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NEW ZEALAND-BANKERS NEED TO HELP FARMERS.
It’s time bankers got up close and personal again with the dairy farmers they have "scared the bejesus out of", says veteran rural advocate Charlie Pedersen.
As stories of financially distressed dairy farmers continue to swirl around rural communities, Pedersen, a large-scale farmer and former Federated Farmers national president, suggests that with banks’ own liquidity prospects appearing to improve, they should be reconnecting with customers they put the hard recessionary word on late last year.
"The banks rounded up everyone in November-December and said ’your overdraft is your overdraft, don’t dare ask for any more ... and by the way we aren’t going to be capitalising any of this winter for anyone. Tidy it up or we are going to talk seriously about your situation’," Pedersen says.
The banks thought their own liquidity and funds borrowing positions were in jeopardy at that time, but there is a sense now that the situation has eased, he says.
"Perhaps banks should be going back to those clients that they scared the bejesus out of and saying ’if you need to buy Fonterra shares we’ll lend’. After all, it’s good security, it shouldn’t be a problem. But the banks haven’t been back ... farmers don’t deserve any special deals but this isn’t a special deal."
Pedersen says banks will contribute to a deepening of the economic recession if they keep the screws tightened on dairy farmers already struggling with cost blow-outs from drought, big tax bills, soaring on-farm expenses and a much lower Fonterra payout than they had been banking on.
"There’s a tremendous amount of fear and concern out there. In Taranaki there are hungry cows and paddocks of maize that no-one will buy (because of cost curbing). That pain will eventually come through the whole economy."
The country’s biggest rural lender ANZ-National bank agrees constraints have eased a little. But money is still expensive and tight, says rural banking chief Charlie Graham.
"We just did a deal a couple of weeks ago which was 250 points (2.5%) above the swap (wholesale) rate for three years and includes the government guarantee. It gives you an indication of what banks’ funding costs are and (money) still remains very difficult to get."
Graham says his bank has not put any farmer client out of business due to the recession. A "trickle" of accounts werebeing handled by the bank’s debt management division as "we get a bit more realistic and the client gets a bit realistic".
A positive development was Fonterra’s firming its 2009 $5.10/kg milksolids payout forecast recently and its outlook for next year, Graham said. Trading bank lending to agriculture in February increased $149 million to $42.84 billion. It was however the lowest level of monthly advance to farming since early 2007.
Federated Farmers dairy chairman Lachlan McKenzie says when considering farmer applications for bigger overdrafts and funds to buy more Fonterra shares, all banks have to do is look at the strong fundamentals of the industry. But he does not think bankers are out of line demanding farmers be cashflow positive, saying some farmers "lost the plot" in the last two years.
"The vast number of farmers will weather the storm through. Some will have to adjust their systems to get costs out and the dairy industry will come out stronger. But there is some pain and we have sympathy."
North Taranaki accountant Graham Armstrong of Armstrong Fleming Accountancy agrees with McKenzie that the late 1980s were tougher economic times for dairy farmers than today.
Some farmers who have bought herds and extra land in the past two years are struggling and big tax bills from last year’s boom season have caused additional pressure, he says.

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