Havelock North finance company makes $1b investment in dairying

Agricultural finance company StockCo Capital has announced a new $1bn investment for the dairy sector. Photo / File

Agricultural finance company StockCo Capital has announced a new $1 billion investment for the dairy sector.

The Havelock North-based company will use the investment to help dairy farmers raise capital, rebalance their finances and grow their businesses.

Farmers will sell their cows to StockCo Capital and lease them back, unlocking the capital tied-up in their herd, which will then be used to invest in infrastructure, purchase land, fund other expansion activities and restructure their finances.

StockCo Capital general manager Will Purvis says the new herd leasing service will provide an alternative option to traditional bank lending for farmers.

"It's no secret financial institutions are becoming increasingly cautious around farm lending," he says.

"It's estimated 30 per cent of dairy farmers are classified as being highly indebted and, despite firm milk prices, the Reserve Bank is encouraging banks to act prudently with farm lending and work closely with their existing dairy farming customers to ensure they are well positioned in the event of a future downturn in the sector."

Purvis adds: "This, combined with the economic impact of Covid-19, a surge in demand for financial capital, and a limited ability for tier-two institutions to fill the gap, are all impacting liquidity within the sector and making it increasingly difficult for farmers to raise the funds they need to maintain and grow their business."

During the lease period, farmers will continue to maintain control of the leased herd and will generate income from milk production and the sale of offspring. They will also be able to deduct the lease payments as a taxable expense.

Purvis estimates that the average dairy herd of 400 cows will release $625,000 of capital through herd leasing.

"This allows farmers to raise significant capital quickly without the need to sell shares, dispose of livestock, sell other property or increase indebtedness," he says.

Purvis also warns the service, which will initially open to Fonterra farmers, is not aimed at those who are highly indebted.

The initial $1 billion of capital for the dairy industry is the result of a collaboration between StockCo and Greensill, a global provider of working capital finance.

Dairy export revenue is forecast to rise 6.3 per cent to $19.2b for the year ending 2020, according to the Ministry for Primary Industries.

Farmers interested in herd leasing should visit the StockCo Capital website.