Banks are bullies with all the power over farmers, and the government is proposing to make things fairer with a scheme guaranteeing mediation, Agriculture Minister Damien O'Connor says.
Agriculture Minister Damien O'Connor Photo: RNZ / Richard Tindiller
The government is proposing a new scheme to help farmers in financial distress deal with their lenders.
Under a new bill, creditors - including banks - would be required to offer mediation before putting farms into receivership or liquidation.
New Zealand First MP Mark Patterson pushed for the law change last year, and legislation setting up the scheme has now been proposed by the government.
Agriculture Minister Damien O'Connor said that at nearly $63 billion, total farm debt was up by 270 percent compared to 20 years ago.
He said the costs of the mediation services would be split between the farmers and the banks, and their decisions would be binding.
"What it does is just puts in place a scheme ... mediators will be appointed, they can be nominated by the bank and then the farmer can then select which one - one of three - and then there'll be some timelines on the process.
Mr O'Connor said the banks had been bullying farmers.
"In the past there's been a huge imbalance of power, and basically when a farmer ... they may be cash positive but the equity may have disappeared and the banks just decide that they should close them down or sell them up and in a situation like that the farmer has very little power at all."
"It would be over 20 years that I have been working sometimes directly with farmers, sometimes indirectly ... all the banks that I know have been like this. In summary I guess they're bullies, they have all the power and they say what goes and that's not a desirable situation."
He said there was a system like this in Australia, and it was also being supported by the banks because it was better for them to ensure it was a fair process not driven "by a local manager or someone from head office".
He said farmers did not always have the resources to negotiate their own protection when dealing with lenders.
"This won't guarantee that farmers walk away from their debt at all, it won't guarantee ... that the bank misses out on what they're entitled to, but it does put in place a fair process."
He said the failure of farm businesses could have a ripple effect through regional economies.
Prime Minister Jacinda Ardern said farmers had suffered financial stress, with debt rising significantly over the past 20 years.
"Farmers are especially vulnerable to business downturns as a result of conditions that are outside their control and that can be anything from weather, market price, volatility, pests.
Mr O'Connor said the bill offered early intervention, which was a far better option than forced foreclosure.
Federated Farmers applauded the scheme's introduction, but cautioned banks against hiking their interest rates on farms to cover any potential extra costs.
"To be blunt, [the banks] haven't been short of profit, so they can afford to have a few additional costs quite frankly," National vice-president Andrew Hoggard said.
Mr Hoggard said he hoped banks would adopt a "more pragmatic attitude", but acknowledged most farmers already had a "reasonable relationship" with their lender.
"If this bill is really successful, then we won't actually need it," he said.
"It'll be driving communication and behaviour change right from the word 'go', so one would hope it's never actually required."
RITANZ - which represents insolvency practitioners - said the initiative was "a good start" and had generally operated well where it existed in Australia, but chair John Fisk said he would like to see the scheme expanded to cover more than just farmers.
"I would prefer to see a wider mediation process for businesses that get into difficulty. That ultimately is something we should be looking at."
Mr Fisk said farmers had been singled out because they lived on their farms, but many other business owners were in a similar position.