Bay of Plenty Times

Banks’ hor­ti­cul­ture ap­petite needs close eye, says RBNZ

- An­drea Fox Business · Finance · Food Industry · Agriculture · Banking · Industries · Reserve Bank of India · New Zealand · China

Banks’ lend­ing for hor­ti­cul­ture, led by the ki­wifruit in­dus­try, is grow­ing by 15 per cent a year and will need watch­ing for as­so­ci­ated emerg­ing risks, says the Re­serve Bank in its lat­est Fi­nan­cial Sta­bil­ity Re­port.

The risk was in light of po­ten­tial labour con­straints in the near term due to bor­der re­stric­tions, the six monthly re­port on the New Zealand econ­omy said.

Banks had a lim­ited ap­petite for new dairy lend­ing, re­flect­ing con­cerns around cost com­pli­ance with new en­vi­ron­men­tal reg­u­la­tions.

How­ever the re­port also noted that un­cer­tainty about global eco­nomic con­di­tions is adding to lim­ited de­mand for dairy­ing lend­ing, par­tic­u­larly for farm ex­pan­sion.

The re­port said the agricultur­e sec­tor con­tin­ued to show rel­a­tively less strain from Covid-19 im­pacts than other busi­ness sec­tors.

Food pro­duc­tion was con­sid­ered es­sen­tial in the higher alert lev­els, al­low­ing food pro­ces­sors to con­tinue op­er­at­ing dur­ing the re­stric­tions.

The sec­tor’s re­silience had also been boosted by a com­par­a­tively rapid re­cov­ery in the econ­omy of China, New Zealand’s big­gest trad­ing part­ner. Banks’ ap­petite for over­all agri­cul­tural lend­ing had held steady, with a shift con­tin­u­ing to­wards more di­ver­si­fi­ca­tion in their port­fo­lios to limit ex­po­sure, the re­port said.

How­ever long-term vul­ner­a­bil­i­ties re­mained “a con­sid­er­able con­cern”, it warned.

Dairy farm­ers ap­peared to be tak­ing a more cau­tious ap­proach to long-term cap­i­tal in­vest­ment in light of the global eco­nomic re­ces­sion and on­go­ing con­se­quences of Covid-19.

Banks had been work­ing with over-ex­tended dairy farm­ers and en­cour­ag­ing them to delever­age by tak­ing ad­van­tage of favourable com­mod­ity prices and his­tor­i­cally low in­ter­est rates to re­pay loan prin­ci­pal and re­duce their vul­ner­a­bil­ity to an­other dairy down­turn. There have been two dairy down­turns in the past 10 years and a num­ber of dairy farms re­mained highly vul­ner­a­ble, need­ing a high milk price just to stay op­er­a­tional, the re­port said.

Re­stric­tions on for­eign in­vest­ment con­tin­ued to ex­ac­er­bate illiq­uid­ity is­sues in the farm land mar­ket.

Banks’ lim­ited ap­petite for new dairy lend­ing re­flected con­cerns on com­pli­ance cost im­pacts on farm in­comes, such as stock ex­clu­sion from wa­ter­ways, the ni­tro­gen fer­tiliser cap and the in­tro­duc­tion of agricultur­e to the Emis­sions Trad­ing Scheme in the near fu­ture, said the re­port.

 ??  ?? Banks’ lend­ing to the hor­ti­clu­tire sec­tor, led by the ki­wifruit in­dus­try, is grow­ing 15 per cent a year.
Banks’ lend­ing to the hor­ti­clu­tire sec­tor, led by the ki­wifruit in­dus­try, is grow­ing 15 per cent a year.

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