Have New Zealand farmers added debt in recent years?

Debt levels in the New Zealand agri-sector have increased over the last two seasons as banks have provided funding to support farmer liquidity through the milk price crisis. We estimate farmers have taken on about $4bn to $5bn (€2.5bn to €3bn) of additional debt to support that liquidity.

How high are debt levels on New Zealand dairy farms?

In 2003, debt levels in the New Zealand dairy sector were about $11bn (€7bn). But through the expansion of the industry over the years dairy farm debt levels have risen to $40bn (€25bn), which is a fourfold increase used to drive expansion. On average, there is about $21 debt per kg of MS produced

At what level is total farm debt in New Zealand?

Total farm debt in New Zealand is roughly $60bn (€37bn), with the majority of this lent to dairy farms. The remaining $20bn (€12bn) in debt is divided between New Zealand’s sheep, beef and horticulture sectors.

What is the average interest rate in New Zealand?

For an operating dairy farm, you’ll pay an interest rate of around 5.5%. We tend to evaluate farming businesses ability to service debt using what we call a status quo rate of about 6%.

Did the New Zealand cost of production rise too high in recent years?

That was another lesson we’ve learned from the recent milk price crisis. The record milk price of $8.50/kg in 2014, allowed the industry to become less disciplined around costs, particularly for supplementary feed and other major farm inputs. The milk price crisis reinforced to the industry the importance of cost discipline. What we’ve seen right across our loan book is a structured reduction in on-farm costs. Across the industry as a whole, on-farm expenses have come down by 50c/kg MS, which is a big number.

What would you put that reduction down to?

I think it’s definitely feed rationalisation but also a focus on profitability v production. Farmers have reduced stock numbers with a reversion to the idea that if you’ve got fewer animals producing more milk because they’re happier and you’re not feeding them supplements, you’ll make more money.

Is NZ far off its milk production ceiling?

I think the sense in New Zealand is that we’re not far away from reaching capacity on our current system. There might be 10% room for more expansion. But after that we would have to look at different options to expand such as barn systems.