Agribusiness issues 'nearing crisis point'
A farmer’s advocacy group has released a “damning” survey on the state of rural banking in New Zealand, observing a “steady and significant decline” in communication, service, and willingness to lend by the country’s five major rural lenders.
The Federated Farmers Banking Survey was conducted from May 3-15 and had 642 responses from across New Zealand.
The bi-annual survey showed that where nine years ago less than one in 20 farmers stated they felt they had been put under pressure by their bank, the figure has now jumped to one in four – a record high.
Consequently, Federation Farmers “strongly urges” an inquiry into rural bank lending, preparing a submission to the Primary Production Committee.
"Rural banking issues are nearing crisis point and farmers are quickly losing confidence," said Federated Farmers commerce and competition spokesperson Richard McIntyre. "Things have clearly gone from bad to worse, with consecutive surveys showing all the key metrics we track heading in the wrong direction.”
"We thought the results were bad in our last survey, six months ago, but farmers are now feeling even more miserable about the state of rural lending."
Stringent lending regulations to blame
After speaking with several farmers when preparing the submission, Federated Farmers found some common experiences:
- Farmers have high equity positions but are unable to access new capital for spending on things like management systems, seasonal finance, or unexpected bills.
- Farmers who were considered safe a few years ago are being re-categorised as distressed lending despite no change in their financial circumstances.
The submission cited the various central bank regulations that set requirements for banks to hold capital and control risk as the main culprit.
“The Reserve Bank of New Zealand regulations were put in place to fortify banks against a potential ‘one-in-200-year shock’,” the submission said. “Such a goal may seem laudable… of course fortifying against such a shock is not without cost.”
“Are we sure the medicine isn’t worse than the disease?”
With the survey and submission released one day after a hawkish Reserve Bank of New Zealand held the cash rate at 5.50%, warning of further rises as inflation proves sticker than first thought, there is no relief in sight.
However, it’s worth noting that the new government has looked to address some lending regulations, such as the CCCFA, which may ease pressure in this area.
The impact of banking on the mental health of farmers
Federated Farmers is also concerned that undue pressure from banks has a severe mental health toll on farmers.
In its submission the group stated: “Older farmers who have worked for decades, getting out of bed at 5am to milk cows and build wealth, now find themselves facing forced sale of their farm and their life’s work disappearing.”
Younger farmers are reportedly facing changing and unrealistic expectations from banks.
“This situation is enough to put many farmers into a state of poor mental health,” the submission stated.
This comes as the latest survey showed that over half of sharemilkers state they believe issues related to banking have impacted their mental health.
“These aren’t just statistics,” McIntyre said. “These numbers represent real Kiwi farming families who are clearly under huge pressure from high interest rates, rampant inflation and reduced incomes."
Given the increased scrutiny of rural lending in recent times, Federated Farmers added a new question to their recent survey.
They asked: “Do you think New Zealand banks are presently demonstrating a positive commitment to support farming through difficult periods of high interest rates?”
McIntyre said it’s “incredibly disappointing” that only one in five farmers responded with a “yes” to that question.
"At a time when farmers are really struggling, I would have hoped to see our banks stepping up to help, but instead they seem to be tightening the screws,” he said.
Is the New Zealand economy at risk?
With primary production responsible for over 80% of New Zealand’s exports, Federated Farmers said the crisis extends beyond farmers but to the whole country’s economy.
And with the economy already in a recession, the government has a goal of increasing productivity by doubling exports, including from agriculture over the next ten years.
“This will not be achieved if farmers don’t have access to finance for investment in productivity and environment improvements, and are under pressure just to keep operating,” the submission said.
"There are clearly some widespread issues in our rural banking system that need to be closely looked at and addressed – urgently."
On Thursday, Federated Farmers presented to the Parliament’s Primary Production Select Committee on the need for an independent inquiry into rural banking.
You can read Federated Farmers’ full submission stepping through the need for an independent inquiry into rural banking here.
