The dairy downturn: How long can banks stand behind farmers?

Ryan Boyd
The dairy downturn: How long can banks stand behind farmers?

Farmers, and in particular, dairy farmers, are going to be doing it tough financially for a little while yet.

Westpac Head of AgriBusiness, Mark Steed, spoke to Duncan Garner on RadioLive Drive Time to explain how banks can help and what farmers should do.

Listen to the interview here or read the transcription below.

 

Duncan: The Reserve Bank has said that our banking system is robust enough to handle a severe diary downturn. Basically what they’re saying is we have some of the best banks around the world. So yes some dairy farmers are going to be doing this tough there is no doubt about it, But can the banks handle that, and how will the banks cope with all this?

I’m joined now by Mark Steed, Head of Agribusiness with Westpac.

Mark, what’s your reaction to what the Reserve Bank has said today, that all the banks are in pretty good nick to handle the downturn?

Mark: I think the key point in the Reserve Bank report is that New Zealand banks are well placed to support farmers.

Duncan: In terms of the implications from Westpac’s point of view, are you concerned about some of the lending on your books?

Mark: Certainly all the banks understand the volatility in the agri sector as they undertake their own stress tests. We’ve done our own within Westpac and we’re well positioned to be able to support our customers as we go through this challenging cycle. The key point is that we make clear to our customers that they remain in constant contact and communicate openly with their banks and advisors. Ultimately it’s a partnership as we navigate through these challenging times.

SEE ALSO: How dark are the gathering economic clouds for regional NZ?

Duncan: Do you have your people around the provinces sitting down with these farmers saying hey we’re going to hold your hand through this rather than perhaps back in the old days when some of these guys went to the wall?

Mark: Absolutely. We’re sitting down with our customers. Some are leveraged, some are moderately leveraged and we’re working through with them on a line by line basis on their accounts. We’ve seen what are discretionary expenses and to be fair the customer base is already very proactive on what they can cull. We’re seeing evidence of expense lines being reduced by 30-40% in some situations. Our customers in the dairy sector are being very proactive in scaling back in expense line that is far more relevant to today’s pay out.

Duncan Garner with a farmer

Duncan Garner with a farmer during last year's Westpac Growth Grants roadshow

Mark: As with any business, it’s safe to say some businesses are otherwise highly leveraged, they’ve got different operating models and management techniques, so there will be some who are under more stress than others, and we’ll be needing to work through those.

Duncan: Do you target different farmers with some of their exposure and say hey you have the issues, we’re going to work extra hard on you guys?

Mark: There’s no question that there will be undoubtedly some failures in the sector, and that’s really a direct consequence of levels of debt and their operating systems. We want to again stress that it’s about transparency of communication that they find time to talk with their advisors.

Having said that there are customers that we’re actively looking to acquire and we’ve also got existing customers who are excellent managers and we’ll be supporting them through the cycle.

Duncan: There’s been so much talk recently about how some farmers who actually walk off their land, who do fold and get out of the business because they simply can’t handle the pressure, the stress, and financial debt of it all. What’s Westpac’s take on that?

Mark: Our take is that undoubtedly there is a lot of stress out there in the sector and that’s evident. We’re running initiatives with JK (Sir John Kirwan) going out and doing town hall sessions with people. But undoubtedly the stress gets to a number of dairy farmers, both at the milk shed and contractor level and we encourage them to be open and talk to their bankers and advisors. That’s really a last resort kind of issue where we otherwise see dairy farmers walking off the land; we do not see that as a fundamental experience or response to the current downturn.

Duncan: And you guys are open to a phone call from the farmers saying hey we need to chat, can you come and see me? Are you open to that?

Mark: We’re not only open to that, we promote it. If we haven’t already spoken to our existing customers, we’d be welcoming a conversation with prospective customers, so we’re here and open for business.

Listen to the interview here.

SEE ALSO: How dark are the gathering economic clouds for regional NZ?

 

Tags:
, , , , ,