis who extend themselves to buy a home for their family struggle to sympathise with farmers who may have got it wrong and may be forced to sell out because they can't meet their mortgage commitments. Why should anyone intervene for farmers when going bust is an all too frequent occurrence for Kiwi small business operators?

I think we need to step back and analyse who the people who farm our land and have been caught up in the overhyped dairy industry are.

Some invested relatively recently in the sector and converted dry stock farms into dairy for tax-free capital gains and many will have already sold out before the slump. They are the opportunistic greedy. Some may have been encouraged to buy a neighbouring farm on the basis of forecasts from bank economists, Fonterra, DairyNZ and the National Government who have all continued to say the world's population is growing, the demand from new middle class Asians is growing and we are good food producers.

Others may be on generational properties facing increased costs of environmental management and perhaps the need to buy out family owners of the land.

Most have high levels of debt and varying abilities to reduce their farm operating expenses. The chances that they can make money at a $3.90 per kilogram of milk solids are slim and survival depends on their banks willingness to loan them more money to operate their business. The bank holds all the cards in this game.

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There is also talk about the risks to the industry and banks if land values decline by up to 40 per cent as some have predicted. Indications are that 20 per cent of dairy land value has already evaporated.

I am not aware of the collective value of dairy farmland across the country but an equivalent slump in share value on the NZX would be considered a crisis, and impact on a more vocal and well-heeled group of urban or foreign investors.

The fact is dairy farmers have already taken a big hit and the remaining question is how many won't survive. Unfortunately for too many that literally means personal survival. Logic can't explain the levels of desperation that lead a person to suicide but farming is a lonely occupation for most and the inability to share frustrations and pressures leads to alarming rates of suicide at times of great stress in rural New Zealand.

Without pointing fingers, we can't ignore the pressure of financial failure and the loss of livelihood and home as a leading component of these terrible family tragedies. It is therefore our collective responsibility to minimise the pressures and chances of this happening.

Solutions are not simple and every individual farm and farming business will be different. The recent Stress Test done by the Reserve Bank on the banking sector and potential effects of this dairy crisis has attempted to quantify the losses. In the worst case scenario where land values decline by 40 per cent and hundreds of farmers lose their farms the banks could lose $3 billion.

That is a big number but compared to the 20 per cent already lost in farm land value by farmers it is spare cash to the four major Australian banks that extracted $4 billion in profits from their New Zealand operations in last year alone. The banks have been making the lion's share of the net benefits from growth in the dairy industry along with those lucky enough to exit the sector at its peak farm values.

Farmers should not be bailed out but banks must share the loss and the pain from this overhyped and miscalculated expansion of our most significant and valuable industry.

The banks must bite the bullet and accept their share of this crisis. While some farmers were greedy, most were genuinely ambitious and too many were naive in listening to hype and hope when all the indicators were for this inevitable downturn.

Farmers can't be left to shoulder all the blame and all the loss in these times of crisis for the dairy industry. It's time for the banks to front up and share the burden of the crisis facing a huge number of Kiwi farmers.

Damien O'Connor is the Labour Party MP for West Coast-Tasman and spokesperson for primary industries.
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