Debt burdened dairy farmers could get creamed
August 17th, 2009
Finance expert Roger Wilson a partner at PricewaterhouseCoopers predicts heavily indebted dairy farmers could fail to survive the current payout slump. He says dairy farms are especially vulnerable as farmers face falling commodity prices, increased costs and some farm asset values which have dropped by 30 to 40%. He notes there are a lot of stressed farmers running significant cash deficits this year.
PricewaterhouseCoopers says farm equity partnerships in Southland and Canterbury, where people have often borrowed against assets to invest, are particularly vulnerable. Wilson warns there could be an “avalanche” of dairy farm foreclosures in autumn if things do not improve. His prediction is based in part on proposed international banking recommendations, requiring banks to impose rigorous capital and risk management policies, which could create a “perfect storm” for financially stressed farmers.
Wilson says “It will affect the whole country, but the primary sector in particular.” Rabobank rural banking general manager Ben Russell disputes there could be an “avalanche” of foreclosures, but says 5% to 10% of farmers across the country have too much debt to be sustainable. The bank is working with about 50 farmers across the country to improve cash flows and budgets.
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