Managing debt a constant battle
It’s been raining a lot and, until last week, farms were saturated which has made management difficult and labour intensive.
Calving is always stressful but extra long hours and weather worries are compounded right now by the knowledge that, given the current payout, most of us will lose money again this year.
In fact, some dairy farmers are running into frighteningly high levels of debt with little light at the end of the global tunnel.
As banks devalue cows and land, debt to equity ratios rise.
This has triggered increases in interest rates for some farmers– not because they’ve defaulted on their mortgage repayments but because, theoretically, they are now a higher risk.
And naturally with a hike in interest rates, they will have higher debt servicing costs and, indeed, become an even higher risk.
It may be just the thing that tips some farmers from ‘finding it difficult’ to ‘finding it impossible,’ especially when they’ve cut all but essential costs out of their system already.
Farmers have responded to the downturn by slashing spending and making tough calls, though getting ‘rid of the flab’ is no bad thing for any business.
But some farmers have had to go much further.
They’ve cut to the bone by jettisoning things such as herd testing, artificial breeding, stock replacements and fertiliser. They’ve laid off workers and even flagged away their Federated Farmers memberships.
These short-term measures, designed to give breathing space, are unsustainable in the longer term. And still there is little sign of the sustained lift in world dairy prices needed to make the average dairy farm turn a profit.
Some farmers I talk to are increasingly worried they are becoming an impediment to their bank’s balance sheet and fear, in turn, they could be jettisoned.
There’s been plenty of brave rhetoric from commentators about the resilience of farmers and the cyclic nature of farming but down in the milking pit and in provincial service towns, it’s starting to wear thin.
We don’t want to hear the word ‘resilient’ one more time, especially going into September and October as winter debt repayments fall due. These will be the crunch months.
For the past year Federated Farmers has been surveying members every three months to monitor farmers’ relationships with their banks. So far it must be said that farmers’ satisfaction overall has held up well but there is growing pressure being felt, especially by sharemilkers.
Those of us in the rural community need to keep an eye on our neighbours. If someone you know needs help, the Rural Support Trust (0800 787 254) can provide on-farm advice - financial, farming and medical. It only takes their agreement and a phone call.
- Wendy Clark is the immediate past president of Auckland Federated Farmers
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