Farm debt mediation

The farmer looks back at all the family has built together. Proud as, then remembers the things that have gone wrong, then remembers the big mortgage.

Then thinks, ‘what the hell am I going to do’?

The local bank manager drives past the farm. Thinks of the cups of tea and chuckles in that farmhouse. Remembers the red figures that cannot be ignored. Then thinks, ‘what the hell am I going to do’?

New Zealand farms carry around $60 billion of debt, according to recent Reserve Bank data. Tension is growing as interest rates rise.

Beyond the figures, it is personal.

Farm debt is not just a number, for the farmer or the lender. For the farmer, the debt supports a way of family life, a passion, and a commitment to the land. For the lender it represents a personal relationship, and part of a vital connection to New Zealand’s key economic sector.

Farm debts can go awry. Farmers sometimes over-commit. Biohazards and compliance issues can add unexpected costs. Prices are volatile. Natural disasters, like the recent flooding, can be devastating.

The pressure can be immense. But farmers are often the type of selfreliant and indomitable people who are the last to ask for help. Mental health issues are a significant concern in the sector. Lenders can find it hard to get farmers to have those crucial conversations.

Against this backdrop, the Farm Debt Mediation Act (FMDA) 2019 came into force on 1 July 2020. It provides for farm debt issues (broadly defined) to be mediated.

Mediation is a structured process where a neutral mediator helps parties to resolve issues between them. It is widely used in commercial dispute resolution. Far more High Court commercial matters are resolved by mediation than trial.

FDMA mediations are a circuit-breaker for high pressure farm debt situations. They are a chance for folk to talk before things go too far.

The FDMA provides that:

- Farmers can request mediation at any time;

- Lenders can request mediation if a farmer is in default;

- Lenders cannot take enforcement action on farm debt unless they have tried to mediate;

- Mediators must be FDMA accredited;

- The farmer gets to suggest three accredited mediators, and the lender must pick one of those three;

- Mediations are to be concluded in good time;

- The parties must participate in the mediation process in good faith; and

- There is no requirement for the parties to settle.

The FDMA is administered by MPI. It can put farmers going through the process in touch with support, including funding assistance for mediation costs.

Ministry for Primary Industries (MPI) maintains a list of FDMA accredited mediators (of whom three are also tikanga accredited). All are independent practitioners.

There have been over 60 FDMA mediations to date.

There does not need to be a dispute about the debt for there to be a FDMA mediation. Usually, the issues are around what do going forward. What is a good business plan to bring the debt under control? Can something be sold, and, if so, how and when? Can other funders be brought in? Can the terms of the debt be adjusted to allow more breathing space?

Feedback from lenders and farmers about FDMA mediation has been positive. For my part, I have mediated c.$300 million worth of farm debt to settlements under the FDMA so far. It has been a privilege. In my experience, everyone works hard to find sustainable solutions. Roadmaps to progress are achieved, with parameters and sensible timeframes. The pressure is usually reduced. Folk leave the day with handshakes and a smile.

Weeks later, the farmer and the local bank manager stand on the driveway having a cup of tea. The dog has what he thinks is a discrete wee on the wheel of the bank manager’s ute. Everyone bursts out laughing.

Mark Kelly is a barrister, commercial mediator, and accredited FDMA mediator. He mediates throughout NZ. If you think a farm debt mediation might be of use to you, contact your lawyer, your accountant, or MPI, for further advice/information.