Farmers, activists told to tone things down
Southland farming leaders and environmental activists have called for a breather in their set-to over winter grazing practices.
Things are looking okay externally. The big picture for our safe, efficiently produced protein is still strong, as shown by good commodity prices. But three domestic drivers have converged to cause difficulties for farmers, particularly those with a lot of debt or wanting capital to grow.
Firstly, changes imposed by the Overseas Investment Office have affected the value of and demand for land. We no longer have the same foreign capital coming in for our biggest farming sector -- sheep, beef and dairy and our productive assets there.
The flow-on effect -- a lack of capital into the market -- has halted downstream farm sales.
The resulting fall in confidence means the largest farms just cannot sell because they have no market – overseas or here at home. The banks have closed to the would-be borrowers.
Secondly, there is now a concoction of Government polices and statements on legislative changes.
There are the unknowns about a possible emissions trading scheme and the potential impacts and costs of that. And farmers must cope with more regulation and compliance, they must devise environmental plans, and they struggle to retain and attract staff for whom visas are harder to get and take longer. All this affects the value of farms by affecting productivity and cashflow.
Thirdly, a proposal by the Reserve Bank of New Zealand (RBNZ) to increase the capital requirements of trading banks can only be bad news for farmers. RBNZ’s proposal has brought those banks out loudly saying they will be hit by this and will pass on the cost increase to farmers.
Economists have already outlined how negatively the economy will be affected by a reduction in GDP. No one is quite sure what the RBNZ means by a “1 in 200-year event”, or indeed the need for such a sudden pace of change.
In addition to the higher capital requirements, the RBNZ is also being strict with the banks on their lending policies, ensuring a far higher level of compliance with their approved lending policies.
This is catching farmers out when they go to ask for extra capital. While they think they are okay -- because of their equity or their loan principal repayments -- they get a surprise to find that technically they no longer meet the banks’ criteria and cannot borrow more capital.
The banks’ pace and aggressiveness is catching out many farmers.
This is severely impacting farmers’ ability to borrow for development and acquisitions.
There’s an irony here: farmers are being asked to spend more on new systems and technology so as to reduce their carbon footprint, but are restricted in this because they cannot borrow.
A strong, functioning banking system is critical for farmers and the wider NZ economy.
The slow creep of these related issues will have impact well beyond farmers only. It will flow on to the regions and beyond. I do not know whether the policymakers have connected the dots and realised these things are all coming together and creating major issues.
To try to combat this situation farmers need to be proactive.
Don’t assume that because you haven’t heard from your bank things are okay. Go talk to your bank to understand where you sit credit wise.
• Hayden Dillon is head of agribusiness and a managing partner at Findex.
