With all commodities prices high, a large stock of farms for sale, and future price trends optimistic, will agriculture's debt be addressed in this period or will it be ignored to be sorted by another generation?
This period could give NZ farmers an ideal opportunity to repay a good proportion of their debt burden, which has been it's weakness for years.
They will face difficult choices on where to spend their surplus dollars but under the current climate debt reduction will be the smart one.
Farmers have been branded conservative, but with the markets, weather, pests and diseases and the currency all often not in their control, survival has bred this stance.
Will you continue to reduce debt, or will these times present opportunities for capital growth if you can convince a sympathetic financier?
Think it's all good down on the farm? Think again. Property values are plunging, and the crisis could yet hit the cities too. If you asked a city-dweller, most would probably guess that things were pretty good down on the farm right now. Sure, the value of the NZ dollar remains stubbornly high, but meat and wool prices finally appear to be improving, and dairy farmers are widely perceived to be creaming it reports The NZ Herald.
While that should translate to a healthy income for most dairy farmers, in inflation-adjusted terms the payout has mostly fallen since the 1970s, with only a very recent rise. And in the meantime, like their city cousins, many farmers have committed themselves to huge amounts of debt. Between 1990 and 2000, the price of rural land doubled. It doubled again between 2000 and 2005. And again between 2005 and 2008.
Prices were largely fuelled by a flood of cash from the banks. According to data collated by the Reserve Bank, over the past seven years alone the amount banks have dished out to the agricultural sector has more than doubled from $19 billion to $47 billion. Two-thirds has gone to dairy farmers, or to people wanting to convert land to dairying. The dam burst in early 2008, and since then land prices have plummeted. In some parts of the country, values have halved and many farmers now owe more to their banks than their farms are worth - a situation known as negative equity.
But former banker and registered valuer Bruce Wills can quite correctly point to a paper he wrote in 2006, while taking part in the Kellogg Rural Leadership Programme at Massey University, which has indeed proved prescient. The paper, titled The NZ Rural Property Market: Where To From Here?, concluded that the market was experiencing "irrational exuberance", and that the prices being paid for rural land could not be justified by farm incomes. It predicted prices would fall by 20 to 30 per cent. "I did a number of presentations of that around the country and in several of them the room was full of bankers, and basically I got bollocked from pillar to post," he recalls. Part of the problem, he believes, is that bankers have a direct financial incentive to approve as many loans as possible because that's what their bonuses are based on.
But some veterans, such as Wills, are not convinced the worst is over. As Wills pointed out way back in 2006, a "correction" may be painful, but it is also necessary so that young people can continue to enter the industry and to see a future in farming. "Debt in rural New Zealand is still the elephant in the room, and it's still a significant problem that we haven't yet addressed," he says. "Sure, the banks have slowed down their lending and attitudes have changed and we're all a little bit wiser now, but what worries me is we haven't really started deleveraging our sector. And that has got to happen and when that happens, it's going to really hurt."
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