They’re from the Opposition & won’t help

March 18, 2016

If I’m from the government, I’m here to help,  is greeted with suspicion, the sudden enthusiasm Opposition MPs are showing for the regions in general and dairying in particular is being seen as nothing more than political opportunism.

The Chicken-Littleing from Labour, the Greens, New Zealand First and some media isn’t helping.

The sky isn’t falling.

Dairy prices are lower in real terms than they have been for more than 20 years which is a challenge for farmers, sharemilkers, their staff and those who service and supply them.

There were a few forced farm sales and other business failures when the dairy price was over $8.

There will be some more in the coming months and that will be very difficult for everyone affected.

But most will hang on, with the support of their banks, and get through what is a temporary slump.

Labour leader Andrew Little’s attempt to demonise banks did nothing more than show he doesn’t understand what he’s talking about.

His calls for stiff arming banks and legislation to force them to pass on interest rate cuts has been greeted with the derision they deserve.

His response to the Reserve Banks’ explanation about its stress-testing of banks provided further evidence he doesn’t know what he’s talking about.

The media release made it clear the banking system was robust to a severe dairy stress test.

. . .Five banks that are the largest dairy sector lenders participated in a stress test run by the Reserve Bank in late 2015. Two scenarios were tested, with scenario one assuming that the dairy payout recovers to $5.25 per kilogram of milksolids by the 2017/18 season and a fall in dairy land prices of 20 percent. Under the second scenario, the dairy payout was assumed to fall to $3 in 2015/16 and remain below $5 until the 2019/20 season with a fall in land prices of 40 percent.

Head of Macro Financial Bernard Hodgetts said both scenarios assume the dairy payout remains lower for longer than was assumed in the economic projections contained in the Reserve Bank’s March Monetary Policy Statement.

“On average, banks reported losses under the two scenarios ranging between 3 to 8 percent of their total dairy sector exposures,” said Mr Hodgetts.

“Bank lending to the dairy sector stands at around $38 billion, which is approximately 10 percent of the banking system’s total lending. We would expect losses of the order seen in the stress scenarios to be absorbed largely through lower bank earnings rather than through an erosion of bank capital.”

The test results suggested that in the shorter term, banks would increase their dairy lending in order to support existing borrowers facing negative cash flow, before facing a longer term rise in loan losses if there were a prolonged dairy sector downturn. . . 

Anyone who understood this would have been pleased that banks were prepared to support existing borrowers and could cope with losses in a worst-case scenario.

That Little didn’t understand it became evident at Question Time on Wednesday:

Andrew Little: Is he at all concerned about the Reserve Bank’s projection that dairy land values will crash by between 25 and 40 percent, which will undermine the livelihoods of thousands of Kiwis?

Rt Hon JOHN KEY: That is the problem with the Leader of the Opposition—it is that you cannot take him seriously, when he actually misrepresents the Reserve Bank Governor. The Reserve Bank Governor is not saying there is a projection that land prices will drop by 25 to 40 percent; he is doing a stress test to say what would happen if land prices went down. There is quite a—

Grant Robertson: And that’s the scenario we’re in now.

Rt Hon JOHN KEY: Well, banks—reserve bankers do that all the time, because their prudential requirements require them to make sure the banking system is strong. And what he is saying is, even under a worst scenario like this, the banking system is very strong.

Andrew Little: Has the Prime Minister actually read the Reserve Bank’s report released at 2 p.m. today; if so, has he read it?

Rt Hon JOHN KEY: No, what I have read is the release—the press release—because it came out at 2 o’clock today, and I got this only 1 minute before I came here. But what the release says quite clearly is (a) the banking system is very strong, (b) under its worst-case scenarios—to quote—“The test results suggested that in the shorter term, banks would increase their dairy lending in order to support existing borrowers …”, and it is saying that even in the worst scenario, the losses could be between 3 percent and 8 percent of their total dairy exposure. Banks have considerably more exposure than just this, and, as the member was pointing out yesterday, banks have been making pretty good money. They can afford, if they have to—

Mr SPEAKER: Order! Bring the answer to a conclusion

Rt Hon JOHN KEY: —to take some losses in that sector.

Andrew Little: Does he agree with Mind Your Own Business that “approximately 100,000 businesses employing upwards of one million New Zealanders are facing reducing revenue because of the dairy downturn.”?

Rt Hon JOHN KEY: I do not have anything to back that up—I would need to see the analysis. But it could be as small as a business that is affected, from someone who sells sandwiches to someone who works in that area. There is a very large range of businesses in that sector.

Andrew Little: Is it fair that our dairy farmers go bankrupt and 100,000 small businesses face reduced revenue while overseas-owned banks continue to make $90 million a week and speculators circle over our farmland?

Rt Hon JOHN KEY: The member is, I think, terribly confused about what is happening. What you have got is a scenario where dairy prices are lower, and what we should be doing is supporting dairy farmers with the things that we can control. We cannot control the exchange rate and we cannot control commodity prices and we cannot control the weather. We can control free-trade agreements, planning laws, health and safety, Resource Management Act reform, and a variety of other things, and on this side of the House we support helping those farmers, actually, in good times and in bad.

With the exception of West Coast Tasman, Palmerston North and Winston Peter’s opportunistic enthusiasm for Northland, Opposition parties don’t even try to win regional seats.

Their MPs flit in for photo opportunities but their sudden faux support for dairy farmers merely shows how little they understand the people and the issues.

The dairying downturn is a passing car at which the Opposition is barking.

Farmers don’t want banks strong-armed, they don’t want bail-outs and they certainly don’t want a return to the any of the government-knows-best policies, the recovery from which necessitated the radical reforms of the 80s and 90s.

Those are mad ideas from the Opposition and they won’t help.


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