MPs told agriculture at a ‘crossroads’, but run out of time probing rural lending

Thursday, 23 May 2024

“That’s too short. That’s ridiculous” came the MP’s voice from off-camera after Federated Farmers had used up its 10-minute slot outlining the collapse in bank lending to the agricultural sector to the primary production select committee.

While the Commerce Commission is probing issues in the household banking market, farmers are asking for a similar investigation into the collapse of rural lending.

But on the broadcast of the hearing into whether an inquiry should be held, MPs showed frustration that the time set aside for them to hear evidence on the emerging funding crisis in the country’s biggest export sector was far too short.

Sharemilker Richard McIntyre, speaking for Federated Farmers, had so little time to make the case of an inquiry into rural banking, committee chairperson Anderson Miles showed regret in having to cut him off.

McIntyre was not alone in drawing MPs’ attention to the reduction in bank lending to farmers, which Federated Farmers said had dropped by $5 billion, or by 12%, since 2019.

“We are at a real crossroads in New Zealand agriculture,” said farm lending specialist Scott Wishart.

MPs thought it was 'ridiculous' how little time they had to inquire into lending to farmers.

“We’ve got an ambition to maintain our position as some of the best farmers in the world. This requires a significant amount of capital. It’s a capital hungry industry.”

Funding was needed so farms could be sold down the generations and for farmers to invest in farming becoming more sustainable, he said.

“There’s going to a lot of land use change in the future. This isn’t dairy conversions, but a lot of these alternative proteins, and other farming systems we are not even aware of, just the new technology and farming practices.

“The consequence of this lack of capital will be ultimately, businesses that should succeed and be shining lights to future generations, will fail,” Wishart said.

Farmers are increasingly at odds with their banks, MPs heard from McIntyre.

Banking had become the number one concern for farmers, and in its latest banking survey it found just 51% were satisfied with their bank, down from 80% five years ago.

A rising proportion of farmers felt they were being put under “undue pressure” by their banks- one in four today, compared to one in 20 in 2015.

Only one in five farmers felt “supported” by their banks, McIntyre told MPs.

The sharemilker said he was inundated by stories from farmers when preparing for the select committee hearing.

One story he related to MPs was of a banker who told a farmer to pay interest on his loan using an overdraft, a higher cost form of debt.

“That is no way in their best interests,” McIntrye said.

Federated Farmers provided a report to MPs, which claimed: “Many rural bankers have left the industry as they cannot in good conscience participate in activities that they view as placing their clients under needless financial and mental hardship.”

Richard McIntyre, from Federated Farmers, says there has been a big rise in farmers feeling they have been put under ‘undue pressure’ by banks.

The Federated Farmers report said: “Fewer and fewer bankers understand the rural sector, or even pretend to care.”

There had been a withdrawal of capital from rural New Zealand, he said.

Younger farmers who couldn’t get loans to get onto the land, and older farmers with equity couldn’t get small loans, he said.

“Too often farmers end up selling their farm and leaving the sector,” he said.

The bank funding reduction threatened GDP growth.

“This isn’t a situation that can support the doubling of agricultural exports over the next decade,” McIntyre said.

He blamed Reserve Bank changes to capital requirements in 2011, and again in 2019, aimed at increasing banks’ financial stability, but it came at a cost of higher interest rates costing the agricultural sector $310 million to $740m a year.

Farmers believe there is a growing ‘cows bad, houses good’ ethos in the banking sector.

Many farmers believe they are being overcharged for loans compared with people buying homes in cities, Federated Farmers has found.

The difference between residential and rural lending seemed to be roughly 2%, Federated Farmers said.

Some believe the banks have been using the capital requirement changes to increase their margins, MPs were told.

Representatives from Rural Women NZ said an inquiry should probe banks’ much-touted rural banking hubs.

After banks came under increasing pressure for closing branches and ATMs, threatening the viability of rural towns, they clubbed together to trial joint banking hubs, where people from any of the big banks could go to do their banking, effectively sharing the costs of running a rural branch.

But farmer Clare Davey-Martin said her experience of rural banking hubs was that they were so basic, she could not do anything but the most basic of banking through them.

Cambridge rural mortgage adviser Claire Williamson said there had been a drive by banks to have people do their banking online, and through apps.

But that was predicated on everyone in rural New Zealand having good connectivity.

“That’s not true,” she said.