Tuesday, 02 June 2020 12:49

$1 billion leasing scheme launched

Written by  Sudesh Kissun
Farmers have been advised talk to their financial advisers before signing up to the scheme. Farmers have been advised talk to their financial advisers before signing up to the scheme.

Dairy farmers can unlock capital in their dairy herds in a $1 billion herd leasing scheme launched last week.

Agri-finance company StockCo Capital says its pioneering herd leasing service will help dairy farmers raise capital, rebalance their finances and grow their business.

General manager Will Purvis told Rural News that the initial response from farmers has been “really positive”.

Purvis says farmers are enquiring about using the scheme to pay off bank debts, meet drought-related costs and for infrastructure projects like new effluent systems.

“We did a market sounding exercise within our network and a few farmers have already signed up.”

Under the scheme farmers will sell their cows to StockCo Capital and agree to lease them back. Cows are valued between $1,500 and $1,800 each. An average 400-cow herd can raise $625,000 under the scheme.

The scheme is initially open to Fonterra farmers because Purvis says scheme funder Greensill, a global provider of working capital finance is taking “a measured approach”.

“It looks to Fonterra as a very credible party with a good credit rating and sound policies around supplier arrangements.”

Federated Farmers dairy chairman Chris Lewis says the scheme looks like a good financial product, but wants farmers to do their homework before signing on the dotted line.

“I would say to farmers, make sure you talk to your financial advisers before signing up,” he told Rural News.

Lewis says there are a lot of good deals out there with banks and traders offering low interest rates.

“This could be a good product, but farmers must look at the finer details.”

Purvis believes some farmers are finding it increasingly difficult to raise funds.

He says it is no secret that financial institutions are becoming increasingly cautious around farm lending. 

“It is estimated 30% of dairy farmers are classified as being highly indebted and, despite firm milk prices, the Reserve Bank is encouraging banks to act prudently with farm lending and work closely with their existing dairy farming customers to ensure they are well positioned in the event of a future downturn in the sector.

“This, combined with the economic impact of COVID-19, a surge in demand for financial capital, and a limited ability for tier-two institutions to fill the gap, are all impacting liquidity within the sector and making it increasingly difficult for farmers to raise the funds they need to maintain and grow their business.

“This is constraining growth within the broader dairy sector. We believe herd leasing can help individual farmers address this situation by allowing them to unlock the large amount of capital they have in their herd.”

Purvis warns the leasing service is not aimed at those farmers who are highly indebted; it is focused on those farmers who are financially sound but finding it difficult to raise capital due to the liquidity barriers within the broader dairy sector.

During the lease period, farmers will continue to maintain control of the leased herd and will generate income from milk production and the sale of offspring. 

They will also be able to deduct the lease payments as a taxable expense. By following the best-practice culling and herd replacement procedures built into the lease agreement, farmers will fully own the herd that is on their farm at the end of the lease period. 

More like this

Report highlights good pay packets

A report confirming a sharp rise in pay for dairy sector workers will help attract more New Zealanders to farming jobs, says Federated Farmers dairy chair Chris Lewis.

Featured

New ag degrees at Massey

Changing skill demands and new job opportunities in the primary sector have prompted Massey University to create a new degree course and add a significant major into another in 2025.

The show is on!

It was bringing in a new Canterbury A&P Association (CAPA) show board, more in tune with the CAPA general committee, that has ensured that Christchurch will have a show this year, says CAPA general committee president Bryce Murray.

Forestry cuts into stock numbers

There is an urgent need for the Government to put a limit on the sale of farms for forestry - particularly for carbon farming.

National

Food charity to hold online auction

Meat the Need, New Zealand’s dedicated charity delivering locally sourced protein meals to food-insecure communities, is launching an online National…

Machinery & Products

Landpower increases its offering

Landpower and the Claas Harvest Centre network will launch the Claas Scorpion and Torion material handling solutions to the market…

New F5 balers from McHale

Irish grassland machinery manufacturer McHale has unveiled the new four-model range of F5 fixed chamber balers.

» Latest Print Issues Online

The Hound

Leaky waka

OPINION: Was the ASB Economic Weekly throwing shade on Reserve Bank governor Adrian Orr when reporting on his speech in…

Know-it-alls

OPINION: A reader recently had a shot at the various armchair critics that she judged to be more than a…

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter