From the Farmers Weekly
By Nigel Stirling, Farmers Weekly, May 16, 2024
In recent developments, Federated Farmers has raised serious concerns regarding the mental and financial health of farmers due to the pressures from rural banking. Addressing the Parliament’s Primary Production Select Committee, the group highlighted a significant downturn in the quality of service and a reduced inclination from banks to provide essential lending over the past five years. This decline has notably increased the mental health burdens on the farming community, as evidenced by their latest banking survey indicating that 25% of members feel undue pressure from banks—up from 10% a decade earlier.
The group also pointed out the severe impact on older farmers, who risk losing their lifelong investments and farms, while younger farmers grapple with shifting and often unattainable expectations from their financial institutions. This situation is exacerbated by the inability of farmers to make necessary investments to meet environmental standards and enhance productivity, crucial for achieving the government’s export doubling goal over the next decade.
On the other hand, the NZ Bankers Association has justified the increased capital requirements—mandated by the Reserve Bank for mitigating risks associated with rural loans—as a primary reason for higher interest rates on farm loans compared to residential mortgages. However, Federated Farmers questions whether the Reserve Bank’s stringent capital rules, costing farmers an estimated $310 million to $720 million, are disproportionately burdensome.
The debate continues as Federated Farmers accuses banks of exploiting these capital adjustments to expand their profit margins, a claim supported by recent observations from a senior Reserve Bank official regarding the exceptionally high returns on capital by NZ banks due to limited competition.
The Primary Production Select Committee, chaired by ACT MP Mark Cameron, is considering these submissions and is expected to decide soon on whether a full inquiry is warranted. This decision will be crucial in addressing the ongoing challenges faced by the agricultural sector and ensuring the stability of rural banking practices.
It will be interesting to see how this plays out in the coming months, but what has to change is the margins farmers are being charged!