With a small percentage of farmers carrying a large percentage of the rural debt, views of the major rural lender need to be listened to.
Charlie Graham of ANZ National, like many sheep and beef farmers shares the frustration of lack of profitability in that sector, and he tells us that business leaders and the government are worried at the meat industry's inability to find long term solutions.
And he is reducing his banks exposure to the sheep and beef sector, with 50% less lending in that area than 15 years ago.
This will surely put pressure on farm land prices when participants in that sector have to exit.
So the question is, will the meat industry take the bull by the horns and work together for it's survival, or will it continue with its 'last man standing' attitude that will come at a great cost for many?
Charlie Graham speaks softly but carries a big stick. The man in charge of NZ's biggest agriculture investment pool, the $19 billion lent to pastoral farmers and fruit and vegetable growers by the ANZ-National banking group, is convinced something is "seriously wrong" with the meat industry. And if it cannot be fixed, the strong hint is that the bank's investment will go elsewhere reports The Dom Post.
He speaks in a quiet, measured voice and watches carefully as his words are taken down. But behind the banker's sombre bearing is a concern at the uncertain future his hill-country clients face. The meat industry is not doing enough to make more money for the 80 per cent of sheep farmers who are struggling, he says.
"If I'm a farmer on the hills, then I'm saying something is wrong. We've got the best in-market prices for lamb we've ever had and here I am quietly going broke," he says. What the industry needs is more collaboration among the companies involved in processing and marketing. "There's a lot of people in the supply chain who are doing all right – so there's not a lot of motivation for them to change.
Meat company mergers would help, but are not the complete answer. He says the meat industry's inability to find a remedy has government and business leaders worried. A farmer-industry taskforce is working on the problem with a consultancy firm and he is a member of an associated reference group.
"But if farmers aren't making money, we're not going to be so keen to lend to them. That would mean a lack of investment in the sector and drive further economic pressure. That reluctance to invest is becoming more evident. When he became head of rural banking for the National Bank in 1996, the lending book was split 50-40-10 between dairy, sheep and beef, and arable and horticulture. Now, it is 70-20-10.
He notes the meat industry's basic problem of having too many meatworks for a decreasing supply of lambs will be brought into sharper focus this season after storms caused an estimated 1.2 million lamb deaths in Southland and the lower North Island.
A lift in wool returns would certainly help hill country farmers, he says. But while he supports the proposed Wool Partners Co-operative, he wonders whether it will get the 50 per cent of the wool clip it is seeking."The investment for the average wool grower is not significant. It will be around $3000 for the first payment and another $3000 for the second, next May.
"One of the strengths of the agriculture industry is its core unit, the husband-wife partnership. It has a tremendous ability to hunker down and prune back costs when things are tough.One thing I've learnt over the years is to never underestimate the resourcefulness and resilience of people. You'd look at some of them, view their financial situation, and you'd wonder how they could survive. But they do."
17 Comments
“All I’m saying is there’s a bit of a shift in attitude where people realise there’s been some real excesses in the market, where prices got way out of line with productive capacity." [Quoting Bill E]
Surely he meant:
“All I’m saying is there’s a bit of a shift in attitude where people realise there’s been some real excesses in the market, where LENDING got way out of line with productive capacity."
Who's fault is that?
Is there a government agency dedicated to monitoring this activity with a view to avoiding the instability "some real excesses in the market" of this ilk might cause, sorry, has caused?
If there is, what stopped them acting to avoid this problem?
Who's fault is that?
Cheers, Les."
17/11 PS - how could they redeem themselves? Ideas? We are actually glad when our police force enforce speed limits, are we not? If they didn't - would we pay them, or fire them?
Les,To be fair to the banks and the borrowers you have to put some context around how we got to this point. As you'd know the dairy payout had spiked dramatically at a time when there was money flooding into the country due to our high OCR enviroment. It was an explosive mix and greed took over and a bubble formed. All that needs to be done is for the market to find its level again, which it in the process of doing and another generation will have learnt their lesson the hard way. Im sure we'll warn our children who will no doubt make the same mistakes all over again in about 2030. Its just life.
I am being fair to banks and borrowers and I appreciate the context, but so did/should have, IMO, the agency repsonsible for requisite oversight of the situation. If did/they have not, why then have they since introduced and tried to introduce appropriate prudential measures in an attempt to avoid the problems we have and do still experience now?
Hear what you say, sure it's life, but, we can learn from this and not put our children in harms way in future if we put appropriate "speed limits" in place.
Cheers, Les.
As far as I am aware, it isn’t the bank's decision that they won’t lend to unprofitable businesses, so much as the regulators won't let them under Basel. Headings of this article I feel are a tad misleading. He doesn't actually say they are reducing their exposure, so much as I am assuming their exposure to the sheep and beef sector since 1996 hasn't grown at the same rate as their exposure to dairy etc?
Profitability is a struggle, and farmers like banks will have to take a hard look at the best places to allcate their precious capital.
Is this the first jibe in the pull out of Aussie banks that we fear? I guess we are all aware of the ironies... who helped to get everyone in the position they are in, in the first place. But that doesnt help.
Going from 40% to 20% of the lending, in these bubble years I expect it is because such a large part of the money went into dairying. Not that it has been pulled out of Sheep and Beef YET. Good first jibe. Attack. Attack the farmer... its the farmers fault, sort your shit, meat companies ra ra ra, over capacity etc. Where did the lambs and beef go... to dairy... which is still ensconsed in a deflating bubble created by who.... oh yeah the banks.
Also in todays Dom from Jon Morgan
".........Some way of easing the burden must be found. We would have to be careful not to call it a subsidy, but that is in effect what it would be. Call it a "heritage incentive", paid to keep farmers on the land....."
How can they print this flubbaa-wabbaa
Yeh right , lets borrow some money to keep farmers on the land, shit lets let some new farmers have a go. My farming mates in the poo, have large boats, big horse trucks for the wife, winters in the islands and not a clue in the world how the other half live. We need new blood.
I recall a year or so ago a rural banker telling a meeting of dairy farmers that their 100k drawings was not reasonable. Probably not considering they were staring down the barrel of a $4.60 payout at that point. But remember if you have a multi million dollar property one expects to live well. Of course when your equity is minute and getting smaller things must change. If only bankers lived by this rule also. They live by the rule that goes....the bigger the losses the bigger the bonus. The pot calling the kettle black. Personally I dont want to hear shite from bankers. Had one on my verandah about 5 or 6 years ago, who just did not understand the concept that equity can disappear as quick as a wink. As far as he was concerned making loans of 2 million or more on 4000 su s & b farms made perfectly good sense. I guess his commission on sale of money made the sense. Predatory lending. Should be put in jail.
The Hawkes Bay has always had its share of deluded landed gentry Andrew, guess nothing has changed, they are still deluded. Years ago at a polo match, I was appalled at the aristocracy type that was present. I was excercising ponies for a living, I was looked down upon cos they thought I was of the landless variety. What an exclusive club it was.
There was always a plan to find a rich farmer AJ, but I never found one I liked. At times while building our own little empire I rued the day I met my broken assed but hardworking chap. We had to start at the bottom rung of the ladder. Looking back at some of the people I thought were very well off, it turned out many were caught up in family squabbles, trusts etc.
I was interested in the" 80% that are struggling" comment. AJ, I might have to ease back abit on the optimism, that figure does surprise me but he would know more than most. However I guess we have had some lean years excentuated by successive droughts in parts so not that inexplicable.
I was always under the impression that the Hawkes Bay was quite prosperous. Surely your're not telling me its all pretence?
SS .
Decimated I thought would be the appropriate word but thats 1 in 10, I think. Well if decimated is 1/ 10 then what the hell is 8 in 10?
Its a collapse and the talk of Chinese buyers coming is all about saving the banks. We need these farms to get cheap and encourage keen young Kiwis back to the ,land. The market should be let alone to form the value of farms. Letting a lot of Asians in who wish to off load there $us as quick as possible before they become worthless is going to distort the market and lengthen our problems out for decades.
I look at this Government and I see them as trying maintain the status quo. Maintain the ridiculous inequality in wages between the state and private sectors, look after the elite keep the pork flowing. The article on the head of education getting over 500k is a good place to start. We are borrowing money to pay these overpaid bureaucrats what the hell kind of idiotic private business would do that? Why does Bollard get paid twice as much as Bernake? This is a Government for the rich and powerful, the banks and the government elite along with a few outsiders like the heads of Fonterra. Every decision made ask 'Cui Bono'
We have Crony-capitalism and governance.
Not quite as cynical as you yet AJ, but do agree whole heartedly with your view on letting the market settle the values wherever they fall. It would be a big mistake to allow mass sale of land to foreign interests for the sake of protecting farmer(and bank!) equity. NZ needs to rediscover the concept of cavaet emptor and not rush to put a hand out to the govt if things turn pear shaped.
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