Farmer satisfaction with their banks is relatively stable but more are feeling under pressure and costs of finance are on the rise, the May Federated Farmers Banking Survey shows.
“Inflation is putting many New Zealanders and businesses under pressure, and our food producers are no different,” Feds President and economic spokesperson Andrew Hoggard says.
“For farmers, higher interest rates are coming on top of significant hikes in the cost of other farm inputs, including freight, fertiliser, fuel and labour. Information from Beef+Lamb NZ’s Economic Service this week is that on-farm inflation has hit 10.2 percent – the highest that it’s been since 1985-86.
“Ultimately, all of this will impact food prices.”
The Federated Farmers Banking Survey has been held twice-yearly since 2016. The May 2022 survey drew responses from just over 1000 farmers from around the country, with 64 percent saying they were very satisfied or satisfied with their bank relationship. This was down 3 points from the previous survey in November 2021. Arable farmers were most satisfied of industry groups, while Sharemilkers were the least satisfied, with fewer than half saying they were very satisfied or satisfied, Andrew said.
Just on14 percent of farmers perceived they had come under undue pressure from banks over the past six months, up slightly from November. Sharemilkers felt the most under pressure (21 percent).
Overall, banks’ conditions for lending became tougher rather than easier for all farm types, with 4 percent reporting easier conditions and 21 percent reporting tougher conditions. This was particularly the case for Sharemilkers and ‘Other industry group’ farmers (e.g. deer and goat farmers, bee-keepers, etc).
Over the past six months, the average farm mortgage value has increased from $3.6 million to $4.1 million while the median increased from $2.10 million to $2.25 million.
The average mortgage interest rate increased to 4.58 percent from 3.95 percent in November, showing the impact of OCR increases on lending rates.
“Last week the Reserve Bank put up the official cash rate 50 points to 2% and signalled more 50 point increases are in the offing. For a farm with a debt of $4 million, a 100 basis point increase in the lending rate translates as $40,000 extra in interests costs a year,” Andrew said.
The May survey showed that overall, 71 percent of farmers were paying a mortgage interest rate of less than 5 percent, down from 89 percent in November. No farmer was paying a rate higher than 10 percent, as was the case in November.
Satisfaction with bank communication continued to be stable, although slowly declining over the past five years. 57 percent said their bank communications had been very good or good, down slightly from November. Arable farmers rated their quality of communication the highest; sharemilkers were the least satisfied, with fewer than half saying they were very satisfied or satisfied. Those without bank loans were particularly unhappy with communication.
“The comments from respondents show that personal contact from bank staff had declined and most farmers were not happy about it. High staff turnover, rural bank branch closures with consolidation of staff into bigger branches and regional centres, and Covid work policies (e.g., working from home and less able to travel) were all cited as reasons for reduced personal contact,” Andrew said.
Just on 75 percent of farmers had an overdraft facility, similar to November. The average overdraft limit was $283,000, a $102,000 increase, while the median limit increased from $70,000 to $125,000. Overdraft interest rates also increased, with an average rate of 7.10 percent compared to 6.28 percent in November. Sharemilkers had the highest average of 7.97 percent and Arable the lowest of 6.55 percent.
Although most farmers had up-to-date budgets for the current 2021/22 season, fewer farms had an up-to-date budget for the upcoming 2022/23 season, the survey found.
“With the pressures coming on to the sector, farmers would be well-advised to have detailed up-to-date budgets and to be ready to raise any concerns with their banks or financial advisors earlier rather than later,” Andrew said.