New Zealand's dairy sector debt nearly tripled over the past decade to $30.5 billion last year and some farmers will have difficulty servicing their loans in the year ahead, despite the prospect of a higher milk price.
The Ministry for Primary Industries, in its latest Situation and Outlook report, said the debt was spread unevenly among farmers, with about half held by just 10 per cent of dairy farmers.
Given the rapid growth in dairying over the past decade, the ministry said it was not surprising that its level of debt had also increased.
The dairy sector's demand for debt financing over the past decade was due to a number of factors, one of which was the requirement to fund a large number of capital-intensive dairy conversions.
"While there is a strong correlation between the increase in debt and dairying land during the six-year period ending June 2009 - the period of strongest debt growth - the 15.5 per cent annual average growth in debt during this period was only associated with a 2 per cent increase in dairy land per annum," the ministry said.