Don’t be a slave to your debt
OPINION: Clicking through some news of late, I have noted the odd headline referring to credit card debt.
The latest MPI report on the state of NZ agriculture points to another good year ahead with export revenue from the primary sector expected to rise by 3.3% in the year ending June 2020.
Published late last year, the Situation Outlook for Primary Industries (SOPI) report paints a generally rosy picture for the farming and horticulture sectors. It forecasts the primary industry’s total export revenue will hit $47.9 billion for the coming year.
This revenue increase will come from an 8.4% increase in dairy export earnings, meaning it will earn $19.6 billion dollars. Meat and wool will reach $10.4 billion – up 2.5%. Revenue from the current sector darling horticulture will increase by 4.7% to reach a total of $6.4 billion.
This is both impressive and vitally important for the future well-being (to use the current Government’s own twee terminology) of New Zealand’s economic future.
However, this same rosy report points to a worrying cloud on the sector’s horizon – dangerously high levels of debt in dairy farming.
The report devotes an entire section to the debt issue. Titled: ‘financial vulnerability in the dairy sector’, it notes that the use of debt to fund business and industry growth plays an important role in economic success, but with this expansion, the risk level in the dairy sector has increased significantly.
It also highlights that more than a quarter of dairy farmers have debt to equity ratios of more than 70%, some having as little as 4% equity in their properties. The report says that over the last two decades dairy farm debt has increased by 267%. Total dairy sector debt now stands at $41.4 billon.
MPI, quite rightly, warns that with such high debt levels, owners of these farms may not be able to meet the challenges and changes that lie in store for the sector. It warns that heavily indebted farms will struggle to meet the suite of environmental requirements that are already in place or have been signalled by the Government.
This means it is now incumbent on both farmers and the banks to look at high farm debt levels and how these can be reasonably mitigated and managed. As Minister of Agriculture Damien O’Connor says, the banks need to share some of the responsibility for what’s happened and take a partnership approach to the solution – not put all the pressure on farmers.
Sound advice. Let’s hope the banks take heed.
