Dairy farmers who are coming up for air as milk prices recover, are now being asked to pay back $5 billion in bank support loans made during the slump.
Coming on top of increasing regulatory and compliance costs, and being beaten up by the public over environmental issues, the pressure from bankers to reduce hefty overdrafts and control working expenses is taking a toll on the industry’s morale, say dairy leaders.
And the sector’s books will come under more financial pressure in the next five to 10 years from regulatory demands, expects the country’s biggest rural lender, ANZ Bank.
“We do see there will be more capital needed to go into the industry’s transition to better farming practices as regulations are clarified and investment made to support that over the five to 10 year period,” said ANZ managing director commercial and agri, Mark Hiddleston.
“Let’s repair the balance sheet now so that when that regulation is defined and clarified, we are in a position to support it. It’s good planning. It has been a tough three years … and as you come out of tough times, the conversation then moves to OK, what are we going to do to repair your balance sheet?
“Those conversations are taking place.”
Specialist dairy accountant Nigel McWilliam, of Diprose Miller, said some of the Waikato’s top dairy farmers were questioning why they were still in dairying.
While it was prudent for farmers to work on debt reduction, and for banks to want them to create a financial buffer against the next cyclical downturn now the milk price had recovered, the pressure on farm cashflow was relentless, said McWilliam.
“It’s a constant battle. They’ve struggled for more than two years and now there is some breathing space they are still restricted on cashflow. It affects their family time and some have staff earning more than they do, and they’re getting [public] flak in the media.
“Some really good operators are questioning why they’re in dairying. They’re exactly the people we don’t want to lose. Some farmers have options but some are stuck.”