New Zealand’s dairy sector was until recently the backbone of the economy, representing around 25% of exports, but in the past two years, farmers have had NZ$7 billion (US$4,74 billion) wiped off their collective revenue.
Today, around 85% of farms run at a loss, leaving them fighting to stave off bankruptcy and forced farm sales.
Farmers’ struggles pose a risk to economic growth, and banks exposed to the sector, but alongside the financial cost, some fear a growing human toll: suicides as a result of the stress.
“We have accepted the fact that we are going to have financial casualties; what we don’t want are human casualties,” said Andrew Hoggard, dairy industry chairman for lobby group Federated Farmers.
Michelle Thompson, chief executive of the Rural Health Alliance, said New Zealand’s rural suicide rate has been 20-50% higher than the urban rate in the past 10 years.
A recent survey by Federated Farmers shows 11,1% of its dairy farmer members are experiencing pressure from banks over mortgages, compared with 6,6% six months ago. Around 3% of farms are at ‘extreme risk’ of going under.
Dairy farmer Louise Giltrap says she has to think twice before starting her tractor as it costs her money.
“It’s right down to the nitty-gritty, and you can’t do anything unless it’s going to have a payoff,” said Giltrap, who has 200 cows near Kerikeri, on New Zealand’s North Island.
Debt in the sector has nearly tripled over the past decade, and jumped 10% in the year to June 2015.
The dairy sector’s woes have hit the wider economy, with the central bank forecasting growth of around 2,3% in the year to March 2016, down from 3,6% a year earlier.
Weak dairy prices will have a ‘significant negative impact on the wider economy,’ said BNZ Head of Research Stephen Toplis.
The Reserve Bank of New Zealand warned this month that stress tests showed banks would report losses ranging between 3% and 8% of their dairy exposure, depending on the severity of the price plunge.
Banks have lent about NZ$38 billion (US$25,13 billion) to farmers, 10% of total lending in New Zealand. The five banks which were the subject of the stress tests represent nearly all the lending to the sector.
CHINA MILK DEMAND KEY
Since early 2014, dairy prices have fallen around 60% , in large part linked to weaker demand from China after it stockpiled milk powder, and with most analysts tipping milk prices to stay low for longer.
“In China itself, inventories are about the same as last year,” said David Mahon, managing director of Beijing-based Mahon China Investment Management, who estimated current stocks at around 300 000 tonnes.
“It’s going to be a very difficult year for Western farmers, Australasia particularly. Farms will close, there will be a lot of stress.”
Source: Namibian