Safe As Milk

Written By: - Date published: 1:44 pm, March 14th, 2016 - 110 comments
Categories: Andrew Little, economy, Economy, exports, farming, overseas investment, same old national - Tags: , , ,

Up to 10% of NZ dairy farmers could go broke in the next few months.  John Key is relaxed about that possibility, saying that the banks will show their usual generosity of spirit in hard times. No, really.

“What I’m getting more of is the sorts of reassurance noises from the banks that say in their view they can work through this issue”.

Further, we’ve got an absolute, airtight guarantee from the PM that the banks won’t foreclose on anyone.

“It’s not in their interest or the farmers’ interest to force everybody off the land. They are not going to do that.”

Well, I’m reassured! It’s not like the man is an inveterate liar, is it?

National’s Bill English has already written off those struggling farmers, saying that there won’t be a bailout. Fair enough too, goes the Tory logic. Bailouts are for the shareholding class, big banks and finance companies, not productive, hard working Kiwis. Perhaps Bill English reckons they should just go for a long last walk out to the back paddock and stop bothering successful urban based farmers like him?

Meanwhile, the adults are suggesting what is needed is an urgent summit of the players to work our way through this crisis collectively. James Shaw, Winston Peters and Andrew Little looked at the current situations and possible solutions on The Nation. It’s well worth watching.

Labour, in particular, wants Government, the banks, Fonterra and Federated Farmers in the same room to work out a solution. That would be a logical first step and actually not in the least bit inconsistent with the early days of the Key Government. It’s worth remembering that when National took over in 2008, the first thing they did was hold a series of regional workshops on the economy.

That roadshow was designed to show the new Government as active, involved, solution based. Nowadays … meh.

Third term arrogance, anyone?

It’s clear that the NACT Government didn’t see this crisis coming. Their reluctance to help is more embarrassment than orthodox neo-lib economic thinking. They certainly don’t mind tinkering when it suits them. But nowadays? It’s another sign of their entropy and decay as a government. They’re tired, short of ideas and hopefully sleepwalking to defeat in 2 years. If they last that long.

In contrast, Andrew Little wants the banks knocked into line, pronto. The likely next PM says the banks need to be “stiff-armed and told we’re not going to see, wholesale, farmers pushed off the land.”

It’s great to see some righteous anger from the Labour leader!

After all, the ten percent of farmers who are on the brink of bankruptcy now are likely to be smaller holdings, family farms for the most part. You know, the rural voters National used to be able to rely on before Key hatched his mad scheme to piss on the NZ flag.

This isn’t just great politics from Labour. While it will go down well in the provinces that at least one political party is in touch with their needs, it is a genuine crisis that needs swift attention. The dairy industry is a significant component of our economy and if we let the smaller players go to the wall, all that will be left will be corporate farmers. Again, just as in the Auckland housing market, our ‘open borders to foreign speculators’ policy is going to hamstring us for generations to come.

Laughably, John Key claims that one solution to the crisis in dairy is the TPPA. He couldn’t be more wrong if he was, well, lying. His other solution, irrigation, is equally wet.

The dairy industry isn’t going away. And it must pay its own way, including cleaning up the mess it makes. But if we want our farms owned by Kiwis, worked by Kiwis and run in the interest of Kiwis, then now is the time to act.

One thing is for sure, foreign dairy farm owners don’t give a fig about whether or not we can still swim in our rivers. It’s locally based dairy farmers who are finally getting behind the clean rivers accord. If we lose ten percent of our Kiwi dairy farmers, we lose an opportunity to move toward a genuinely 100% clean and green future.

For the sake of our economic and environmental future, we need a dairy industry that is actively supported and guided by our government. A dairy industry summit would be a sign of leadership, big picture thinking and commitment to the future.

But perhaps John Key looks at a dying dairy farm, wistfully smiles and just sees a potential golf course.

 

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110 comments on “Safe As Milk”

  1. richardrawshark 1

    This has been done oversea’s a friend of my mother lives in I think it’s Norway and raves about it. it saves a lot of money on staff running multiple agencies, paperwork time. It’s a win win and a bloody good idea. Now sell it.

    But you won’t you allowed the National party to turn labour into a dirty word while you all stood around holding hands singing Kumbaya.

    pa fkn thetic. The lot of you. While the country who oppose Nationals bullshit waited for you to blast national you did deals, did nothing and got nice parliamentary payrise.

    You lot are as much a joke as National is.

    • TC 1.1

      I believe little deserves some leeway but he has to purge out the abc mob and other troughers who dont pull their weight.

    • AmaKiwi 1.2

      During the Great Depression US farms were being foreclosed on like dominoes falling over. One of the farming states (I think Iowa) passed a law requiring the farmer and the bank to enter mediation before the bank could foreclose.

      Note: Compulsory mediation NOT arbitration. All the law required was for bank and farm owner to sit down and explore options. It was a brilliant success because neither party wanted foreclosure if there was any way to avoid it.

      Nats beware: This is not a good option if want your deep pocket rich mates to buy some NZ farms cheaply.

  2. saveNZ 2

    Great post.

    I am also informed that Farmsource the retail of Fonterra currently charge an eye watering 24% interest on overdue accounts and charge it monthly.

    Hmmm OCR rates are 2.25%

  3. saveNZ 3

    “But perhaps John Key looks at a dying dairy farm, wistfully smiles and just sees a potential golf course.”

    subsidised by the rate payers.

  4. keith ross 4

    TC you are so right. When I look at the smirk on the face of Goff or the other long time MPs I get really upset that they have lost all reason to be there . For them it is a great job that is a fantastic money spinner whichever side you are on . in or out of Govt doesn’t matter, they are still troughing. We need real people who still care and have fire in their bellies not sellouts with bunches of rental properties and other assets that they have acquired with their positions of privilege.

    • ianmac 4.1

      Keith. What on earth has your comment got to do with “Safe as Milk?”
      Do you agree that a summit with, banks, dairying, Fonterra, and politicians might be a good idea?

      • keith ross 4.1.1

        0pps, year sorry about that but I do agree wholeheartedly with this idea. This is how you solve problems – with the parties involved talking around the table (in good faith). Part of the comment that TC posted hit me in one of my pet peeves and I temporary lost sight of the problem at hand. I do think that this is one of the problems that has an overall effect on the way that our govt operates though. Perhaps not in this situation and thank you for pulling me in on the drifting off topic.

        • Nick Morris 4.1.1.1

          You also drifted off the real world Keith. What would you prefer? “Nice people” working for free?

          Guess the kind of people you will get if you did that.
          Perhaps it is time for you to stand for the gravy train yourself to balance those smirking elected officials.

          The big problem in the farmers’ crisis, in the end, is not just the bad luck and bad choices happening in the dairy sector, egged on by the one track plan brandished by the National government. It is the risk of fire sales of farms to foreign interest who can afford to land bank their purchases while they await better times.

          Thank God the TPPA hasn’t gone through yet or we may not even have been able to stop them. There is still a major chance that the banks will pressure the government to stand back and let it happen to ensure the banks get their profit, even at the expense of New Zealand’s national prospects. This is exactly why a summit, such as Andrew Little proposes is so important.

          Does anyone imagine that this government is philosophically inclined to try to prevent these sales?

          On a slightly different but related matter, I wonder how many dairy farmers now wish that they had got involved in organics a decade ago?

          • saveNZ 4.1.1.1.1

            +1 Nick Morris

          • keith ross 4.1.1.1.2

            sorry, would you prefer ruthless people working for massive 7 figure amounts? I feel that the lifetime politicians can sometimes lose sight of the real world and start to get a little bit entitled. While we all have the the ability to run for govt some of us prefer to just try and influence it from the outside by things such as education and activism. I could run but have other commitments, This does not mean that my comment on abuse of privilege is uncalled for or wrong. Saying that “Perhaps it is time for you to stand for the gravy train yourself” is not a fair or relevant criticism to what I had to say.
            On another note I agree with parts of the second half of your comment.

    • Tautuhi 4.2

      Professional bludgers.

  5. vto 5

    Didn’t the banks get bailed out when they were going to go bust just a few short years ago?

    Don’t banks return favours? Is it all take take take from them?

    frikkin’ banker wankers

    • alwyn 5.1

      Not in New Zealand they didn’t.
      Please name a single Bank in this country that has been bailed out in this century.
      Note that to be classed as bailed out requires that it needed money from the tax payer that was never repaid whilst the Bank kept operating with the then shareholders retaining their ownership position.
      SCF does not qualify. It was wound up remember.

      • vto 5.1.1

        Really alwyn, that is completely disingenuous. The banks were saved here and around the globe by various deposit guarantee schemes such as that in Australia and nz. These schemes were utilised in Australia and nz in that they stopped runs on the banks. Which saved the banks.

        How about the same now for the indebted whereby the state underwrites their obligations when called on? Like the banks got. What do you think the banks would do?

        it might take thinking to understand the reversed situation, but the obligations and the rights are the same… take your time ….

        • alwyn 5.1.1.1

          Australia did introduce deposit guarantee schemes. Once they had done so we had no choice but to follow. If we hadn’t there would have been a run on the NZ banks as it is pretty easy to transfer funds to an Australian bank. I would certainly have done so.

          However that doesn’t mean that there was anything wrong with the New Zealand banks. None of them was in any sort of trouble as they had, in general, avoided any real exposure to the things that were causing the trouble in the US.
          The New Zealand banks didn’t need saving from any problems except, as Roosevelt put it “We have nothing to fear but fear itself”.

          Are you seriously suggesting we should bail out idiots who have managed to get themselves into a situation where they must get about $8/kilogram to keep their business going? The, and the banks who financed them, can take their licks.
          Otherwise would we also bail out people like that fellow, property developer Terry Serepisos, who went broke in Wellington?

          • Nic the NZer 5.1.1.1.1

            So were any of the banks exposed to SCF in your clearly omniscient understanding? Does that (or other finance company) count as a bank BTW? They were largely deregulated of course but were accepting kinds of deposits and engaging in lending. If they aren’t banks it seems like splitting hairs to make a distinction.

            • alwyn 5.1.1.1.1.1

              “were any of the banks exposed to SCF” Probably but not to any great extent I wouldn’t have thought. Banks can also always handle some dud loans. There is a theory that says if you don’t have any bad deals you aren’t lending enough.

              “in your clearly omniscient understanding” That is certainly not what I am claiming. My knowledge is no more than yours I would say. It is what I have read in the papers and what I have heard from some, admittedly very smart friends.

              I am of the opinion that Hubbard simply got out of his depth and went into things he simply didn’t understand. I do wonder if his mind was slipping and he didn’t really know what he was doing. He was, after all, 80 when it all fell over. I also think that SCF should never have been admitted to the guarantee scheme.

              • Nic the NZer

                Seems you disagree with Bill English about how serious things were.
                http://www.odt.co.nz/news/business/125344/16-billion-bailout-scf-defended?page=0%2C1
                “While this cost to taxpayers is considerable, this expenditure did help prevent the potential collapse of the financial system,” Mr English said.

                • alwyn

                  I have commented on this topic before.
                  (1) The SCF group should never have been included in the scheme.
                  (2) Once they HAD been included they had to be covered by the scheme.

                  If they had not been paid out then all promises made by the New Zealand would have been treated as lies. At that time Australia was covering Australian based banks. If we had reneged on our guarantee for SCF it would have been interpreted that we would never have honoured our own promises about other banks and anyone who could have done so would have pulled all their funds out of New Zealand based banks and shifted them to Australian based alternatives,

                  That would have been a bank run, albeit unnecessary, but would have possibly crashed the financial system.
                  I don’t think that is in disagreement with what English said.

                  • Nic the NZer

                    Thats an awful complicated theory. It sure sounds to me like Bill English is saying bailout or potential collapse of finance system. You appear to be implying that the deposit guarantee put the system at risk and forced acceptance of some otherwise not needed bailouts. Good thing its been got rid of (you must further conclude) wouldn’t want any fuurther risk being imposed on the financial system by a deposit guarantee now would we.

                    • alwyn

                      Yes that was what Bill was saying.
                      It wasn’t the guarantee scheme that was the problem. It would have been a problem if, after guaranteeing a deposit acceptor (SCF), they had then reneged on the guarantee. That would have put every promise by the New Zealand Government in doubt.
                      Thus it would have left Australian banks covered but New Zealand banks probably, or at least apparently, not.

                      I’m quite happy with the absence of a guarantee scheme now. I don’t mind the present system.

                  • Nic the NZer

                    Doesnt your implied run to Australia require those depositors to exchange $NZ for $AU? In this case should we treat it as capital flight considering somebody must end up with the cast off $NZ in that transaction? At worst that would appear to have an exchange rate effect but the number of bank deposits stays the same (in both countries). Also considering any transactional cost of making that trade it would have to be quite a big risk imbalance before it made any financial sense.

                    • alwyn

                      No you don’t have to change the currency if you don’t want to.
                      I have Australian dollar accounts with a New Zealand based bank. They all offer them.
                      Years ago I had a New Zealand dollar account with an Australian based bank. I don’t happen to now but that is my choice, not because you can’t do it.
                      Australian dollar accounts in a New Zealand Bank make Investments in Australian shares much simpler and means you don’t have to change currencies to settle the deal.

                    • Nic the NZer

                      I am flabergasted that the RBA might guarantee amounts in $NZ frankly. There is no way they can know they will have enough coverage there. Will have to take your word that your money would be more secure on that basis.

                    • alwyn

                      Here is an example of a NAB account in a foreign currency.
                      http://www.nab.com.au/business/accounts/specialised-accounts/nab-foreign-currency-account
                      It is only an example to show you that they are there.
                      And at a New Zealand Bank
                      https://www.asb.co.nz/personal/international/foreign-currency-account
                      ASB is owned by CBA in Australia but it is a New Zealand bank.

                    • Nic the NZer

                      I didnt for a second suppose they didnt exist. However as i guessed foreign currency deposits are not covered by the Australian FCS. The underlying mechanism by which you suppose NZ banks are threatened by runs due to a deposit guarantee is a figure of your own immagination it would appear.

                    • alwyn

                      “figure of your own immagination it would appear”
                      Rubbish. If a lot of people all withdraw money from a bank and deposit it in another bank that is a run on the first bank.
                      It doesn’t matter where the money goes as long as it leaves the bank
                      Having foreign currency accounts in overseas banks simply makes it easy to get your money out and to transfer it into banks under a different supervisory regime. It also avoids exchange rate change risks for when you want to use the money.

                    • Nic the NZer

                      Yeah but you were saying something about a deposit guarantee making it more insured in an Australian bank (in $NZ). Good luck with that its not insured at all by the FCS. Anybody who shifts their money to OZ in order to take advantage of their bank guarantee is fooling themselves until they pay the exchange rate costs.

                    • Nic the NZer

                      Both myself and vto appear to be calling BS on what your saying Alwyn. I guess the open question (aligned to your thinking about bank guarantees) is does that apply more generally to every other comment you have written? There is certainly no guarantee that the other comments are not BS going on.

                    • Colonial Viper

                      Rubbish. If a lot of people all withdraw money from a bank and deposit it in another bank that is a run on the first bank.

                      In NZ that won’t cause any problems. The banking system will still be fully liquid and will still contain the same amount of money.

                    • alwyn

                      @Nic the NZer

                      “Good luck with that its not insured at all by the FCS”. At the time it was. If deposited in an Australian Bank the Forex account was covered by the scheme. If NZ hadn’t itself brought in the very similar regime it would not have been insured in New Zealand.
                      The original scheme, and the New Zealand one, were brought in in 2008. Coverage of Foreign Currency accounts was dropped, but not until 2011.
                      As NAB said. “Effective 12 October 2011 Foreign currency deposits are no longer covered”.

                      ” until they pay the exchange rate costs.”
                      There wouldn’t be any exchange rate costs if you had kept the account in New Zealand dollars which, at the time you could and still be insured.

                      Even Michael Cullen agrees with me about New Zealand being forced into it.
                      http://www.interest.co.nz/news/58818/former-finance-minister-michael-cullen-says-ex-aussie-pm-kevin-rudd-blame-nzs-broad-crown
                      Please note that all through this discussion I have been talking about the situation was back in 2008. That has nothing to do with what the situation is today.

          • vto 5.1.1.1.2

            alwyn, excuse my language but your response is total bullshit.

            You first say that there would have been a run on NZ and Australian banks if there had been no state underwrite, including that you would have bailed as well if the underwrite had not come into being. Then you somehow say that there was nothing wrong and nothing to be saved from.

            There was a problem, you say. There was no problem, you say. LOL

            I have never seen such hoary blatant bare-faced bullshit

            Bullshit alwyn, complete bullshit.

            bullshit
            bullshit
            bullshit
            bullshit
            bullshit
            bullshit
            bullshit

            • alwyn 5.1.1.1.2.1

              If you are going to jump up and down, swearing about and carrying on in a way that would have my mother washing your mouth out can you do it about something I said, not something you made up?
              You claim I said
              “there would have been a run on NZ and Australian banks”.
              I said nothing of the kind. Why not read what I do say before abusing me?
              I said
              “Australia did introduce deposit guarantee schemes. Once they had done so we had no choice but to follow. If we hadn’t there would have been a run on the NZ banks”.
              That isn’t the same thing at all. There is no claim at all that there would have been a run on the Australian banks is there?
              What it says in simple words as two syllables seems to be your limit is.
              (1) Australia brought in a guarantee for banks in Australia. They would not have covered the NZ subsidiaries.
              (2) If we didn’t have a guarantee the Australian banks would have been safer, even if only 0% (in Australia) instead of 0.00000000001% (in NZ) as the risk of loss.
              (3) If we didn’t bring in a guarantee some customers, generally the large ones, would have transferred from a New Zealand based ANZ (say) branch to an Australian ANZ branch.
              (4) That is a run on the bank. Anticipating this I would have moved my money too.
              (5) There was nothing wrong with the New Zealand banks.
              (6) There was nothing wrong with the Australian banks.
              Does that clarify it? If you had read what I wrote correctly in the first place would you have needed to utter such Bull shit?
              Next time try and read what is said. Don’t make up fantasies.
              You are a dick.

              • vto

                no alwyn, incorrect. Your words do not match their meaning.

                Let me adjust it to cater for your ‘clarification’

                “You first say that there would have been a run on NZ banks if there had been no state underwrite, including that you would have bailed as well if the underwrite had not come into being. Then you somehow say that there was nothing wrong and nothing to be saved from.

                There was a problem, you say. There was no problem, you say. LOL”
                (the naughty swear words have been deleted for you)

                And back to the original point that was made, amended slightly to cater for your ‘clarification’….

                The banks in NZ were saved by provision of a state underwrite just 8 years ago

                Don’t banks return favours? Is it all just take take take by them?

                frikkin’ banker wankers
                (that naughty swear word has to stay sorry dick)

                • alwyn

                  I give up.
                  It is completely impossible to debate with someone who is as thick and bigoted as you are.
                  There would have been a PERCEPTION that New Zealand based weren’t safe and that Australian ones were. Reality has nothing to do with it. Perception was all that mattered.

                  • vto

                    perception is what our banking system is all about ffs

                    banks are fundamentally insolvent. Yet everybody perceives them as the most solvent of the lot!

                    and if it wasn’t for the state underwrites then banks would have suffered runs and almost certainly failed – like they did all over the world at that time

                    Banks should return the favour

                    I suggest it is you who is deficient in learnings…

      • dv 5.1.2

        BNZ

        Oops just seen the restriction of this century.

        • alwyn 5.1.2.1

          BNZ? yep. I remember them. I thought it quite fair to limit it to this century because vto had said ” just a few short years ago” and I don’t think 25 qualifies.

          The main trouble with the BNZ, was that it had been a state owned bank, staffed by people who were used to dealing with small customers. Rather like the POSB used to be.
          They, and their managers, got the idea that they were big time wheeler dealers and got into things they knew nothing about. They were widely known, in the late 1980s as a bank that would lend to anyone for anything, regardless of the merits of the loan.

          They were finally taken over by NAB and haven’t looked back.
          There was, of course little or no bank supervision of New Zealand banks by the RB at the time. That might have prevented the problem.

      • Tautuhi 5.1.3

        BNZ and Fay Richwhite.

        • alwyn 5.1.3.1

          See my response to dv, just above.
          I think it fair to quote Star Wars about that time in New Zealand. It was
          “A long time ago in a galaxy far, far away….”

      • Tautuhi 5.1.4

        The lending to the Dairy Sector has nothing to do with Labour or National unless the parties were actively encouraging the Banks to lend, with astonomical world dairy prices everyone has increased production, also Russia has been shut out of the world market and is not buying.

        We have always specialised in commodities which aint smart, however we do not have the expertise and business skills and acumen here in NZ to develop sophisticated products for the world markets.

        New Zealanders are basically cow sodddies producing bulk milk powder for the Chinese manufacturing market?

  6. Magisterium 6

    Another day, Labour declares another crisis.

    • Stuart Munro 6.1

      And of course dairy is in great shape. Not.

      Not just Labour, NZF and the Greens as well. It takes a crisis to unite those three.

      Gnats asleep at the wheel as usual – or drunk.

  7. Colonial Viper 7

    How much did dairy debt go up under Labour? $15B? $20B?

    Both Labour and National should meet and take responsibility for sorting out the mess now the bubble has popped.

    • It’s got nothing to do with Labour in that sense, CV. The early 2000’s were a time of enormous expansion in dairy, so obviously debt went up. It’s not like farmers had a few million tucked away under the bed to do the milking shed upgrades and buy the extra land and animals. Those that chose to chase the white gold had no alternative but to borrow, so of course debt went up.

      Also, a lot of that debt from the initial years of expansion has been retired during the boom run. Farmers who have borrowed in this current decade are the ones most likely to be in trouble.

      In the long term, the dairy industry will remain profitable. The question is whether or not traditional farming families, with relatively small acreage, have a future on the farm. If they go under in the short term, then the long term will belong to industrial farmers and overseas speculators.

      • vto 7.1.1

        “In the long term, the dairy industry will remain profitable”

        Not sure why that would be assumed… it would surely be more logical to expect dairy to turn away from its recent anomalies in supply and demand towards something more in line with typical agricultural returns worldwide i.e. supplied at cost, if you’re lucky…

        we would be lumping foolishness on top of silliness to expect anything other than typical historical farming returns – which are less than money in the bank (so to speak). It was these kinds of assumptions trp, that have led exactly to the current quandary i.e. all and sundry assumed certain milk prices and profitability, eh…

        • te reo putake 7.1.1.1

          As I understand it, it’s a fundamentally sound business and overall, demand is increasing. But then so is supply, hence the current price slump. However, the problem is definitely the lack of added value. Just sending the basic product leaves us at the mercy of the markets. The same problem that has hit coal and forestry, actually. If there was a summit, then looking at alternative ways of making dairy more profitable would have to be on the table. Allowing the industry to remain as a bulk supplier doesn’t seem sensible to me.

        • AmaKiwi 7.1.1.2

          “In the long term, the dairy industry will remain profitable”

          Yes, but in which countries? Not necessarily NZ.

          Signed,

          A former dairy farmer who has seen dairying completely wiped out in the region where his family successfully farmed only 30 years ago.

          • vto 7.1.1.2.1

            Amakiwi, I was quoting mr putake above me. I don’t agree that the dairy industry will again be as profitable as it has recently been – imo it will sink back to long term farming averages, and global averages at that….. which aint pretty

            fwiw various of own family been milking cows for 4 generations in these lands – been mostly very hard yards

      • weka 7.1.2

        Except industrial dairying is inherently unsustainable and currently being hugely subsidised by everyone else. I can’t see that continuing indefinitely. Plus, climate change and moving into a post-carbon world will make it uneconomic. You can’t manufacture a commodity like milk powder for export without shit loads of fossil fuels.

      • Colonial Viper 7.1.3

        Also, a lot of that debt from the initial years of expansion has been retired during the boom run. Farmers who have borrowed in this current decade are the ones most likely to be in trouble.

        Nice spin, but the chart I posted yesterday shows dairy debt skyrocketing under Labour, rising far faster and further than under National.

        Individual loans may have been paid off under Labour, but overall dairy industry debt levels went up and up.

        Labour encouraged this and let it continue for years.

  8. alwyn 8

    Ah, a bail out by the Government. I suppose that to keep the people who paid far to much for their land on their properties we are going to have the taxpayer cough up money to support a price for milk that is far above anything that the milk can be sold for.
    Then the taxpayer will take ownership and store the stuff until it rots.
    Remember the European butter mountain? Remember Rob Muldoon and his supplementary minimum price scheme for meat? All those carcases stored in freezers until finally they were burnt.
    Can Little really be this stupid?

    • Did you see the bit I wrote about it being clever politics, aimed at rural Tory voters already pissed off about the attack on the flag?

      • alwyn 8.1.1

        Yes I did see it. I confess that I can’t come to any conclusion about whether it will be good or bad politics. I think it is dreadful economics but that is an entirely different matter.
        Farmers seemed reasonably happy when the Lange Government cut them loose from all the subsidy schemes. It is of course different people on the farms now. God it does seem a long time ago.
        Honestly I don’t know enough to have a sensible opinion on its political appeal. That of course is one of the reasons I wouldn’t make a very good politician.

  9. mosa 9

    Well when farmers have an actual crisis to contend with the party the are always hell bent on supporting election after election couldnt give a shit
    Labour at least are trying to assist farmers with some engagement with them and trying to find a soloution
    The lack of support from Key and co is another case of arrogance on their part
    Because they know the rural vote only goes to them So what if a dozen or so farms go to the wall Key and co know they always get the rural vote anyway
    If farmers could just change their mindset they might find their support is not taken for granted and when its time for that support be returned there are other alternatives out there ready to respond in kind
    This is a prime opportunity for Little and Peters to build some bridges and provide a real alternative if farmers will just hear them out

  10. keith ross 10

    I think that while you can say with debt that they did it to, in this situation, there is room for some debt but there must be a ceiling and it is when this is breached that the problems really kick in. Not all debt is created equal. Most industry can carry a certain level of debt and the govt spouting “rivers of white gold ” must of encouraged some to overextend their farms/businesses. They have an obligation to get the players round the table to talk about solutions that don’t end in 10% more farms being sold offshore.

  11. Sacha 11

    “Up to 10% of NZ dairy farmers could go broke in the next few months.”

    That’s the PM’s convenient understatement. More like double that, and almost half of the industry with impaired loans in official modelling.

  12. Jenny Kirk 12

    I listened to a dairy farmer at the Northland Field Days tell Andrew Little that when the dairy crunch came, their land value dropped, and the bank hiked UP the interest rate – which for this particular farmer was the killer. He couldn’t pay the extra interest, and the bank now has his farm on mortgagee sale.
    The bankers are certainly NOT helping the farmers if this is what is happening.

    • saveNZ 12.1

      @Jenny +1
      Yes the banks loaned too much money and then are grabbing it back. Fonterra farm source charge 24% on overdue accounts. A lot of farmers were sold very bad investment products by banks a few years ago which lost their savings. In addition some farmers are not financially literate and don’t have a high level of education and so fall prey to banks selling them bad products and giving them bad advice. For example the commerce commission investigated this practice and reached a settlement with 3 banks, Westpac, ASB and ANZ.

      “The Commission has reached a $2.97 million settlement with Westpac in relation to the marketing, promotion and sale of interest rate swaps to rural customers between 2005 and 2012.

      On 3 December, 2014 we (commerce commission) reached a settlement with ANZ. The Financial Markets Authority (FMA) also reached a settlement with ANZ on 3 December 2014. On 23 December 2014, we reached a settlement with ASB. On 30 January 2015 we reached a settlement with Westpac conditional on Westpac also reaching a settlement with the FMA. Westpac reached a settlement with the FMA on 16 February 2015. “Source http://www.comcom.govt.nz/fair-trading/interest-rate-swaps-2/irs-westpac-settlement/

    • weka 12.2

      “and the bank hiked UP the interest rate”

      What I don’t understand is why some people, including farmers, are surprised by that.

  13. Keith 13

    Key is waiting on Farrar to focus group, given National are utterly reliant on them but may be of little use. I assume his relaxed stance is supported by polling.

  14. James 14

    What little sympathy I had left for New Zealand dairy/cattle farmers disappeared with the recent attacks against SAFE.

  15. greywarshark 15

    Were those diamonds on the sole of his shoes? Dah dah, Poor little rich boy.

  16. cowboy 16

    This is the perfect storm for National.

    Do nothing and watch and listen while hardship in their heartland support areas plays out daily in the media, making them appear heartless and out of touch.

    Or conjure up a support package and get ravaged by another sector of the community who will decry any perceived bailout as pandering to” greedy” dairy farmers.

    However they walk that tightrope the bigger political issue is who buys the foreclosed farms? If foreign buyers are allowed to fill the void to prop up land values for the banks the backlash will be enormous.

    This will all be playing out around election time. I genuinely believe that this is the issue that will topple the govt.

    • weka 16.1

      That makes sense. Plus a shift in the MSM once there are too many things to ignore.

  17. The Gormless Fool formerly known as Oleolebiscuitbarrell 17

    We could appoint Gerry Brownlee the dairy Czar. He could make all of the decisions about what should be done on each individual farm. Then, we can keep making milk powder no-one wants to buy and everything will be fine.

    • Stuart Munro 17.1

      Gerry is too lazy.

      But he certainly drives the neo-liberal agenda of making people hate government.

  18. Jo 18

    After all, the ten percent of farmers who are on the brink of bankruptcy now are likely to be smaller holdings, family farms for the most part

    As a current farmer and a past dairy farmer (we sold 6 years ago) you are completely incorrect that the smaller family farms are at most risk of been sold up.

    The farmers who are at risk on defaulting on their loans fall into the following broad categories:

    1. New conversions (ie in the last 5 years), it is not just the cost of conversion ($1m+ for a 50 bail rotary) but the cost of cows ($2,500 down to $1,200), shares, capital fertiliser etc. It takes approx 5 years for a conversion to get up to full production and there is constant ongoing capital expenditure on shares, fertiliser, cows etc. during that period.

    2. Farms with very high stocking rates, which rely on brought in feed. A lot of these farms cut back last season, but few would have realised the enormity of the ongoing problem and are now cutting herd numbers by 25% – 30% and moving back to a grass based system.

    3. Farmers who purchased more land, be it to milk on or as run off, these purchases were typically funded through borrowing. These are starting to go back on the market.

    4. Farmers who brought non performing assets instead of paying down debt. Holiday houses, boats etc. The banks are certainly telling farmers that they must sell these assets.

    I look around our farming community and it is the small guys who are in the best shape, most have been in farming a long time and don’t carry the high debt levels. They are also the ones who can adapt the quickest.

    Debt is the key to survival and it is the big units which carry the most, they also tend to be the farms who employ a lot of staff and have high inputs and struggle to bring their costs down sufficiently.

    It would also be prudent to note that in our area we have a high proportion of Open Country cheese suppliers and they are hurting far more than the Fonterra suppliers.

    What do I think Banks will do, bugger all (just like in the past). They can’t risk a huge number of forced sales and the ones we are seeing in our area are the ones you would expect, everyone knew they were over-extended. Are people doing it tough; yes, are the next few years going to be tough; yes…..it’s called farming.

    • Stuart Munro 18.1

      Just so long as the banks take their haircut along with the farmers.

      • Jo 18.1.1

        And that is what they will do, they know they have to sit it out, just like their clients. Little, Peters and Shaw need to go back and look at what happened in the past. Did the banks sell up huge numbers of sheep farmers, when Farmers were better off shooting old Ewes than sending them to the works (yes it did get that bad)….no.

        It is a simple equation: flood the market with farms and the price drops, farmers who still had equity have none, so do they sell them as well? Bankers can count and they know what happens when they get into that situation.

        the Banks will sell farms which can not service the debt, they will do everything they possibly can to keep land values from slumping and it is one of the reasons there has not been wholesale revaluing going on (to determine if there is negative equity).

        However if the Govt starts to talk about a bailout the Banks will be revaluing across the board to fix their loan books.

    • Thanks, Jo, good knowledge! I’m still confident that the trigger points you have laid out also apply to family farms. Whatever the overall percentage affected, losing any farm is avoidable if enough pressure around the issue is built. Which is kinda the point of the post. Why wouldn’t this government even explore the options to help the dairy sector? Don’t they like farmers anymore?

      • Jo 18.2.1

        Maybe the difference is this Govt understands business, farming and banks. Look at the MPs, how many come from these backgrounds compared to Labour, Greens and NZ First. They have been there, they live in these communities, they can see their families and friends hurting. But, they also know that a bailout (even though it would fix short term pain) is not the answer for the future.

        Farming is a boom and bust industry and those that normally go bust are the ones who are last in to the next best thing! Pull out Apple trees and plant kiwifruit….oversupply pull out the vines. The industry has to self correct or you have long term subsidies and that is the last thing this country needs.

        As a farmer I find the most frustrating thing is the big corporate farmers (including Landcorp) who pile into the industry when everything looks rosy. If there is a time to exit anything in farming it is when Queen street farmers are investing, the oversupply and bust is not far off. Currently they are piling into Kiwifruit and Manuka Honey if you are looking for an investment!

        Family farmers will do anything to hold onto their farms, here is a case study.

        Taranaki Farmers in their late 50’s. When they payout was up, they were milking 600 cows, all replacements were sent off to graze, supplements including PKE brought in and there was 2 labour units employed. Last season they dropped to 450 cows, 1 labour unit, replacements off farm, bull calves reared and retained,minimal supplements brought in. Next year they will milk 300 cows, all replacements on farm, bull calves reared and retained and no extra labour units. They will be 50:50 dairy/beef and they will survive, that is what a family farm business can do.

        • kendoll 18.2.1.1

          Bill English went to school in wellington, then to victoria uni, then to treasury with a degree in literature, hardly a southland farmer background, gerry brownlee is a failed family business worker then unqualified woodwork teacher, key is a currency trader, all good people who understand economics? I dont think so.

          • Jo 18.2.1.1.1

            Well your description of Bill English sounds like a man who understands economics! I don’t know anything about Gerry, I have noticed however teachers look down their noses at him because he taught woodwork, but as an x-economics teacher I understand that is a pretty common view of trades teachers (I would also note that in my experience they along with PE teachers often had the most positive influence on struggling boys in secondary schools). Your comment about Key is the usual response.

            What about the rest of the National MPs, I am sure even you could identify one or two farmers and business people.

            Can you list the MPs from the opposition who come from business or farming backgrounds? Consultants don’t count, they have no skin in the game!

    • pat 18.3

      Pretty much agree with your summary Jo….until…”What do I think Banks will do, bugger all (just like in the past). They can’t risk a huge number of forced sales and the ones we are seeing in our area are the ones you would expect, everyone knew they were over-extended. Are people doing it tough; yes, are the next few years going to be tough; yes…..it’s called farming.”

      The Banks have already moved and as time passes will more further, it will as usual be done quietly without signage and publication of “mortgagee sales’ but they are in effect exactly that….. the land values will be the evidence….and another nail in the coffin of the viability of some operations.

      It is called farming….and its also called boom and bust

      • Jo 18.3.1

        If the banks were selling up all the dairy farmers who were making a loss this year I would know about it, because we would be at the auctions bidding because they would be really cheap!
        Nothing is done on the quiet in a rural community. I took some city friends for a drive once around the district and they couldn’t believe what I knew about everyone, who had slept with who, who was a useless farmer but they were OK because their Dad was good……there are no secrets.
        I know who is in trouble and their banks are still working with them, often the farmer decides they have had enough and they would be better working in town, but then, so would we all!

        • pat 18.3.1.1

          you are right there are no secrets (for long ) in a rural community….and it is because of that fact i can state with certainty the banks have been moving…the quietly is not for the benefit of those on the ground but for the wider community, including potential investors….and the banks themselves

          • Jo 18.3.1.1.1

            Show me the evidence of wholesale farm sales? The only ones in our area were the obvious ones and run offs etc.
            As I said above we live in Open Country Cheese country and they are under the most stress and none of them are on the market and now is the only time to sell dairy farms.
            And don’t try to tell me they are selling them without anyone knowing, because we are all watching!

            • te reo putake 18.3.1.1.1.1

              Do you agree with the PM that up to 10% of dairy farmers will go to the wall? If so, doesn’t that mean that those sales will rocket in the near future?

              • Jo

                No. They will be brought by farmers who have a lower debt ratio and therefore will be more successful. Farmers like all businesses go bust and are sold every year, and when there is a downturn sales increase. I just don’t agree that the banks are going to wholesale sell farmers up, because then they risk the equity in the farmers who are still able to pay their mortgage….. it just does not make commercial sense.

                That is the nature of business and the risk of being in business, just because it is a farm doesn’t mean that the Govt has to step in.

                I think you will see more closures of farming related industries than actual farms, the number of feed merchants going under would be a reflection of that. The banks have been very quick to stop their credit, they are certainly not risking any more money to businesses who don’t have an asset.

                I am not sure you understand the relationship between banks and farmers. Banks are nervous and they are being really tough, but they understand how much they have invested and it is not in their interest to wholesale sell up. They also understand how hard farmers will work to stay and how cyclical farming is.

                Be under no illusion they are a business and if they think the Govt is going to bail farmers out they will be in there boots and all and if selling more farmers up will make the Govt act I am sure they would be up to that as well, it is in their interests! A bail out of the Dairy industry is an indirect bailout of the banks as well as sends a message to Dairy farmers to keep doing what you are doing regardless of the economic reality.

                I hear there are a couple of local family owned dairies are struggling, is Labour coming to their aid as well.

                Dairy is an oversupply problem and the quicker supply falls, the faster the industry will recover. It has often been noted the saviour of the sheep industry was the growth in dairy farms!

            • pat 18.3.1.1.1.2

              “Show me the evidence of wholesale farm sales?”

              when did I say there are currently wholesale farm sales, although 5% of the stock is a reasonable chunk…I said the banks are moving already and the result will be shown in the land value.

              “And that is what they will do, they know they have to sit it out, just like their clients. Little, Peters and Shaw need to go back and look at what happened in the past. Did the banks sell up huge numbers of sheep farmers, when Farmers were better off shooting old Ewes than sending them to the works (yes it did get that bad)….no.”

              Yes……”Figure 2 plots the unsmoothed per hectare rural sale price. One of the most striking features of the series is the sharp decline that occurred during the latter half of the1980s. New Zealand began a period of major economic reforms in 1984. These included the removal of
              14
              agricultural subsidies, which is the likely driver of the sharp decline in rural land price s beginning in 1984. By 1988, the per hectare sale price was around 50% of its value in 1983. Land values did not return to their pre-reform levels until 2003. In the mid-late 2000s we see large increases in the per hectare sale price, which forms part of the general property boom which occurred worldwide in the 2000s. The sale price fell from a peak of$12,500 per hectare in 2008,following the onset of the global financial crisis, and was slightly more than $10,000 per hectare at the end of our sample period.

              http://www.nzae.org.nz/wp-content/uploads/2015/01/2014-06-19_Allan_and_Kerr_land_values_NZAE_version.pdf

              • Jo

                Land values may go down, that does not mean an increase in sales. Historically the number of sales falls during a slump in prices, people only sell if they have to.
                There has not been an increase in the number of listings, especially compared to a couple of years ago when the payout was at record levels, older farmers were selling up and getting out while times were good. The purchasers of those properties will now be some of the most stressed.

                • pat

                  there is an approx 20% increase in listings from same period last year and the banks manage their exits for the obvious reasons…and listings don’t include share milkers exits…your perception of the industry as a long established Waikato family dairy farm ignores where the growth has occurred in the industry in the past 15 years …and where the axe is falling.

                  • Jo

                    20% increase is hardly a wholesale sell up, I would be surprised if there are more than during the boom! How many of those farms were purchased in the last 5 years or are new conversions? When I look through the listings I see a large number of recent conversions, often large scale or farms which are in marginal dairy regions. They reflect people who have brought in the boom and who have high debt. I also see a number who are owned by syndicates.

        • kendoll 18.3.1.2

          Farm working expenses in NZ average is $4.30 for dairy, fonterra payout $3.90, we have a problem. This means most dairy units are losing money everyday they are farming.
          FWE does not include mortgage or interest payments, so highly geared dairy farmers are collateral damage.The boom has bust.No sympathy.

          • kendoll 18.3.1.2.1

            Farm working expenses in NZ average is $4.30 for dairy, fonterra payout $3.90, we have a problem. This means most dairy units are losing money everyday they are farming.
            FWE does not include mortgage or interest payments, so highly geared dairy farmers are collateral damage.The boom has bust.No sympathy…

          • Jo 18.3.1.2.2

            Fonterra also pay out 40-45c per share on top.

          • pat 18.3.1.2.3

            and unfortunately Jo’s case study is anything but typical of many dairy farms, particularly in the South island with an average herd size in excess of 800, and fixed costs and structure that are incapable of a rationalization of the type described……and assumes the current beef price boom will continue when history would suggest it is unlikely, particularly if a reduced dairy return pushes up supply of beef, both from culls and raised bobbies.

            • Jo 18.3.1.2.3.1

              No but if you go to my earlier post these are the farms who I identified as the farms which will be under stress.

              Look at the history of farming, those that are caught in the bust are normally the last to arrive! Including all the massive corporate farms down there, owned by people who would have no idea of how to put a set of cups!

              Beef prices are good, but hardly at boom levels, more a reflection of our lower dollar than a massive increase in prices. Plus the beef price has already weathered the largest cull cow kill to date.

              Do you farm?

              • pat

                “No but if you go to my earlier post these are the farms who I identified as the farms which will be under stress”

                …..and that is a very big chunk of the industry which is the point

                ‘ok at the history of farming, those that are caught in the bust are normally the last to arrive! Including all the massive corporate farms down there, owned by people who would have no idea of how to put a set of cups!”

                it is true many would have no idea how to put up a set of cups (or have no desire to)….many only converted to dairy under pressure from their banks because of the poor returns from sheep/beef/deer after the on farm inflation caused by the dairy boom…and we are talking high country farms as well.

                Do you farm?

                no…im a contractor in the rural sector and have been for nigh on 20 years and was greeted with the tales of good farmers pushed off their land in the eighties….by the banks…and I know the difference between the putting away of the cheque book when things get tight and a collapse.

                • Jo

                  The difference between the eighties and now are interest rates. We started farming in the eighties and paid 24% on our mortgage and 28% on seasonal finance, it is now 5.5% and 9%. A totally different scenario.

                  So a $2m mortgage costs $110,00 today, compared to $480,000 in the eighties. That is why people couldn’t survive, no matter how good they were.

                  • pat

                    it is still incomings v outgoings irrespective of interest rates and you could even argue that the high interest rates at least had the potential to fall if you could hold on, whereas now there is no room to move downwards….and our low input model has been compromised, and we have hugely increased compliance costs and rates…..all on the back of a boom because the “industry” could afford to pay….well now they can’t

  19. Ad 19

    One could argue that this is precisely the correction that the dairy industry needs.

    The country now has a sufficiently diverse economy to weather a spectacular downturn in a major commodity. Also, the medium term price signals will be enough to completely change Fonterra’s strategic direction.
    Both good things.

    And there will be fewer bulk supplying dairy farmers.
    Also a good thing.

    In terms of the New Zealand economy correcting itself, one could also argue that the government intervening right now would (a) achieve nothing, and (b) spend a whole bunch of political capital for no reward.

    My advice to Little if he were PM would be:
    sit this one out, and develop your instruments to shunt Fonterra in the right direction well behind the scenes.

    • Stuart Munro 19.1

      An economic theory like neo-liberalism that is not falsified by market failures like the dairy failure, fails on Popperian grounds. It’s a cult – not a rational system.

    • Jo 19.2

      As a farmer I agree totally, but I don’t think Little will take your advice, which shows he doesn’t understand farming and he doesn’t have anyone one advising him who understands either.

      He looks like a farm dog chasing cars!

    • Colonial Viper 19.3

      One could argue that this is precisely the correction that the dairy industry needs.

      Economists talk using sanitised language like “market correction”, etc.

      Underneath that are the suicides, broken marriages, domestic violence, smashed dreams and smashed people.

      If Government won’t help the people what the fuck use is it to keep around.

      • Captain Apathy 19.3.1

        “Underneath that are the suicides, broken marriages, domestic violence, smashed dreams and smashed people.”

        Drama queen much?

        [Lay off the insults and educate yourself. Start by looking up the farm suicide stats. TRP]

  20. RedBaronCV 20

    Well if the state steps in the worst thing to do is buy miklpowder and create a mountain – but taking over water permits, some share and leaseback arrangement around the land might serve the country better in the long run

  21. Cricklewood 21

    They need to let them fold as harsh as it sounds. Im sure the farms in the most trouble are recent conversions of marginal land only viable at a much higher than avg price due requiring high inputs ie water, supplemental feed and fertilizers. It will be better in the long term for everyone if the land is retired from dairy.

    • Stuart Munro 21.1

      One appropriate form of government action would be to buy them into Landcorp to keep them out of foreign hands. But if you take the organic thread seriously, the govt could help existing marginal dairy farmers transition to organic – great savings involved in using the folk already on the spot instead of having to find new ones. Demand for organic produce continues to strengthen.

      Saves the farmers and their communities.

    • kendoll 21.2

      100% then turned back to native forest with manuka to start high quality honey and oil production.

    • Colonial Viper 21.3

      Landcorp should buy the land back for the Crown at 50c on the dollar.

  22. Brutus Iscariot 22

    Jo is the only one in this thread who has a clue.

    How do you think Labour’s Auckland vote goes when they tell everyone they’re dipping into their wallets to bail out a few greedy farmers who got in strife?

    Commodities have been moving in cycles since time immemorial. The late and the leveraged get their butts handed to them, and the prudent pick up the pieces.

    Focus your energies on real change for people with real needs, like the UBI.

    • Reddelusion 22.1

      Some sense at last, what do all these things have in common, Kiwi fruit, Ostrich farming, Deer farming, dairy farming, it’s all a cycle, For god sake NZ had 89 million sheep pre 80s, has the world ended for farmers now we have 35m, good farmers will adjust, stupid farmers will move on, if you loaned on the basis of 8 dollars a kg or average 7 plus well that’s tough,

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