Farm debt set to skyrocket

Agtek Tractors and Equipment general manager Gayne Carroll said spending in the dairy industry had dried up and a tractor had become a luxury item. Photo/John Borren

Dairy farm debt in the Bay is expected to skyrocket as properties run at a loss and more farmers are forced to borrow money off banks.

However, business leaders said the district was poised to ride out the slump but "the continuing slide in dairy prices is not welcome for any region," and it would have an economic impact.

The overall dairy price index fell 10.7 per cent overnight on Wednesday but the key indicator for New Zealand - whole milk powder - fell by more than 13 per cent and sent shockwaves through the sector.

Figures from Dairy NZ show the industry was worth $1 billion to the Bay of Plenty and this year some farmers would have to take on an extra $150,000 to $200,000 of debt to fund their businesses (at the current forecast payout for 2015/16). In May it told the Bay of Plenty Times $390 million could be lost from the region.

Meanwhile, many farmers were still struggling with Fonterra's 2014/15 forecast of $4.40 per kg of milk solids. While its current 2015/16 forecast was $5.25 per kg of milk solids that was predicted to drop further.

Dairy NZ general manager of research and development David McCall said farmers needed $5.70 per kgMS to break even which meant it was "costing them a dollar so that is extra debt they need to take on".

Fonterra yesterday announced it would disestablish 523 roles at a one-off cost of $12-$15 million.

Tauranga Chamber of Commerce chief executive Stan Gregec said the Western Bay of Plenty and Tauranga had some protection but would not escape all of the fallout.

"We do not rely on dairy and have strong growth in other areas at the moment. Nonetheless, we do have businesses that supply and service this sector, and we can already see that some forward spending on new projects and innovation has been put on hold, and sales have slowed."

"We don't expect to see the full impact on sales until the traditional spring purchasing season, which is still a month or two away."

Priority One chief executive Andrew Coker said the horticulture industry was booming beyond pre Psa levels while the export manufacturing sector was similarly relishing more competitive exchange rates and good markets overseas.

Recent surveys of business confidence and consumer confidence reflected it would have less effect on the Bay of Plenty economy than in other parts of the country that have more reliance on dairy, he said.

However Agtek Tractors and Equipment general manager Gayne Carroll said spending in the industry had dried up.

"There is still some happening but the tap has been turned off and last thing on their list is a luxury item like a tractor.

"But, on the upside, we hope people will maintain their product ... and we are also fortunate to service the horticulture sector."

Rural Contractors of New Zealand Bay of Plenty chairman Eric Cullen said the biggest concern it had "was are we going to get paid?"

"It's the old vicious circle. We have got our costs that keep going on so it will be interesting times. I don't think we will see an improvement for the next 18 months to two years."

ANZ Commercial and Agri managing director Graham Turley said it had about 14,000 customers who were full time farmers and it was confident in the future of the dairy industry and would support its customers "in this low commodity price period".

BNZ's head of agribusiness John Janssen said it had a 22 per cent share of rural lending in New Zealand and "how much debt someone has is only one of the many indicators that we look at when assessing how best to assist clients and prospective clients".