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.
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.