New Zealand’s agricultural sector is facing difficult economic conditions, because of low dairy, meat and forestry prices, high operating expenses and increased debt servicing costs. Source: Timberbiz
Longer term, the sector faces uncertainty about the scale and timing of the costs of climate change, reports the Reserve Bank of New Zealand – Te Pūtea Matua in an extract from the upcoming Financial Stability Report.
“Whilst defaults in banks’ agricultural lending portfolios are currently low, they are expected to increase and could accelerate if there is a prolonged period of high costs and low prices,” said Kerry Watt, Director of Financial Stability Assessment & Strategy.
“It is encouraging that dairy prices have improved in recent auctions, and the deleveraging across the industry over the past few years means most farmers are well placed to manage challenges in the short term.
“The agriculture sector has huge social and economic significance in New Zealand. Our economy is more reliant on the agriculture sector compared with most other advanced economies and we monitor emerging risks and issues closely to protect the stability of our financial system.”
The agricultural sector represents 11% of all bank lending. Within agricultural lending, dairy takes the predominant share, at around 60%, with beef and sheep as the second largest category at 25%.
Across the agricultural sector, demand has declined from China, which typically purchased one-third of New Zealand’s dairy exports, 40% of its meat exports and 60% of its forestry exports.
