A dairy sector analyst’s claims the dairy industry is facing a debt crisis with farmers likely to be forced to sell their farms has been labelled “potentially misleading” by DairyNZ. DairyNZ strategy and investment leaders Bruce Thorrold and Mark Paine met Colin Riden head-on as Fed Farmers prepared for today’s debt management seminar in Morrinsville and their own organisation prepares for a Tight Management for Tight Times seminar in Te Awamutu tomorrow. Conor English, Fed Farmers chief executive, said in the two years to April 2009, farm debt had grown by about 30% to $45 billion report The Taranaki Daily. “When combined with some radical changes to farm income and expense streams, cash flow is now critical,” he said.

Drs Thorrold and Paine said while debt management was a critical issue on farms, Mr Riden’s prediction of a debt crisis could potentially mislead farmers, financiers and policy makers as the distribution of debt between farms was more evenly spread than Mr Riden claimed. “Allowing for increase in debt levels between 07/08 and 08/09, we estimate that 5-10% of milksolids production have debt levels over $40/kg milksolids,” the pair said. “Mr Riden is claiming that 33% of farms have a debt level averaging $47/kg milksolids. “Our data would suggest only 5% would have this average today.”

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Dairy farmers are being forced to sell farms as they find it too expensive to run their businesses, with milk payouts falling and banks examining whether they are cashflow positive reports Stuff. Since Christmas, banks had taken a much harder line with farmers, Manawatu-based dairy sector analyst Colin Riden said. The banks had pulled back on their lending into the sector and been tougher with farmers not paying back on schedule. So far there had been “quite a bit of denial” in terms of public acknowledgment by the banks that there was a problem. But banks had decided they could not continue to pour money into farms that would not return the investment, Riden said. “They’ve cut off so much credit that a lot of farmers are not paying their bills, that sort of stuff, forcing a few sales of holiday homes … some farmers have been forced to sell [their farms].”

ANZ National Bank rural banking general manager Charlie Graham said the bank had 40 per cent market share in the rural sector and had no intention of reducing that exposure.However, some farmers were experiencing real pain and some had overspent because of expectations of higher milk payouts by processors such as Fonterra. Since October, the bank had taken a stance to work through with customers to help contain costs and meet financing needs, he said. “I think any dairy farmer [could be hurting]. You don’t need too much debt with the payout at $4.55 to start making a loss.” There were some farmers for which it was “very difficult to see a future”.

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Eighteen months ago, independent analyst, Colin Riden, of Manawatu, described as “economically perverse” some of the decisions being made by farmers and the agricultural industry. In a series of articles in New Zealand Farmers Weekly he deconstructed some of the sacred pillars of Kiwi farming, including Fonterra, the value of research and even the disconnect between farming and the rest of society. Riden’s concerns included swollen debt levels from Fonterra down to farmers. They drove him to pay a visit to Treasury almost two years ago to express his concerns. “We had a reasonable reception until we moved further up the chain and then it seemed to be dismissed at that time.”

Today, Riden could be forgiven for dishing out a big “I told you so” as Fonterra shares, farm-gate returns and all accompanying assets take a slide in value, while some farmers grapple with bloated debt levels. His concerns revolve around the 40% of dairy farms wearing reasonable to substantial debt, although he is also sceptical even about the future of those farms carrying as little as $3/kgMS.

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