Ministers assured on dairy farm debt

David Carter

The dairy sector remains "resilient" in the face of falling income and is not in need of Government co-ordinated financial aid, the major banks assured Agriculture Minister David Carter and Finance Minister Bill English.

Carter and English yesterday met representatives from ANZ National, Westpac, ASB, BNZ and Rabobank "to chew the fat around the issues out there in rural New Zealand with regards to banking, indebtedness, land values and cash flows", said Carter.

The meeting follows on from a similar discussion in March called in recognition of "the substantial growth in rural debt".

Carter yesterday acknowledged that the pressures that prompted that meeting had intensified since then, "particularly around cash flow in light of the reduced payout Fonterra has announced".

"However the banks were telling me there's a high degree of resilience and farmers are now in the process of looking at their cost structures and very actively managing those."

Carter said the message from the banks was consistent with what he was hearing from farmers and others in the sector, "and it wouldn't be consistent with some of the more extreme comments that have been in the media recently".

The cut in Fonterra's payout has stoked fears of widespread defaults in the dairy sector, particularly among those who borrowed heavily when the payout was high to finance dairy conversions.

Last week business columnist Fran O'Sullivan suggested the Government may need to step in to broker a deal with the more exposed parts of the dairy sector - and their bankers - to manage out the more marginal loss-making farmers in a fashion which does not send land prices into complete freefall.

However, Carter, who is mindful of the Reserve Bank's concerns around the level of indebtedness in the dairy sector, said there was no discussion yesterday of any such arrangement or the need for it.

"The banks certainly say there is some pressure out there but it's at the minority end. Anybody who converted recently on land that was purchased at a high price will obviously be under strain.

"The great majority of farmers are fairly well placed, they're certainly going to be in for a tough year but the great majority are in a position where they can certainly control their indebtedness and won't be in serious trouble."

Carter said he planned to meet the banks again towards the end of the year unless it was necessary to talk again before then.