DairyNZ says "debt crisis" misleading

A dairy sector analyst's claims the dairy industry is facing a debt crisis with farmers likely to be forced to sell their farms has been labelled "potentially misleading" by DairyNZ. DairyNZ strategy and investment leaders Bruce Thorrold and Mark Paine met Colin Riden head-on as Fed Farmers prepared for today's debt management seminar in Morrinsville and their own organisation prepares for a Tight Management for Tight Times seminar in Te Awamutu tomorrow. Conor English, Fed Farmers chief executive, said in the two years to April 2009, farm debt had grown by about 30% to $45 billion report The Taranaki Daily. "When combined with some radical changes to farm income and expense streams, cash flow is now critical," he said. Drs Thorrold and Paine said while debt management was a critical issue on farms, Mr Riden's prediction of a debt crisis could potentially mislead farmers, financiers and policy makers as the distribution of debt between farms was more evenly spread than Mr Riden claimed. "Allowing for increase in debt levels between 07/08 and 08/09, we estimate that 5-10% of milksolids production have debt levels over $40/kg milksolids," the pair said. "Mr Riden is claiming that 33% of farms have a debt level averaging $47/kg milksolids. "Our data would suggest only 5% would have this average today." Drs Thorrold and Paine said part of the discrepancy may have been due to incorrect assumptions in relation to farm numbers and milksolids production per farm. "Regardless, there are short and medium term debt issues to manage in the industry. The dairy industry has a strong track record of adapting effectively to challenges in the short and the medium term - it is what we excel at." The pair said debt levels on farms had increased over the past decade as the industry had expanded and capitalised gains in profit into land values. "The current downturn will certainly lead to some farmers leaving the industry or downsizing. It is dangerous and misleading to equate this adjustment to a debt crisis scenario, particularly if it is based on an overestimate of the numbers of farms under high debt load."