By Gavin Evans
June 17 (BusinessDesk) - Mandatory mediation before enforcement is taken against farmers struggling to meet their loan commitments will ensure a fair process and take some of the pressure off rural families during times of stress, Agriculture Minister Damien O’Connor says.
The Farm Debt Mediation Bill, expected to be introduced shortly, lays out a process in which mediation can be sought by either the farmer or the bank. If a bank declines to participate in mediation, the farmers can seek a six-month stay and mediation would still be required before any enforcement action can be taken.
O’Connor says the bill attempts to address the power imbalance between banks and farmers. He particularly cited the example of banks taking action against farmers who may be covering their loan costs, but have fallen below the required level of equity in their business.
“It brings some balance back into the equation,” he told journalists at Parliament today.
“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.”
The bill started life last year as a members’ bill promoted by NZ First’s Mark Patterson. It was taken up by the government as part of the coalition agreement between Labour and NZ First to seek solutions for farm debt.
Patterson said NZ First had introduced this type of legislation to Parliament first in 1999, and then again in 2015 and 2018.
“When we first introduced this type of legislation in 1999, farm debt was at $11.7 billion. Today, that number is $62.8 billion. After trying for 20 years we finally have a government willing to take decisive action,” he said.
The government’s decision to take up the bill was welcomed by both the New Zealand Bankers’ Association and Federated Farmers.
"There is no substitute for good communication and we urge farmers and their banks to keep in close touch and build positive relationships in good times and bad, with or without farm debt mediation," federation vice president Andrew Hoggard said.
"Although we hope this legislated farm debt mediation won’t have to be used very often, it will have done its job if it helps banks and farmers find enduring and sustainable solutions before it is too late."
O’Connor noted that most of the increase in farm debt the past 20 years had been for development.
But he said lower dairy pay-outs in recent years had seen some farmers borrowing more to support their income.
He acknowledged that banks haven’t been intervening as much as they may have in the past.
That said, “I think the banks don’t want to see any more borrowing, but clearly working capital is required both for individual farmers and across the sector.”