Willy Leferink explains the love-hate relationship farmers have with their banks, and why they are indispensible to farming's future

Willy Leferink explains the love-hate relationship farmers have with their banks, and why they are indispensible to farming's future

By Willy Leferink*

Just before Christmas, three of the big banks were sent a huge rocket by the Commerce Commission.

This will have them answering charges later in the year related to the alleged misselling of interest rate swaps. 

I know some of the farmers involved with swaps and they’re not the sort of people who would be taken for a ride.

That leads me to suspect some were sold snake oil. If that is proven, then the banks will rightly be made to swallow some bitter medicine.

When you talk about the banks the words of a famous Dutchman called Erasmus comes to mind.  If you swap “women” out for “banks” you end up with this: “Banks, can't live with them, can't live without them”.  That’s got to be one of life’s modern truths. 

To be fair, I’ve also seen their gentler side after it has tipped down with snow or rain or tipped up irrigators with wind. Then, the rural banking managers stop selling and generally pitch in to help farmers out.

This may not be altruism but it tells another modern truth; our banking system is the secret to our farming success.

While large geographically we’re not vast hence why we aren’t the word’s largest milk producer but are number eight. We are well behind number seven and a mere drop in the pail compared to what the European Union or India produces.

Egypt and the Ukraine are both significant dairy exporters. Australia is a player along with Argentina and Uruguay. Countries well-ahead of us on volume include India, China, Russia, Pakistan and Brazil.  There’s a reason why the big producers of milk struggle to export and that comes down to infrastructure, the ease of doing business and simply put, a lack of capital. 

That last point is where our banks come into their own.

Dairying is the most expensive and capital intensive major primary land use. Brazil has almost limitless potential as Gareth Morgan’s slice of the Brazilian dairy industry shows.

Yet there are a shed load of alternate land uses generating adequate returns relative to the capital needed.  Even at an average GlobalDairyTrade result price, there’s little incentive for Brazilian gaúchos to move past beef and cropping.  Dairy remains a craft operation meeting local needs hence why Dr Morgan’s New Zealand style operation is doing so well.  

In contrast the major dairy exporters, New Zealand included, all have banks who understand dairying.

They further understand commodity cycles, animal health and what nature can hurl at you too.

Behind these farms are the processors, manufacturers and exporters who have a finite time to process and distribute what is a perishable product. I haven’t even yet touched on food safety assurance systems and the years it takes to develop any semblance of a reputation. 

I imagine if you walked into a non-traditional dairy country’s bank for a large loan to fund your multi-year conversion away from cocoa then you’d be shown the door.  Let alone speak of the vast sums needed to set up milk collection and processing.  

Our banking relationships did not happen overnight but they have coming together at the right time in our history.  That’s why the long term growth of New Zealand dairying will come from doing things better on-farm and taking our efficient dairy expertise out into the world. 

In terms of the opportunity, the world needs global food production to grow 60-110 percent by 2050 just to keep up with demand.

That’s going to be very hard when globally the average dairy farm has between two and three cows. The average herd in New Zealand is now 402. 

This is why HSBC and CNBC have both labelled dairying as one of the “rockstar” elements of the New Zealand economy.

Let our world tour begin.  


Willy Leferink is Federated Farmers Dairy Chairperson. This article first appeared in the Asburton Guardian and is used here with permission.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


Banks, more cart than horse..
Transaction services, supply of credit are important, asset bubbles are not helpful.
Our point, if our (oz) banks were the king makers, why very few dairy queens in Australia, more over why the number of kiwi based and kiwi style dairy farmers in recievership/forced sale.
eg. Raleigh Dairies, 25km from Coffs Harbour on the mid-north coast of NSW, will be marketed by Colliers International in a fresh sale. Ray White Rural had the property on the market several months ago before it was withdrawn from sale.
The Raleigh business, controlled by New Zealand directors James Brander, Adrian Bull and Alison McLean, includes 835ha and 2000 cattle across two farms -- North Bank Dairy and Yellow Rock Dairy.
eg. A number of high-profile Australian dairy farms are currently on the market, as industry figures reveal the number of dairy farms in Australia has fallen by 71% since the 1980s.
With the continuing decline in farm numbers, industry analysts are concerned the consolidation is continuing, with some suggesting in the coming years Australia may not have enough dairy farms to sustain the industry.
Figures compiled by Dairy Australia from the state milk authorities show in 1980 there were 21,994 registered farms in Australia, but in 2012-13 this number had declined to 6398.
Western Australia’s largest dairy enterprise Lactanz Dairies is currently on the market through Colliers International, thought to be worth around $30 million. Its four New Zealand-owned farms are in receivership.
eg. 3 Tasmania and New Plymouth - Van Diemen’s Land is thought to have attracted the attention of Fonterra and the China Investment Corporations in a joint bid.
Settlers were selected by the Plymouth Company, which was set up to attract emigrants from the West Country of England, and which took over land initially purchased by the New Zealand Company
The early settlers were mostly convicts and their military guards, with the task of developing agriculture and other industries. Numerous other convict-based settlements were made in Van Diemen's Land, including secondary prisons, such as the particularly harsh penal colonies at Port Arthur in the southeast and Macquarie Harbour on the West Coast. In the 50 years from 1803 to 1853, around 75,000 convicts were transported to Tasmania.[19] Van Diemen's Land was proclaimed a separate colony from New South Wales, with its own judicial establishment and Legislative Council, on 3 December 1825.
eg. 4 APA Financial Services Limited (ASX : APP) (APA or Company) is pleased to advise that it has entered into a binding Heads of Agreement with companies associated with Dairy Farm Investments Management Ltd (DFI Management) to acquire, operate and manage a planned aggregation of Australian dairy farms, predominantly in Victoria and Tasmania.
DFI Management is a New Zealand registered company which manages and operates dairy farms in New Zealand and commenced Australian operation s in Victoria in 2010. The principals of DFI Management are experienced in the areas of primary production and the processing and marketing of food commodities in New Zealand and Australia.
DFI Management manages an existing dairy farm at Warrnambool in Victoria (the Brucknell Farm), which is owned by an associated NZ registered company Dairy Farm Investments (Brucknell) Limited (DFI Brucknell), and has entered into an option agreement on a second property, and is negotiating on a third initial investment.

Our thought bubble: With confidence up, two or more co-op farm mortgage lenders (aim for $30bn of debt book), funded from local superannuation mnoney and off-shore securitisation (all you need is a cad, a spreadsheet and lawyer) regulated by RBNZ (really, not like the way SCF was).
Run orderly switching of mortgages from banks to co-ops over the next 3 to 5 years. If some on the ground relationship managers are true of heart, they'd be more than welcome across....
- easier to do now, than when things are down...
Transaction services opened up African / mobile style...

Clearly he's talking the old banking system during the Dairy/Wool/farming golden age.  Not now, with the push towards industrialisation of the farming sector.  With TPPA and MPI trying to grind us into the dirt with unnecessary upgrading of plant/conditions.

"all you need is a cad, a spreadsheet and lawyer"
Um, I think banking might just be a leetle more complex than that, Enrico.
Although the Cad will, as ever, be part of the equation, human nature being the crooked timber it is....

Your access to our unique content is free - always has been. But ad revenues are diving so we need your direct support.

Become a supporter

Thanks, I'm already a supporter.