Federated Farmers: More farmers feeling financial heat

Andrew Hoggard

More farmers are feeling under financial pressure, and satisfaction with their banks has slipped, according to last month's Federated Farmers banking survey.

The biannual survey drew 1004 responses, more than double that of November, and while the great majority of respondents were still happy with their banks, those who were satisfied or very satisfied fell from 82 per cent to 79 per cent.

The fall was particularly pronounced for sharemilkers (down from 77 per cent to 68.5 per cent), although that was mainly driven by an increasing neutral perception rather than being dissatisfied.

Perceptions of"undue pressure" rose from 8.1 per cent in November to 9.6 per cent, mainly thanks to dairy farmers (up from 10 per cent to 13.8 per cent, sharemilkers rising from 9.7 per cent to 13.5 per cent). That was still less than in 2016, when 20 per cent of sharemilkers were feeling undue pressure.

Federated Farmers vice-president Andrew Hoggard said while the average mortgage across agriculture has decreased in the past six months, it was up from $4.6 million to $5.1 million for dairying, the highest level since the surveys began in August 2015.

"We need to be careful interpreting these figures. It may just be a reflection of the profile of those who took part in the May survey compared to November participants," he said, "but it's a fact that dairy holds two-thirds of the total agricultural debt of around $61 billion, and a growing proportion of that dairy debt is held by highly-indebted dairy farms."

He noted that the Reserve Bank's six-monthly Financial Stability Report, released last week, continued to view dairy debt as a financial stability risk.

"On the positive side, the Reserve Bank observed that better and more stable dairy prices mean most dairy farms are currently profitable, allowing some farms to repay some debt," Mr Hoggard added.

"But it warned that dairy farming remains highly indebted and vulnerable to any future downturn in dairy prices. It identified Mycoplasma bovis as an emerging risk that has potential to negatively impact productivity and profitability, and noted that dairy faces long-term challenges, including the impact of responses to environmental concerns, such as stricter regulations."

Meanwhile New Zealand Bankers' Association deputy chief executive Antony Buick-Constable was pleased the survey showed most farmers were still satisfied with their banks.

"Banks work closely with their agri clients, through good times and bad. Keeping the lines of communication open is critical to the ongoing success of farmers and their banks," he said.

Farmers' satisfaction with communication from their banks remained stable at around 74 per cent, with sharemilkers the least satisfied.

The survey, conducted by Research First, also showed interest rates appeared to be "broadly" stable, although sharemilkers continued to pay higher rates than farm owners, reflecting the fact that they did not have the same levels of security.

Just under a third of all respondents had detailed and up-to-date budgets for the season about to begin, but, "as usual," sharemilkers did better in that regard, with two-thirds having a budget in place," Mr Hoggard said.