Businesses and households may be desperately reducing debt but the rural sector is continuing to borrow as if there was no global financial crisis. Farmers have borrowed $8 billion in the 12 months to March, bringing total rural debt to a new record of $44.7b a 780% increase since 1990. Most of the increased borrowing has come in the last five years reports Business Day. In March 2004, agricultural debt stood at $21.1b, a 111% increase. The interest bill is an estimated $3.3b per annum but Federated Farmers president Don Nicolson said the increased borrowing was not of itself alarming. Despite banks' lack of alacrity in passing on the full benefit of interest rate cuts, farmers were enjoying the lowest level of interest rates in 30 years, Nicolson said. Fonterra had just lifted its payout by 10c, adding $120 million to dairy farmer pockets, while lamb prices have increased in NZ dollar terms by 60 % in the last year. However, Macquarie Research Equities analyst Lyall Taylor described the ''remarkable increase'' as a growing concern: ''The annual growth in sector credit is still running at 20-25% per cent per annum. ''While the anecdotal evidence suggests that rural lending has slowed in recent months, the rate of loan growth implies that the global credit crunch has not yet lashed the shores of NZ's rural sector,'' Taylor said. Nicolson said ''farmers are notorious at investing when the opportunity arises. You make your decision, you live with it and generally you don't regret it.'' Consumer and housing borrowing have plummeted since 2007, while growth in business credit has also eased. Increased farming borrowing comes as farm prices have dropped 30% in 12 months (although dairy farm prices have held up) and a continuing slide in rural confidence sentiment, as measured by Rabobank. Federated Farmers economist Nick Clark said the continued rise in borrowing was driven by dairy conversions, expansion and acquisition. Sheep and beef farmers affected by drought, floods, the high NZ dollar and declining prices would have been borrowing to survive until conditions improved, Clark added. Many of the latter ''haven't had a profit in three years''. A Ministry of Agriculture and Forestry report last year estimated a rural sector interest bill of about $3.359b.
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