By Aaron Passey, Federated Farmers Sharemilker Chairman
It is disappointing to see the disparity between dairy and sharemilkers in the recent Federated Farmers banking survey compared to November 2021.
In the May survey, sharemilkers reported sharp increases in communication being poor (from 14.1% six months ago to 28.8%) whereas dairy in general reported improving communication in the same time period (from 15.3% to 10.3%). Undue pressure from banks increased for sharemilkers from 10.6% to 21.1% while dairy largely remained unchanged from 14.0% to 14.4%.
Sharemilker respondents reported tougher financial conditions up from 17.7% in November to 31.3% in May (dairy only went from 18.4% to 20.9% in the same period). And there was a huge increase in sharemilkers being dissatisfied or very dissatisfied with their banks from 12.9% in November last year to 27.3% last month, where dairy overall only went from 13.3% to 16.0%.
Satisfaction with their bank was strongly linked to comments where the sharemilker didn’t have a relationship with their rural banker because they weren’t deemed to be at a high enough debt level to have this additional support. A relationship with a specialist rural banker is especially beneficial to the progression of sharemilkers through the industry, building wealth and equity to one day be farm owners (and much bigger clients) for these banks.
But instead of being treated as important future clients, so many sharemilker respondents to this survey cited being denied overdrafts to go contract milking because they don’t have previous annual accounts (having never been contract milking or sharemilking before), despite having off farm income and money in the bank (and being clients with these banks, often for several years previously).
Other issues coming from the comments in the survey included not being able to get in touch with their rural manager, not getting a response (or it taking weeks) when they need to extend their overdraft facilities, and being turned down for overdrafts and needing to take out a more expensive business loan instead. Changing banks was also cited as a challenge because their debt levels weren’t high enough for the banks to be interested in taking them on.
Sharemilkers on average also had a higher interest rate for mortgage lending compared to non-sharemilking dairy farmers of 5% compared to 4.55% and 7.97% for their overdraft compared to 7.07%.
However, there is a (very small) upside to this pressure. Sharemilkers overall were the best budgeters with 76.8% of respondents having budgets for the current season and 61.6% for future seasons compared to dairy at 66.6% current season and 41.17% future season.
What can sharemilkers do try and improve their situation and relationship with the bank? If you aren’t happy, do your best to shop around and find out from other sharemilkers and contract milkers locally which bank they would recommend and go with as much detail in your budgets and accounts as you can. Keep those budgets up to date, identifying early where you are going to need additional lending and contract milkers work with your farm owners if your contract milking rate isn’t keeping up with the additional cost pressures you are facing, especially around wages and fuel.
Banks, what do we need from you? While sharemilker and contract milkers lending isn’t high today, we need to be building their businesses to be future farm owners and support their progression through the industry – and they need you to help make this happen.