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Who is ultimately responsible for NZ’s massive dairy farm debt?

Written By: - Date published: 1:11 pm, March 12th, 2016 - 82 comments
Categories: business, capitalism, debt / deficit, Economy, exports, farming, Financial markets, treasury - Tags:

The simple answer is – the banks are.

Both as fiduciaries of their farming clients, and as prudent lenders exercising financial responsibility on behalf of their shareholders.

Of course, that’s in some kind of dream world, where the banks do not engage in the massively profiteering behaviour that we have actually seen from them in practice. As usual in any market downturn, the banks have arranged matters so that they have got minimal net risk on the table while farmers up and down the country have everything to lose for themselves and their families. (However I have little sympathy for those big dairy corporates who are also finding themselves overleveraged).

Also let’s be clear that both National and Labour Governments have been utterly complicit in using the dairy debt bubble – while it was happily expanding – both governments using it to shore up the economy for their own political and re-election purposes. Increasing debt was used to inject (borrowed) money into the economy as a nice sugary spike.

fsr-nov-12-fig-b1

Let me illustrate this point using a graphic from an interest.co.nz article dated Nov 7, 2012. During the last 5 years of the Helen Clark Government, dairy debt increased by approximately $15B.

This represented a more than doubling of dairy debt.

In the last five years of the National Government dairy debt has gone up by “just” $7.9B. As a proportion, dairy debt has increased very modestly under National especially when compared to Labour’s record.

The fact that the over-inflated dairy bubble is popping under National’s watch doesn’t make them to blame for the bubble in the first place. Like every financial bubble from tulips to Goldcorp to Lycos, it was going to pop some time.

But National are culpable for not taking direct and decisive action to curb lending in the dairy sector as it became clearer and clearer over the last 3-4 years that the ‘end was nigh’. This is just one example of how National are no longer serving the true interests of one of their core constituencies.

But even then it would have been too late to do anything but avoid the worst of what is about to come.

The major damage was done in the decade before hand when dairy debt more than doubled, during a period when a Labour Government effectively swapped high levels of public debt for high levels of private debt.

And called it a win for the nation.

82 comments on “Who is ultimately responsible for NZ’s massive dairy farm debt? ”

  1. Paul 1

    The government encouraged farmers to get into debt to intensify.

    Listen to Rachel Stewart @ 15.15 on Waatea 5th Estate yesterday.

    The government is ‘completely complicit.’
    ‘The government has pushed farmers into this abyss’

    • Colonial Viper 1.1

      Didn’t see anyone holding a gun to the head of farmers to sign loan documents.

      • Paul 1.1.1

        True and both farmers and the government are complicit.

        • ropata 1.1.1.1

          Farming for capital gains is not a long term business model for NZ.

          The religion of infinite economic growth is wrecking the Earth, farmers ought to know this better than anyone.

      • dave 1.1.2

        i disagree nobody makes you take a loan they pilled into dairy as people before pilled into kiwi fruit ,goats ,coastal property ,emu greed and stupidity of the greedy are to blame and no bail out for them and it wont be long before property speculators join them in the carnage but i do blame national for doing sweet burger all about diversification of the economy.

        • Colonial Viper 1.1.2.1

          If Governments are going to get involved in encouraging proper investment, they will also have to get stuck in and discourage malinvestment.

          • burt 1.1.2.1.1

            You seem to see government as some form of Nanny. Perhaps nanny shpuld bail them out since nanny should have taken care of the poor farmers and failed in her social engineering role of checking they weren’t getting into too much nasty debt with nasty profit driven naughty reckless bankers ?

        • alwyn 1.1.2.2

          “no bail out for them”
          You had better have a word with Grant Robertson. From his interview on Thursday’s Morning Report he seems to be all in favour of it.

      • burt 1.1.3

        You are right CV, nobody held a gun to their heads. The government didn’t and neither did the banks.

        So you blame the banks ? I think the farmers themselves are to blame, the wanted bigger profits and wanted to ride the wave of high prices for all it was worth.

  2. Ergo Robertina 3

    What seems to be overlooked is that the removal of the Environment Canterbury board six years ago illustrates that this Govt is actually up to its neck in the strategic disaster of dairy intensification.
    As well as allowing more intensification in Canterbury, dismantling democratic oversight sent a key signal to the market and to other regulatory authorities.

  3. The Chairman 4

    Interestingly enough, Gaynor reported all of Fonterra’s debt is unsecured, with the exception of $169 million of financial leases.

  4. Paul 5

    It goes right to the top.

    NZ irrigation and its guilty secrets

    ‘In April 2014, Prime Minister John Key turned the first sod of Mid Canterbury’s $500 million Central Plains Water (CPW) scheme. In August 2015, he was back again to open its stage one head race.
    After a decade of irrigation projects being stalled in the Environment Court by the green lobby, the transformation of Canterbury into the country’s premier agricultural province – its mini-California – is suddenly happening at speed.’

    http://www.stuff.co.nz/national/politics/71734277/nz-irrigation-and-its-guilty-secrets.html

  5. NZJester 6

    While the Banks are partly responsible, as other have said the government is also partly responsible to for talking up the idea of swapping to dairy farming or expanding existing farms. Ultimately though the greed of the farmers helped the other two lead them by the nose into that debt.
    The farmers blindly follow National and have themselves mostly to blame in the long-run for being just as shortsighted as their political party of choice.
    Ultimately more farms will end up for sale and with no New Zealander able to afford them they will go to over seas interests.
    Labour tried to invest in diversifying this country, but National are a pack of chase the easy cash and don’t worry about the future financial dimwits.
    Well except for those 1% at the top who have no morals and profit off all of these financial problems.

    • Colonial Viper 6.1

      As I pointed out in the post, and many people seem to be deliberately avoiding, the fact is that dairying debt shot up far more under Labour (in both relative terms and absolute terms) in a five year time span than under National.

      People need to take their two party blinders off.

      • tinfoilhat 6.1.1

        “People need to take their two party blinders off.”

        Surely you don’t want people to think outside the tired old paradigm of two terms for red team followed by three terms for the blue team followed by three terms for the red team ad infinitum…… the poor dears won’t be able to cope.

        • Colonial Viper 6.1.1.1

          Americans are starting to get it, you’d hope that one day Kiwis could too…

          • tinfoilhat 6.1.1.1.1

            True…although if the “getting it” is going to lead to President Trump per haps the tired old paradigm is the better option.

            My friends in the US are of the opinion that if Trump does end up being the Republican candidate that Hilary Clinton will win the presidency in one of the bigger landslides of modern times.

  6. Expat 7

    I have to disagree with your statement,

    “The major damage was done in the decade before hand when dairy debt more than doubled, during a period when a Labour Government effectively swapped high levels of public debt for high levels of private debt.”

    That’s utter rubbish, that money was borrowed to develop the industry to the profitable point that it reached, but two years ago the writing was on the wall for dairy, a massive increase in the number of competitors and falling commodity prices, the industry refused to believe anything was wrong and maintained the the status quo.

    If you look at the facts, National have doubled the public debt from Labour, and here’s the proof, so CV, stop lying about Labour, just because youv’e got a grudge against them (Labour) doesn’t entitle you to blame them for the current economic position of the dairy industry, for goodness sake man, they haven’t been in charge for 8 years.

    http://www.tradingeconomics.com/new-zealand/government-debt-to-gdp

    • Colonial Viper 7.1

      Look at the graph I included with the post. It’s quite easy to see the facts.

      Between 2003 and the end of 2008, dairy debt climbed rapidly, more than doubling. Who was in charge in those years?

      From 2009 dairy debt continued rising under National yes, but at a far slower rate.

      The bulk of dairy debt increases occurred under Labour. So that’s a fact.

      You might call the Labour Govt part of the debt “good debt”, compared to the “bad debt” acquired under National but of course that’s just partisan bullshit.

      Today, it is all turning into bad debt.

      Bottom line:

      Dairy debt increased far faster in both nominal and relative terms, over a 5 year period, under Labour than under National.

      Also, you appear to be one of those economically fucking stupid lefties who thinks that a Government with a surplus paying down public debt while forcing NZ households and businesses into deficit (i.e. reduced incomes and reduced savings) and actively increasing private debt, is a good thing.

      Gawd you’re ignorant. Bought into the orthodox economics and monetary policy all the way and don’t even realise it.

      Just think about it for a fucking second would you.

      To run a surplus, a government has to take more from the people than it spends on the people.

      That’s the very fucking definition of “surplus.”

      Scale that idea up a bit and you have this thing known as “austerity.”

      As I said, fucking stupid. I don’t even know why so many Lefties can’t understand the obvious.

      • Expat 7.1.1

        CV

        You have a serious problem with “interpreting graphic information”, any one studying stats can clearly see the relationship between the increase in investment and the increase in production, the lines follow one another, can’t you see that, and as investment leads production increases, the line is above, shows this clearly, and when the plateau arrives, no further investment, the line falls below the production as expected.

        You really have absolutely “no” economic or common sense at all, you haven’t answered the question of how production could increase without the investment, have you, and the reason is, you just have no idea.

        Secondly, you DMF, the graph of public debt that I linked clearly shows that under National it had doubled, thats doubled you DMF, You are economically illiterate, you have no understanding of why businesses borrow money, or the outcomes even though you illustrate one in your post, and don’t understand what it says.

        Stop lying about Labour, as I said, the proof is in the link, your just stuck in past with a bullshit lie that you made up, and because you keep telling yourself it, it must now be true, but it isn’t, and you can’t put any evidence forward that it is, and that’s because your lying.

        I don’t care what names you call me, it doesn’t help your cause though, just try answering the question, how do you expect production to increase without the investment????

        You certainly have run off the tracks a little too, burbling on about “orthodox economics” and “surpluses”, I’m arguing that the investment in Dairy during the Labour years, is reflected in the increased production, you don’t require a brain to be able to see that, it may be $15B, but it would not have happened without that investment, end of story.

        You obviously have never run a business, or you would understand that “borrowing money” is necessary part of advancing the business and production, just name one successful business that didn’t borrow money, I bet you can’t.

        Stop blaming Labour for all our problems today, take some responsibility for the current regime.

        Labour did not transfer public debt into private hands and you can not provide any verifiable evidence to prove that it did because there is none, stop Bullshitting and get your facts straight. this is just another example of you repeating something till you finally believe your own Bullshit.

        • Muttonbird 7.1.1.1

          Good post.

          CV’s recent habit of referring to people as ‘lefties’ is a worry. Vendetta is a word that comes to mind.

        • Colonial Viper 7.1.1.2

          Labour sub 30% 2017, you heard it here first.

          And as I said below who gives a fuck if production increased with increasing debt under Labour, that’s simply because it was the low hanging fruit being taken in the industry, whereas under National, they had to reach higher and harder for production increases because all the best most easily converted land had already gone.

          And what the fuck use is all that extra production in a market suffering from massive oversupply now coming out of Russia, India, China and South America?

          You certainly have run off the tracks a little too, burbling on about “orthodox economics” and “surpluses”, I’m arguing that the investment in Dairy during the Labour years, is reflected in the increased production, you don’t require a brain to be able to see that

          So NZ can not produce a shit tonne of milk into a market which won’t pay you enough for your production to recover your costs because of massive oversupply.

          And you think this is a good thing?

          You fucking moron.

          Labour did not transfer public debt into private hands and you can not provide any verifiable evidence to prove that it did because there is none, stop Bullshitting and get your facts straight.

          You really are a moron.

          Cullen did a debt swap.

          He let the private sector run up massive levels of private debt. Dairy alone added $20B or so in debt during LAB 5.

          This private debt injected a huge amount of new money into the NZ economy.

          Which Cullen taxed in and paid off public debt with.

          That’s how he did the debt swap.

          Private debt skyrocketed and he used the money from that to pay down the government debt.

    • burt 7.2

      Expat is right, Labour are never to blame, just because the economy has gone into recession every single time they have been in government for the last 60 years – that doesn’t give you the right to say they set the scene for this like they have for most economic fuck ups since the 60’s !

  7. Ad 8

    My core frustration is that this government is continuing to weaken any instrument to control boom-bust-boom of anything.

    Dairy
    Mining
    Oil
    Housing
    Water

    All functionally unregulated.

    A state this weak is not a government.

    Only a government prepared to alter this dynamic will right this ship.

    • Murray Simmonds 8.1

      Yeah, Ad, but THIS “Government” loves boom-bust cycles, because they are there to do the bidding of the giant offshore corporations.

      And why do the corporations love boom-bust cycles? Well that’s because there’s the opportunity for them to swoop in and suck up all the residue during a “bust” for their own benefit.

      Just watch who’ll be buying up land when the dairy bubble pops.
      Just watch who’ll be buying up property when the housing market crashes.

      All functionally unregulated FOR A GOOD REASON.

      And of course all aided and abetted by the TPPA.

      • Murray Simmonds 8.1.1

        To add to the above “paranoid scenario”:

        John Key wasn’t invited to attend a Bilderberg meeting early in his term as PM for nothing. Godonlynoze what he was promised in turn by the Bilderberg group if he pulls this off. Life membership perhaps?

        (Now THAT’S what a call a REAL conspiracy theory!)

        • Ad 8.1.1.1

          It would be a whole bunch more helpful to hear what you thought an effective state response would look like to the dairy crisis. I already know what you and Rod Oram think, thanks.

          So why don’t you take a moment and describe the instruments that a future government would and likely could use to tell Fonterra what to do. That’s useful.

          The rest is shooting fish in a barrel.

  8. Expat 9

    CV

    The graph you illustrate clearly shows, as investment (borrowing) increases, the level of production increases at the same rate and then both plateau off, do you really think production rates would have increased with out the borrowing?

    Lets not forget that dairy has been Nationals main economic strategy, and without that investment, it wouldn’t have happened, but all good things come to end, and detecting the end of the “run” is all ways difficult, but there were definite indicators which should not have been ignored.

    • Colonial Viper 9.1

      Call it “investment” if you like, but that’s just PR spin because today, its pretty clearly malinvestment.

      Debt for all that extra production capacity serving an oversupplied market that won’t even pay at cost for it.

      Why you would consider that “investment” I do not know, unless your idea of “investment” is to get less money out than you put in.

      • Expat 9.1.1

        CV
        Most of the debt incurred, during that period has been payed down from the profits of the investment, ffs where do you keep your brain? it was a decade ago.

        The problem now, is the recent borrowing (investment) to increase production at a time of falling demand, but doing that is not a wise investment, is it?

        I suggest you get some relativity, cause your along way out of kilter here.

        Please tell all the readers how the level of production could have been increased without the investment, I’d dearly like to hear your response.

        Please explain how Labour transferred public debt into private, you can’t, cause it never happened.

        Your “definition” of how a surplus occurs is just another example of your lack of understanding of how a prosperous economy can produce a “surplus” as opposed to the one your mate Bill produced last year, you should never use “Bill” as an example of any intelligent monetary policy, he’s as economically illiterate as yourself.

        • Colonial Viper 9.1.1.1

          Most of the debt incurred, during that period has been payed down from the profits of the investment, ffs where do you keep your brain? it was a decade ago.

          ?

          Farmers paid off their multi million dollar dairy farm mortgages in 5-10 years?

          OK if you say so.

          The graph of private sector debt shows the sector getting much deeper into debt during Labour’s time.

          OK the chart doesn’t show individual mortgages being paid off one at a time, but it does show that farmers owe more and more and more overall.

          • Expat 9.1.1.1.1

            Yeah, and the same graph shows incomes increased at the very same rate, remember, there is a relationship between the two (increased production and increased debt), ffs, can’t you interpret graphic information, and don’t forget to factor in rising dairy prices (payouts)

            The average income for Dairy farmers 6 years ago was aprox $1.5m, I’m sure that goes along way to paying down debt, the farmers I know in my area, pay debt as quickly as they can.

            • Nic the NZer 9.1.1.1.1.1

              So who in your model is responsible for ensuring that the farming industry is financed sustainably. Farmers apparently can leverage up as long as incomes are rising. Banks get more income as long as they lend more to those farmers. And the govt collects more tax as long as it facilitates this process.

              Which group should be keeping an eye on the future when a (potential) massive price shift in the outputs causes this all to come to a crashing end?

        • Nic the NZer 9.1.1.2

          CV knows this but you (I believe) need it explained to you. A surplus occurs when the private sectors investment rate minus savings rate plus the net current account balance adds up to a positive number.
          https://en.m.wikipedia.org/wiki/Sectoral_balances

    • Cricklewood 9.2

      Clearly the borrowing increased production, it funded irrigation schemes, conversion of marginal land, suplemental feed etc all of this was feasible due to ever rising milk prices.
      What it did do in the longer term was increase the cost of production markedly which has lead to the situation now where some farms are losing money hand over with no option to de stock because they borrowed based huge production rates supported by irrigation and supplemental feed trapping themselves in the process.
      The bank were predatory and many greedy you just need to look at history to see the boom and bust commodity cycle. Look at kiwifruit for a good example…

  9. joe90 10

    The simple answer is – the banks are.

    Well, them and likes of Pauline Laboyrie.

    Following a visit Laboyrie made to the property in September 2013, she offered to buy the farm under the name of Aldrie Holdings, of which she was the director.

    Her bank, Rabobank, offered to lend her 100 per cent of the purchase price.

    […]

    Laboyrie sought compensation of $500,000 but the judge rejected that on the grounds that “to a large extent Ms Laboyrie was the author of Aldrie’s financial misfortune”.

    She did not walk over the farm, nor did she or an accountant prepare a budget for it.

    “I have never seen a case in which property of the value of this farm has been acquired solely on the basis of a few (albeit significant) questions put to a vendor, following a series of telephone calls and one (relatively brief) attendance at the property, without any further inquiry by the purchaser into the economic viability of the farm,” Justice Heath said.

    http://www.stuff.co.nz/business/farming/77750120/court-orders-dairy-farm-seller-to-compensate-buyer

  10. Chooky 11

    +100… Great Post CV…and thought provoking comments

  11. Keith 12

    Dairy debt to milk solids ratio was never better than 2009 by that graph and back then milk solids were worth a lot more. Then National came along and one of THE most stupid things they have ever done is to de-incentivise R&D. Fonterra have stuck to the same unsophisticated script ever since essentially exposing themselves to such a downturn. Poor decision making and a plethora of awful mistakes also mean they don’t escape the blame either.

    And perhaps if NZ was a little more sophisticated both as a people and as a government we would stop pouring so much debt into get rich quick property schemes.

    And does an ocean of cheap money not also figure into this? How is that the present day Opposition partys fault?

    Following the tired Key/Joyce narrative of blaming a government from 7 1/2 years ago for the mess the dairy sector is in today or practically anything else is wrong and pathetic. Who knows what they may or may not have done, maybe they would have seen the warning signals and done it differently! But sure as shit they haven’t been able to do a thing because they have all been in Opposition ever since 2008!

    This National government has been in control for nearly 7 and a half years, they are the place to start looking!

    • Colonial Viper 12.1

      Milk solids prices would have collapsed leaving all this unpayable dairy debt regardless of whatever piddly millions the government put, or did not put, into R&D.

      Dairy debt more than doubled under Labour. Under National it has gone up maybe 45%.

      Point the finger where you need to but the facts are clear.

      • Keith 12.1.1

        Debt goes up frequently when any organisation invests. Even Anchorage Capital borrowed all the money to buy Dick Smith before charging 5 times more in share lists for a short term gain and a massive profit. But if they never borrowed they wouldn’t have made a cent!

        Long term firms go into horredous debt if they see an opportunity to make it back! Dairying is the same, its just the “music stopped” a couple of years back and few cared or knew what they were doing.

        Your scenario is like a firm that produced a top selling product the world wanted nearly 8 years ago but the management also changed nearly 8 years ago and now the product is failing so you turn back the clock to blame the previous managers who have had no control and no input for nearly a decade of not foreseeing the future, years in advance. Utterly ridiculous logic but one i expect from the National Party inc supporters and their inept handling of all things economic.

  12. sabine 13

    Well thank the lord it’s Labours fault. Who would have thought otherwise.

    • Pasupial 13.1

      sabine

      both National and Labour Governments have been utterly complicit in using the dairy debt bubble – while it was happily expanding – both governments using it to shore up the economy for their own political and re-election purposes… But National are culpable for not taking direct and decisive action to curb lending in the dairy sector as it became clearer and clearer over the last 3-4 years that the ‘end was nigh’.

      CV’s target seems to be more banksters and their establishment enablers than Labour itself. I find myself less and less able to make out the difference between; the government, and its lead opposition party, in financial policy. Effectively, we’ve had one neoliberal party wearing two different masks since the 1980s.

      • Colonial Viper 13.1.1

        I find myself less and less able to make out the difference between; the government, and its lead opposition party, in financial policy. Effectively, we’ve had one neoliberal party wearing two different masks since the 1980s.

        Thank grod Pasupial that you get what I am trying to say.

        Yet all these Lefties remain willing to give Labour pass after pass after pass for doing the same thing, and even worse, than National – allowing massive increases in farm debt in order to pump money into the economy for politically expedient reasons.

        And of course the banksters are willing to play their very profitable part in such a plan.

        • tc 13.1.1.1

          Agree wholeheartedly.

          Labour are national light in the worst possible way in so far as they have no intention of dismantling the rigged game that essential services have become.

          gas, electricity, shelter, food and water all in one form or another been handed to the ‘market’ ….it seemed to have almost slipped by that vector have flogged the gas network to bankstas in the last few months.

          It angers me that our essential services have become so owned rather than a means of creating a public dividend for reinvestment.

          To address CV’s excellent post, it’s about much more than dairy farms, we actually don’t need them in terms of feeding ourselves which is where we need to head as an isolated country at the bottom of the world.

          dairy farms is a symptom of a much wider transfer of ownership that’s going on to those who don’t care about NZ.

          • greywarshark 13.1.1.1.1

            tc and apparently Pasupial too from reading CV above, it is great to read CV being understood and finding agreement here. He is making good real points that cut like a sharp knife through the slippery mass of confabulation that Labour has built around itself, and Labour supporters hold hopefully in their minds as possibilities.

            I haven’t read the discussion, I have to spend less time on the blog and get more done at home! But just reading a microcosm sparks the above comment and the thought below.

            I don’t want my children to be gazing into the abyss that will result from not facing present reality. Once that is done and there is a firm base of reality then we can move in practical and humane directions, which would combine technology as suitable to assist humans, not replace them, science that backs up what we have to make it better and is shy of introducing new untried products and methods, and people who are committed to having mutually acceptable standards and not huge divisions, and who are committed to conserving the other living things we co-exist with.

      • millsy 13.1.2

        In come countries, both the 2 main parties are on the right, such as Ireland, Poland, Canada.

        The UK of course, went down that direction long ago, and Australia not far behind.

      • sabine 13.1.3

        My comment is really just to sum up all of CV’s comments in this thread -and slightly sarcastic.

        It also follows his thinking that it all started under labour, that labour only had a surplus because it transferred public debt to private debt etc etc etc.

        While i do agree to some extend with his line i also know and understand that , generally speaking you can’t start a business without running up some debt. And for what its worth, dairying started under Labour, it was somewhat successful, despite many people already at the time saying that longterm it was not sustainable i.e. maybe investment to organic farming would be better. But in saying that, organic farming is harder then simply exporting a raw material like milk powder and i think a lot of people thought that it would be easy money, and don’t forget that she’ll be right attitude and one can’t loose cause of the property value. So lets continue what worked until it is too late, and when its over sell to the highest bidder.

        So while initially Labour might have helped increase private debt by starting a new business venture and getting people to buy in, at some stage the ‘farmers’ themselves are responsible what they do and the debt they incur, and we also need to accept the fact that under National this whole thing of dairy farming just went awol without constraint at al – superfarms on the plateaus, irrigation schemes in areas that should really not be farmed, no investment in r&d, refusing to do business with russia etc etc etc.

        But in saying that, maybe CV should lay off slagging the Labour at every single opportunity he gets and painting them as the only devil in the room, i think everyone here now knows that he does not like them any more. There are two parties and they both are very much the same, and i don’t think Labour with its very ‘conservative approach’ is worse then National and its libertarian laissez faire attitude of the market fixing it all.

        btw. all errors are mine, not proud of them, but then i am quite dyslexic and english is my third language. If i offend any grammar purists, sorry, here have a panda.

        • ropata 13.1.3.1

          A nice balanced summary, I’ll restrain my pedantic urges for now 🙂

        • Expat 13.1.3.2

          Sabine

          Good summary.

          He’s slagging a Govt that developed an industry that NZ has been dependent upon for the last 7 years, it’s completely wrong.

          The public debt transfer he talks about is crap, the debt was created by the very strong economy with very low unemployment, people had secure, well paid jobs, and borrowed against that security, some of the debt was from people who had never had a “job” before, you can’t blame them for wanting a better life, I just wish he(CV) could see reality, but I’m not holding my breath.

          • Colonial Viper 13.1.3.2.1

            Debt was the driver of economic growth in the 2000’s, not the result.

            Again, other than the orthodoxy, you don’t understand economics one bit.

            • Expat 13.1.3.2.1.1

              Bull shit, the debt is higher now under NATs (double) than it was then, the major difference is that most people had a job then to pay it off, whats going to happen in the near future, under your scenario, growth should be going through the roof right now, but wait a minute, where is it?

              You still haven’t told everyone how Dairy could have expanded without the investment, that’s because you have no idea, you live in a dream world.

              Try answering the question.

              • Colonial Viper

                Fuck your precious dairy expansion mate that excess dairy production capacity is going to be literally going down the drain as farmers go bankrupt and Kiwi land gets sold to overseas buyers for a song.

                That’s your fucking “success.” What you are claiming is “investment” is MALinvestment FFS.

                Secondly its the acceleration of debt which is critical not actual debt. Google Steve Keen debt deceleration if you want to know more.

                Get some real idea of real economics please, not this pretend theoretical orthodox shit.

                • Expat

                  CV

                  “That’s your fucking “success.” What you are claiming is “investment” is MALinvestment FFS.”

                  Oh, and you own one of these farms do you, If you bothered to even ask one of the dairy Farmers about there borrowing you would find that at the time they “did very well” thank you.

                  The reality is the money was borrowed to “grow” the industry, was by farmers, for farmers, no politician ever held a gun to their heads and demanded that they take out loans.

                  These Farmers who took the risk and expanded the Milk production outputs, and should be thanked for building the foundation platform for a very profitable business, had they not invested (borrowed) at the time (2003-2009), then NZ would have missed the boat on global dairy trade, it’s only because of this early investment that National have been able to “ride the wave” of profit, but Farmers know about boom and bust with contributing weather factors, to large extent, their use to it.

                  So your view of MALinvestment just doesn’t cut the mustard, in reality and evident proof, I know the Farmers don’t agree with you either.

                  You really need to stop spewing rubish about “economic styles” about historical events that bought prosperity to NZ, just remember the most important measure of any economy is the number of unemployed, any country with only 2-3% unemployed is “doing extremely well”, which is what NZ had in 2008.

                  Stop lying about Labour. you haven’t backed up your statements with proof or provided the level of context required to make objective comments, JK will be offering you a job soon sitting next him, two compulsive liars.

                  • Colonial Viper

                    Firstly, unemployment is closely related to the rate of debt acceleration.

                    Again, this is from the work of Steve Keen. As long as the rate at which debt is increasing is accelerating, unemployment will remain low.

                    So yes, in 2008 under Labour, unemployment was low.

                    And at the very same time, under Labour, dairy debt was skyrocketing faster than ever.

                    Oh, and you own one of these farms do you, If you bothered to even ask one of the dairy Farmers about there borrowing you would find that at the time they “did very well” thank you.

                    Not sure why you are lauding such a short term timeframe. When a dairy farm was bought with a million dollar mortgage, that mortgage was typically designed to be paid off over 20 or 30 years. A few years of initial profitability and then a decent into uneconomic operation is hardly a justification for the initial debt incurred.

                    The reality is the money was borrowed to “grow” the industry, was by farmers, for farmers, no politician ever held a gun to their heads and demanded that they take out loans.

                    Here, you imply that Government was right to be hands off and to let the market do its thing accumulating massive debt in a multibillion dollar exercise in capital misallocation.

                    That’s the kind of free market thinking intrinsic to modern Labour.

                    These Farmers who took the risk and expanded the Milk production outputs, and should be thanked for building the foundation platform for a very profitable business, had they not invested (borrowed) at the time (2003-2009), then NZ would have missed the boat on global dairy trade

                    I have to snigger at how short term your thinking is.

                    Its like you saying it would have been such a shame for NZ to have missed out on the Tulip boom.

                    Because with 10,000 hectare dairy farms coming online throughout Russia, China, India and South America suppressing market prices and creating massive oversupply, those tens of billions in debt fueled capital investment in extra milk production capacity is never going to generate a positive long term economic return (despite as you point out having done well for a few years initially).

                    The only winners here are farmers who sold out near the peak of the market, and the banks (and even they will be getting sweaty palms at this point).

                    Everyone else is going to grimace as the pain of the tens of billions in malinvestment and capital misallocation spreads throughout the wider economy.

                    • Expat

                      CV

                      “Firstly, unemployment is closely related to the rate of debt acceleration.”

                      Here’s an example that proves your wrong again, just look at Australia in the Keen story, 125% to GDP private debt, but the unemployment rate is 6%, from this you can deduce, that high levels of private debt does not drive down unemployment, and if you look at NZ, high levels of public debt ($120B) doesn’t drive down unemployment either, so debt, in it’s self, is not the main contributing factor to low unemployment, this is undeniable.

                      You seem to forget the redistribution of wealth that occurred under Labour, that working for families and other tax breaks saw money in the hands of many, not a few, Key has scraped these policies and replaced them with a modern day “Robin Hood”, steal from the poor to give to the rich.

                      Farming is a boom bust industry, the players within it are fully aware of the risks, what pisses me off is the current Govt has kept talking up the industry (positive spin) when it should have been advising caution, the writing was on the wall two years ago. but for so many, positive spin is best advice, we don’t want to scare the markets, do we.

                      It’s not like Tulip farming at all, it’s a food product in high demand globally, you can’t eat Tulips.

                      Mate, MILK products are a commodity, their values will all ways rise and fall over time, in any business there are winners and losers, but this doesn’t compare with the “Dick Smith swindle”.

                      “Everyone else is going to grimace as the pain of the tens of billions in malinvestment and capital misallocation spreads throughout the wider economy.”

                      You could say “welcome to the real world”, but I still challenge you on whether the “borrowers” consider it as Malinvestment, after all, they’re responsible adults making their own decisions about borrowing.

                      I know of some Dairy farmers who only had relatively small herds (200 or so) who didn’t think it was financially viable to borrow to expand, so they converted to beef fattening, a lot less work, so some recognised the potential risks and declined the opportunity.

                      I still stand by my statement that investment during the Clark years laid the groundwork for the what became a booming industry, and delivered a lot of economic returns to NZ for quite a long period, so I still say thanks to those who took the risk and made the industry what it became, but nothing lasts forever.

                    • Nic the NZer

                      Expat, your clearly not very good on facts, but that doesnt in any way challenge what CV or Keen say. Its a discussion about acceleration Keen made and CV repeated. In that parlance the debt sum is where you are, the deficit (rate of debt accumulation) is how you got there, and the acceleration is the changes in that rate.

                      You even argued elsewhere that the acceleration in farm debt was productive (caused income and emploment as it occurred ) which basically agrees with what is being said by CV and Keen there anyway.

  13. Robert 14

    Here’s the first paragraph from the Agri Brgade column in UK’s Private Eye magazine 19 February -March 4

    ”Can anything be done to arrest the freefall in the fortunes of the British dairy farmers. After a grim 2015 the new year has seen UK farm gate milk prices continue to plummet with farmer-owned dairy co-operative Aria the latest processor to announce heavy cuts, Some of its farmers face a fall of 3.25p per litre to 16p. The average cost of producing milk is currently 28p per litre.”

    Can’t provide a link to the rest of the article as Private Eye only puts 5% of its content online.

  14. Gristle 15

    9% of global milk production is exported. Fonterra (with milk from NZ) accounted for 25% of the total milk production that was exported.

    The production capability of farms that were not exporting needed only to rise by a couple of percent for them to swamp the demand for export milk. (A couple of percent rise in the 91% is equivalent to Fonterras total export.) This why Fonterra are extremely vulnerable. This is why high cost dairy production in New Zealand is counter to the business model that made its milk attractive overseas.

    Politicians, Manager, Financiers and bankers and advisers who don’t understand this have encouraged farmers to get into way more debt than suitable.

    Long term averages may not be a good guide to future pricing as the market may have gone through structural changes where new production capacity will not be absorbed in domestic demand and will drive down the domestic price of milk across the world. So until that increased capacity evaporates or external demand increases then price volitilty will be high. In NZ production is diminishing as stocking rates diminish and farms move back to being pasture/grass based.

    Meanwhile land prices must fall as both the returns (real and future projections) and sentiment fall. However the losses will take a lifetime for some to recover from.

    • sabine 15.1

      i don’t think land prices will fall.
      We have enough foreign interest to sell the country a few times over.

      • Cowboy 15.1.1

        Restrictions on foreign investors must be enforced and land values must be allowed to adjust downwards.

        There is plenty of blame to go around but the banks are absolutely culpable. The have blown up the bubble by allowing reckless lending levels based on a belief of endless capital gain backed by woefully inaccurate price forecasting. Some Farmers are guilty of greed but they were aided and abetted. MPI and Fonterra are also culpable for not foreseeing the ramifications of EU quota restrictions and of course govts of all colours refuse to put a tax on capital gains to dis incentivise speculative bubbles forming beyond the earning capacity of the land.

        It was always going to end in tears once the music stopped. Farming families will pay the price while bankers and politicians will shrug their shoulders and offer platitudes about volatility and resilience.

      • Gristle 15.1.2

        Sabine you have made a statement about foreign interest in land and offer no data or theory as to why it should so. I realise that you may have insights based on either your own experience or knowledge but this is not obvious in a two line post.

        Foreign purchasers of dairy farm are either:
        1. Business motivated. These will require a viable financial return and so will not support inflated capital values.
        2. Capital flight. Investors pulling their money out of one economy and putting it elsewhere (this may motivate some Chinese investors.) This type of purchaser is willing to pay a bit more, but ultimately they are risk averse and are unlikely to buy a lemon.
        3. Emotional involvement. You know the type: leaving home to live the good life and thus disengage the linkage between investment and financial return. This doesn’t make sense when it comes to dairy farms as they essentially are factories in the countryside.
        4. Part of some sort of international conspiracy designed to takeover NZ farmland. Unlikely.

  15. Expat 16

    CV

    Show me where I disputed the debt level under Labour, I didn’t, I’m simply making the point about why that level of debt occurred, during that period, NZ was ramping up it’s milk outputs to meet demand, hell, they wouldn’t have done that just for the hell of it, Ay.

    I’d still like to hear about any business that became successful, that didn’t “borrow” (invest) to get there.

    • Colonial Viper 16.1

      Seriously, I’m over this discussion.

      What I do reckon is that like massively unaffordable Auckland house prices, and massively unaffordable farm prices, and sky high increasing farm debt, the public will remember and recognise that those trends were in full escalation during Labour 5, and that Labour trying to pretend now that they are a National problem is something which very closely approximates the hyprocritical.

      As for dairy being a successful business, yeah sure like tulips, they were a successful business for a while too.

      • sabine 16.1.1

        Praise Cthulhu for teh faults of Labour, as Labour did it too, did it better, did it worse and absolve National, the banks and the farmers from all and any faults.
        Burn Labour at the stake, burn the wicked witch.

        (insert sarcasm tag)

        mate, what ever.

      • Expat 16.1.2

        Yeah, and so was Toheroa, but that didn’t last either (nearly extinct), and what about Kiwi fruit, last time I brought some of those they were from Italy, remember, nothing lasts for ever, even the F’d up National Party.

        There was nothing wrong with the dairy debt under Nats either if the commodities were holding up, but they headed south some time ago, at least under Labour our waterway’s weren’t destroyed deliberately for the sake of a few bucks.

        And from your previous comment:

        “Debt was the driver of economic growth in the 2000’s, not the result.”

        How come Growth right now is not going through the roof, especially now that public debt has doubled under National from that of the Clark era, you can’t have it both ways.

        • Colonial Viper 16.1.2.1

          Steve Keen elucidates the mechanism quite well; the foundation of it is in the rate of acceleration of debt levels.

          I would suggest that private sector debt growth is much weaker at the moment, which means that more rapid public debt growth has to make up for it.

          Also, physical economic constraints are strongly coming to the fore.

          • Expat 16.1.2.1.1

            CV

            “I would suggest that private sector debt growth is much weaker at the moment, which means that more rapid public debt growth has to make up for it.

            Would you, that’s NOT what the stats indicate (private sector debt increasing), and as for the rapid public debt, it started in 2010, 6 years ago, as a result of a fuck up, TAX changes.

            “Also, physical economic constraints are strongly coming to the fore.”

            There is a global economic slow down, no country is immune, but look at why, why there is a slow down, and the answer is simple, the corporations have “sucked” too much out of the global economies and not returned enough to keep them ticking, they simply don’t pay their fair share of TAX in proportion to the profit they make, have a look at what Jean Tirole (2014 Nobel prize winner Economics) has to say about regulating corporations for the benefit of society.

          • dave 16.1.2.1.2

            https://www.rt.com/shows/keiser-report/334369-episode-max-keiser-883/
            Australian housing bubble with Steve keen new Zealand mentioned

            its all nationals fault there the government its on there watch and they’ve done sweet fuck all john key been to busy playing with pony tails than doing his job

            • Keith 16.1.2.1.2.1

              Too right Dave. About now National, being the government, should stop overseas based speculators gambling in Aucklands housing market, but the fuck they will. The latest figure, and it looks conservative, suggests 16% of house buyers are foreign. So why do National care more about those individuals bank accounts and not give a flying shit about their own people? Is it to prop up their phantom growth stats so as a manager of the economy they appear competent and therefore cling to power?

  16. Christopher Hegan 17

    And we just sold weaner bulls for $1090. How many former beef farmers now doing expensively irrigated dairy are cursing themselves, the banks and the government? Milk is just milk; the consumers don’t care whether it comes from a factory unit or grasslands. But grass-fed beef always has and always will draw a premium.

    • Stuart Munro 17.1

      The US want to end country of origin labelling so that their GM fed, CAFO reared, BSE risk beef can piggy-back on the quality of your product. Hard to believe the Gnats would sign up for something so against our interests.

  17. Descendant Of Sssmith 18

    The debt was just a means to an end.

    The real problem was the allowing of land that was not economic to milk in most circumstances and without massive irrigation to be converted to dairy and by not shifting the costs of dairy pollution to the farmers that were economic.

    We’ve seen plenty of boom/bust cycles as overseas competitors ramp up production or something goes out of fashion.

    Llamas, kiwifruit, olive trees, gingko, possum fur, .. almost anything you can name.

    Beef and sheep production has been declining for years as well.

    Those farms that weren’t economic and came on as conversions part of the dairy expansion should be allowed to fail. There were good reasons why they weren’t dairy farms previously and the same reasons should mean they shouldn’t be dairy farms now.

    It was irresponsible of farmers to convert, regional councils to allow, governments to encourage, banks to lend and in some cases governments to overthrow elected officials.

    What’s the bet the taxpayer will have to clean up the pollution from these farms as well?

    And we know Labour pays off the debt that National incurs. That has nothing to do with the borrowings of the private sector though as claimed. The private sector have had ample money to expand and develop. Massive amounts of profit and assets have been transferred offshore and to executives by paying massive salaries – that’s called a capital transfer – stealing profit to line ones own pocket.

    It seems to be a modern corporate encouraged business practice to have large amounts of debt. Dick Smith is but one example of how you buy a company with debt rather than with actual assets. Therein lies much of the problem – much debt was picked up by the private sector, not by investing in anything productive, but by transferring businesses among themselves – clipping the ticket along the way.

    It ultimately is greed and the pursuit of money.

  18. linda 19

    is strategic default an option for indebted new zealanders ????????/
    did any pick up on the report out Australia regard ponzi finance scam by the big four banks rapidly revaluing homes to ramp up the values http://www.businessinsider.com.au/a-hedge-fund-manager-posing-as-a-home-buyer-says-he-was-shown-the-tricks-for-white-lies-on-mortgage-applications-2016-2

  19. Tautuhi 21

    JK is merely a puppet for US Banking and Corporate interests, a prophet of the New World Order?

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