Rural round-up

July 8, 2019

Katie Milne addresses national conference:

Kiwis can be proud of the rural women and men who produce the top quality food that arrives daily in supermarkets, and the extra which is shipped offshore as exports that help fuel our economy.  Over 65% of our exports come from agricultural food production and we produce it with a lower carbon footprint than any other country in the world.  

Biosecurity threats, geopolitics, alternative proteins, robotics, disruptors, food and environment sustainability…there’s no shortage of challenges and change confronting us. 

But you should also know – especially if you’ve been fortunate enough to catch some of the keynote addresses and panel discussions of the inaugural Primary Industries Summit that Federated Farmers organised and has hosted Monday and Tuesday – that New Zealand also has a wealth of ideas, talent and drive to deal with these big issues coming at us. . .

Tougher bank capital rules could slice 10% from dairy profits – Rabo NZ – Rebecca Howard:

(BusinessDesk) – Stricter bank capital requirements would severely dent dairy farm profits if the Reserve Bank goes ahead as planned, warn dairy interests in submissions on the contentious proposals.

“Our initial estimates are that the proposals could – at least in the short term – result in approximately a 10 percent decrease in profit for the agriculture sector,” Rabobank New Zealand said in its submission. . .

Trees replace top cattle – Annette Scott:

As far north as sale yards get in New Zealand the Broadwood selling centre in Northland hosted one of the country’s more notable capital stock clearing sales last week.

On behalf of Mark and Michelle Hammond of Herekino, Carrfields Livestock held the sale of a Hereford beef herd that put 50 years of top-quality genetics under the hammer, the animals’ grazing land destined for pine trees. . .

Ruapehu rural reading scheme spells out a winning idea  –  Katie Doyle:

A pair of librarians from the central North Island town of Taumarunui are bringing a love of reading to rural school children.

Fiona Thomas and Libby Ogle have started their very own mobile library – each month ferrying a load of books to two isolated primary schools in the Ruapehu District.

The idea came to life eighteen months ago when Mrs Thomas realised some kids in the region couldn’t access the library because they lived too away. . .

Blue Sky reports best result in 8 years – Rebecca Howard:

(BusinessDesk) – Southland meat processor and marketer Blue Sky Meats says the year to March was its best result in eight years as a strategic plan bore fruit.

The company, which is due to release its annual report shortly, said the March financial year ended with revenue up by 34 percent to a record $140 million. Pre-tax profit was up 36 percent at $5 million. . .

Overseas investors fined almost $3 million for illegal purchase of Auckland properties:

The High Court yesterday ordered the overseas owners of two rural properties at Warkworth, north of Auckland, to pay $2.95 million to the Crown after an Overseas Investment Office (OIO) investigation found they were bought without consent. The properties were bought in 2012 and 2014.

The court ordered the owners to sell the properties and pay penalties, costs and the gain made on the investment.

The overseas owners – Chinese businessmen Zhongliang Hong and Xueli Ke, and IRL Investment Limited and Grand Energetic Company Limited – should have applied to the OIO for consent to buy both properties because they are rural land of more than five hectares. . .

Latest technology to be demonstrated at the Horticulture Conference 2019:

Technology that will help fruit and vegetable growers now and in the future will be demonstrated at Our Food Future, the Horticulture Conference 2019 between 31 July and 2 August at Mystery Creek, Hamilton.   

‘We’ve gone all out to ensure that this year’s conference features demonstrations of technology that can help growers tackle some of the challenges that they face,’ says Horticulture New Zealand Chief Executive, Mike Chapman. 

‘From biological control products for crop protection to robots for asparagus harvesting and greenhouse spraying, they will all be demonstrated during the morning of second day of the conference.  . .

Ben Richards becomes Bayer Marlborough Young Viticulturist of Year 2019:

Ben Richards from Indevinbecame the Bayer MarlboroughYoung Viticulturist of the Year 2019 on 4 July following the competition held at Constellation’s Drylands Vineyard.

Congratulations also to Jaimee Whitehead from Constellation for coming second and Dan Warman also from Constellation for coming third. . 


Rural Round-up

June 17, 2019

ANZ’s rural manager questions capital call – Richard Rennie:

It is a case of when rather than if banks will have to increase their capital reserves against loans and rural customers will end up paying, ANZ commercial and agricultural manager Mark Hiddleston says.

Late last year the Reserve Bank said it wants banks to increase the amount of capital held as security against loans, with weighted capital increases likely to be greater for riskier parts of banks’ lending. 

That prompted fears the dairy and construction sectors in particular could wear the brunt of the higher capital requirements through higher interest rates. . .

Community a priority for environmental winners – Nigel Malthus:

Staying in touch with their community is a priority for the 2019 Canterbury regional Ballance Farm Environmental Award winners, Duncan and Tina Mackintosh.

The Mackintoshes own and run White Rock Mains farm, a 1056ha sheep and dairy support property nestled against the hills at North Loburn, near Rangiora.

Their recent winner’s field day featured presentations from the local North Loburn Primary School, which has partnered with the Mackintoshes on Garden to Table and Predator-Free programmes.

Cattle culls don’t rely on tests – Annette Scott:

Herds with cattle bought from properties confirmed as being infected with Mycoplasma bovis will be culled, regardless of test results, Primary Industries Ministry chief science adviser John Roche says.

More efficient testing is in the pipelines but it’s several years away.

In the meantime any herds containing cattle from properties confirmed as infected will be considered extremely high risk and will also be culled, Roche said.

Tests being used are adequate to determine the need to cull infected and extremely high risk animals.  . .

Climate change and the rural way of life – Alex Braae:

The government’s environmental policy is creating major tensions in farming communities. Alex Braae went to a meeting in Taumarunui to see it play out. 

“We’ve got to get the government’s attention somehow. Okay, we’re not all going to jump on our tractors and drive to Wellington. But we could jump on our tractors and block all the roads for a day and a half, just to get them to listen.”

The comment came from the floor, at a public meeting on carbon farming being held at the Taumarunui Golf Club. It was a rainy day, which meant farmers had some free time. The room was packed and fearful. In question was the future of their town, their district and their way of life.

A while ago, some farmers started talking about the ‘triple bottom line’ – economic, environmental and social. They started assessing themselves on not only how much money could be brought in, but how the farm contributed to the wider community and ecosystem. It’s a concept borrowed from the world of corporate sustainability, and has parallels in the long term view of what farming should be about. Obviously, the performance of the farming world has been mixed on all three, particularly the environmental bottom line, but the mindset is changing.. . 

One billion trees snag? Bay of Plenty, Taupō face ‘drastic’ shortage of planters – Samantha Olley:

The Government wants one billion trees planted across the country by 2028. It has allocated $120 million for grants for landowners to plant new areas and $58m to set up Te Uru Rākau forestry service premises in Rotorua. Across the country, 80m trees are expected to be planted this season. However, Bay of Plenty and Taupō contractors are facing an uphill battle to get trees in the ground. Reporter Sam Olley investigates.

CNI Forest Management has 100 planters working in the wider Bay of Plenty and Taupō this season but it’s not enough and the company is struggling to find workers now more than ever before.

Director Stewart Hyde told the Rotorua Daily Post the company started recruiting six weeks before the start of May when planting began, but “we just can’t get enough people”.

“It’s having a drastic effect.” . . 

How to restore depleted soils with cattle – Heather Smith Thomas:

Michael Thiele’s mission today is to acquaint more farmers and ranchers with a holistic view of agriculture.

Thiele grew up on a farm west of Dauphin, Man., just north of Riding Mountain National Park. His father had a small grain farm and a few cows.

“We were busy trying to farm and make a living and like all the other farmers around us, we were creating a monoculture of grain crops — mostly wheat, canola, oats and barley,” says Thiele.

“When I went to university, I thought soil was simply dirt,” he says. People didn’t realize how alive soil is, teeming with life and activity, and how much we depend on a healthy soil system. Now Thiele is trying to help producers understand that the way we farmed created unhealthy soil. . . 

 


Reserve Bank’s plan to cost farmers up to $8m/year more

May 7, 2019

The Reserve Banks’ plan to require banks to hold more reserves could cost farmers up to $800m a year in extra interest:

Estimates of the impact on interest rates range from the Reserve Bank’s own stab of 20 to 40 basis points up to the 120 bps estimated by the local arm of Swiss investment bank UBS, Federated Farmers says.

Multiplied across the agricultural sector’s $63 billion debt pile that would see farmers slugged for anywhere between $120m and $800m in extra interests costs annually.

“For farmers an increase in costs along the lines of the Reserve Bank’s modest estimate would be unwelcome enough while the worst-case scenario would be devastating,” the federation wrote to the Reserve Bank.

The bank wants trading banks to increase the minimum amount of capital they hold against loans from 8% to 16% within five years.

The increase is designed to ensure the banks have the capital needed to survive the write-downs on loans the Reserve Bank estimates would come with a one-in-200-years downturn.

Officially, the cost to the banks of meeting the new capital minimums is being put at $20b but banking sources believe it could be billions more. . . 

Ensuring banks survive a crisis is sensible but the Reserve Bank’s plan would require far greater reserves than ought to be needed and that will add high and unnecessary costs to loans.

Westpac NZ chief executive David McLean said shareholders in the banks’ Australian parent companies will not stump up that sort of money unless they can see a return.

In all likelihood that means interest rates would have to rise to offset the decrease in returns that would come with holding higher amounts of capital against the same amount of lending.

“We think the middle of that 80 to 120 basis points range is where it might come out but that is an average across all lending and it may fall differently across different portfolios of lending,” McLean said.

The increase is likely to be at the higher end of that range for agricultural lending because of the higher risk weighting applied to lending against farms, which historically experience bigger ups and downs in values and are seen as a riskier form of security than houses.

Because agricultural lending soaks up more capital per dollar lent the returns are lower for the banks’ shareholders relative to other types of lending where less capital is required. . . 

Should borrowers have to pay the price for safeguarding banks against a one in 200 year downturn?

The ANZ is warning farmers that if the Reserve Bank’s plan is implemented it will increase the cost of borrowing.

That in turn will increase the cost of production resulting in lower profits from farming and/or higher prices for food and fibre.

The Australian-owned companies which dominate the banking sector in New Zealand weathered the global financial crisis, why force them to hold such high reserves?


Rural round-up

January 10, 2018

Tests confirm cattle disease Mycoplasma bovis on Ashburton farm:

The Ministry for Primary Industries (MPI) confirms that the bacterial cattle disease Mycoplasma bovis is present on a farm in the Ashburton area.

The Ministry’s response incident controller David Yard says milk sampling carried out by the dairy industry just before Christmas revealed a suspected positive result and MPI’s Animal Health Laboratory testing has just confirmed this.

“The affected farm and an associated property have been under controls since Christmas Eve as a precautionary measure. No animals or other risk goods such as used farm equipment have been allowed on or off the property during this time and these controls stand,” Mr Yard says. . . 

Water taxi arrives in North Otago

It’s been a funny old year on Gareth and Sarah Isbister’s farm, Balruddery, near Five Forks.

Swamped by rain, the cattle farmers finished 2017 beside the Kakanui River with new irrigation and options.

The Isbisters are happy to have the extra water on hand after a difficult 12 months for an irrigation rollout in their area.

Their supplier, the farmer-owned North Otago Irrigation Company, was meant to be pumping high-pressure flow to downland farmers like them in late 2016. Joint faults in pipes put paid to that idea, costing shareholders as the contractor fixed its faulty workmanship. . .

Ruawai farmer survives being trampled by stampeding herd:

Dairy farmer Chris Baker says he is “hellishly lucky” to have survived a stampede by his 180 cows that left him trampled, unconscious and with broken bones.

The 61-year old Ruawai man has been a dairy farmer for 40 years, and has never before been in such a life threatening situation.

He does admit to being kicked in the chest and elsewhere a few times by cows, “but that’s just day to day farming.”

Baker said he did nothing different or wrong last Tuesday but the freak occurrence could have left him dead. He now has a cautionary tale for anyone working on their own on a farm, and with animals. . . 

Pastures imperiled by seawater flooding – Jessie Chiang:

Seawater flooding of rural properties in Kaiaua is going to have a serious impact on farmers, Federated Farmers says.

Wild weather and a king tide last week caused widespread flooding in the coastal region on the western side of the Firth of Thames, leaving behind soaked properties filled with debris.

The federation’s Hauraki-Coromandel president Kevin Robinson said saltwater destroys pastures.

He said farmers would now have to wait for rain to wash away the salt before they could replant grass.

“It’s become evident that there are quite a few farmers there who [have been] significantly affected by the tidal inundation – one farmer 100 percent and others to a lesser degree,” said Mr Robinson. . . 

MyFarm sees dairy farm investments waning, eyes growth in horticulture – Tina Morrison:

(BusinessDesk) – MyFarm Investments, New Zealand’s largest rural investment syndicator, is moving its focus away from its dairy farming origins and expects future growth to come from smaller overlooked investments such as fruit.

The rural investment firm was set up in 1990, initially investing in dairy farms which it syndicated to investors. It has since diversified into sheep and beef farms, horticulture and mussel farming and has more than $500 million of rural assets under management. About half its assets are dairy farms, with some 30 percent in sheep and beef farms and 20 percent in other investments, and the company expects its dairy investments to shrink as farms are sold when investments mature while the proportion in other areas grows. . . 

Have banks signalled they’ve had enough of funding the dairy industry? If funding is closed off, the new Govt’s obligations for the industry are likely to be expensive and even more stressful– David Chaston:

Rural borrowers currently owe banks in New Zealand $60.4 bln, according to the Reserve Bank.

With banks over the past decade rushing to support the capital needs of the growing dairy sector, two thirds of this rural debt is held by dairy farmers.

All rural debt represents just 14% of the debt held by banks in New Zealand and pales in comparison to the 56% of all debt banks hold over urban residences ($240 bln). These numbers don’t include another $4.9 bln lent to the rural support sector or the forestry or fishing sectors. . . 

Young Taranaki local wins Poultry Industry Trainee of the Year Award:

Henry Miles is a busy young man who is about to become even busier. Next month, the 21-year-old New Plymouth resident, who is currently Assistant Manager of a Tegel meat chicken farm, will step up to manage a large new free-range farm – which will expand to a total of eight sheds by adding a shed every seven weeks.

It is a role that Henry is well prepared for, having gained a thorough grounding in poultry farming since leaving school in 2014. . . 


Moving targets

November 10, 2017

National used yesterday’s question time to attempt to get clarification on the government’s targets for housing and spending.

The answers weren’t helpful:

1. Rt Hon BILL ENGLISH (Leader of the Opposition) to the Prime Minister: What will the specific measurable targets be, if any, that she will use to hold her Government to account?
Hon KELVIN DAVIS (Acting Prime Minister): As Prime Minister, I will hold my Ministers to account for improving the well-being and living standards of New Zealanders.
Rt Hon Bill English: What is the appropriate measure—[Interruption] 
Mr SPEAKER: Order! Sorry, I’m just going to start right now. Who is the member who interjected then? Right, there’s an additional question to the Opposition.
Rt Hon Bill English: What is the appropriate measure we should follow to monitor progress on KiwiBuild where the Government has committed to build 100,000 houses over the next 10 years?
Hon KELVIN DAVIS: We will make decisions on appropriate targets in due course.
Rt Hon Bill English: So does that mean that the current expression of the Government’s commitment, which is “to build 100,000 houses over the next 10 years” does not necessarily mean what most people would take it to mean?
Hon KELVIN DAVIS: We will make and confirm decisions on appropriate targets in due course.
Rt Hon Bill English: Does the Government stand by—[Interruption] 
Mr SPEAKER: Order! The chief Government whip, I think, interjected, or someone around her did. There is a further supplementary to the Opposition.
Rt Hon Bill English: Does the Prime Minister stand by her Government’s commitment to “build 100,000 houses over the next 10 years”?
Hon KELVIN DAVIS: We will make and confirm decisions on appropriate targets in due course.
Rt Hon Bill English: Why did the Government commit to “build 100,000 houses over the next 10 years” if it is now not willing to re-express that commitment in this House?
Hon KELVIN DAVIS: Because the previous Government didn’t build houses.
Rt Hon Bill English: Is it possible that the Government is revising this commitment because of public statements made by the Minister of Housing and Urban Development, that the commitment may involve not building houses but buying existing houses?
Hon KELVIN DAVIS: No. 
Rt Hon Bill English: What other reason could there possibly be for not being willing to restate a commitment made by all its members right though the election campaign to “build 100,000 houses”? What other reason could there be not to make that commitment here today? 
Hon KELVIN DAVIS: We are not revising targets. We will make and confirm decisions on appropriate targets in due course.
Rt Hon Bill English: So is the commitment to build 100,000 houses an appropriate target, or one that is subject to revision or further decisions, or is it one that we should take at its word? 
Hon KELVIN DAVIS: The member will find out in due course. . . 

That sounds like the answer is if there’s a target it’s a movable one.

Hon Michael Woodhouse: Who is correct: the Minister of Housing and Urban Development, who says that there is a fixed commitment to build 100,000 extra houses, or the Prime Minister, who says such a target has not yet been set?
Hon PHIL TWYFORD: Both the Prime Minister and the Minister of Housing and Urban Development have reiterated our policy, which is to build 100,000 affordable homes to restore affordable homeownership to this country. . . 

That’s the policy but what’s the target?

The Reserve Bank also questions the number of houses that will be built:

The Government has announced an intention to build 100,000 houses
in the next decade. Our working assumption is that the programme
gradually scales up over time to a pace of 10,000 houses per year by
the end of the projection horizon. Given existing pressure on resources
in the construction sector, the aggregate boost to construction activity
from this policy will depend on how resources are allocated across public
and private sector activities. The Government intends to introduce a
‘KiwiBuild visa’ to support the supply of labour to high-need construction related
trades. While accompanying policy initiatives may alleviate
capacity constraints to some extent, our working assumption is that
around half of the proposed increase will be offset by a reduction in
private sector activity.

It could be the new house target is a movable one because there’s more than a little doubt about the finances:

3. Hon STEVEN JOYCE (National) to the Minister of Finance: Can he confirm it is his intention as Minister of Finance to ensure core Crown expenses do not exceed $81.9 billion in 2017/18, $86.1 billion in 2018/19, $88.2 billion in 2019/20, $91.8 billion in 2020/21, and $96.1 billion in 2021/22, as specified in the Labour Party’s pre-election Fiscal Plan?
Hon GRANT ROBERTSON (Minister of Finance): I can confirm that it is my intention for core Crown expenditure as a percentage of GDP to be within the recent historical range. As to the exact figures in the member’s question, I cannot confirm those as, of course, they are subject to detailed Budget decisions and revenue forecasts that are yet to be finalised.
Hon Steven Joyce: Can he confirm that he stands by his statement from 4 September this year, and I quote, “Labour’s Fiscal Plan is robust, the numbers are correct and we stand by them”?
Hon GRANT ROBERTSON: I can confirm that the Budget that this Government is putting together will be robust and it will deliver on a commitment that this Government has made to ensure that all New Zealanders share in prosperity.
Michael Wood: What else, in addition to managing core Crown expenditure, will guide the Government’s approach to responsible fiscal management?
Hon GRANT ROBERTSON: The Government will observe the Budget responsibility rules as indicated in the Speech from the Throne: namely, delivering a sustainable operating balance before gains and losses; reducing net core Crown debt to 20 percent of GDP within 5 years; and ensuring a fair and balanced progressive taxation system. We will also never forget that the purpose of a strong economy is to give every New Zealander the chance to share in prosperity, and we will never be satisfied while children live in poverty or families sleep in cars.
Hon Steven Joyce: Does he stand by his statement also on 4 September, and I quote, that “Our operating expenses are above the line and are clearly stated.”?
Hon GRANT ROBERTSON: The Budget that this Government will prepare will be clear about what we are spending and where the revenue for that is coming from.
Hon Steven Joyce: So that’s a no. Can I also ask: does he stand by his statement, and I quote, “We have quite clearly put in the spending requirements to meet the promises we have made. Our fiscal plan adds up. We are absolutely clear that we have the money to meet the commitments that we’ve made.”, also on 4 September?
Hon GRANT ROBERTSON: The Government will prepare a Budget that shows how we will pay for the important commitments that we have made to ensure that every New Zealander benefits from economic prosperity.
Hon Steven Joyce: Can the Minister of Finance then confirm that it is not his intention to necessarily ensure core Crown expenditure does not exceed $81.9 billion this current financial year, $86.1 billion in the next financial year, $88.2 billion in 2019-20, $91.8 billion in 2020-21, and $96.1 billion in 2021-22? Can he confirm that’s not his intention, even though it was specified in the Labour Party’s pre-election fiscal plan?
Hon GRANT ROBERTSON: I can confirm that we will keep Government expenditure as a percentage of GDP in line with the historical range.
Hon Steven Joyce: Can the finance Minister then confirm that he doesn’t at all stand by the numbers he presented in the Labour Party’s fiscal plan prior to the election?
Hon GRANT ROBERTSON: The Government is currently going through the usual process of putting together a Budget. We are absolutely confident that we will deliver a Budget that is in line with the Budget responsibility rules that were outlined in the Speech from the Throne and that will deliver to New Zealanders a fair share in prosperity. As I said in my primary answer, the final numbers are the subject of the normal Budget process. . . 

Hon Steven Joyce: Is he saying that the actual numbers written on the Labour Party’s fiscal plan prior to this election, which he and his colleagues defended vigorously during the election campaign, are no longer relevant? The comments he has made suggest that he will put whatever numbers he likes in front of the public in due course in the next Budget.
Hon GRANT ROBERTSON: I have been absolutely clear that the commitment that we have made is that Government expenditure as a percentage of GDP will remain in line with the long-run historical trend. Members on the other side of the House well know that we will now be looking at new revenue forecasts and, indeed, new growth forecasts. They will determine the exact numbers that are presented. But we are very clear on this side of the House: our number add up. . . 

Hon Steven Joyce: Has he noted how often the Reserve Bank mentioned policy uncertainty in their Monetary Policy Statement this morning, and has he considered how his statements in the House this afternoon and his responses to questions will not help with that policy uncertainty when the Reserve Bank was obviously placing some credence on his previous statements about Government expenditure and now he is not even standing by those?
Hon GRANT ROBERTSON: The Reserve Bank Governor noted today that his thinking was preliminary, and, just like the member opposite, when the Half Yearly Economic and Fiscal Update and Budget Policy Statement are released before the end of the year, there will be significant certainty about our spending plans. If the member can’t wait, I’ll make up a special advent calendar for him so that he can count down to the half yearly update.

In opposition you might be able to get away with vagueness, but governments need to be much clearer on its spending plans so that public institutions like Treasury and the Reserve Bank have sufficient information to perform their roles effectively.

“This morning’s Monetary Policy Statement from the Reserve Bank makes numerous mentions of domestic policy uncertainty including ‘uncertainty around tax policy’, uncertainty around the ‘future impact of these policy changes’ and ‘heightened uncertainty regarding the domestic outlook,” Mr Joyce says.

“While the Bank is taking a steady as she goes approach at this point, it is clear that their economic forecasting is affected by a lack of clarity from the new Government as to their fiscal and economic plans.

“This is not a surprise as we are all still yet to see the figures underpinning the coalition agreement between Labour and New Zealand First, which was signed over two weeks ago, and we are all still yet to see the Government’s mythical final 100 Day Plan.

“Yesterday’s Speech from the Throne contained 51 new spending commitments, which will put significant pressure on the Government’s spending track and net debt.

“The first Bill In Parliament this week seeks to legislate for $325 million of extra spending, without any reference to how this fits in to the government’s wider spending plan.

“The public will rightly be concerned that the large number of spending promises they have heard about could sacrifice New Zealand’s hard work to get back into surplus and start paying down debt.

“The irony is that in recent years all the economic risks have been offshore. Now just as the world economic outlook is strengthening, all the risk and uncertainty is being generated domestically by the economic opaqueness of the new Government.

“It is time for the Government to be much more transparent and start releasing more details of their fiscal plans.”

It’s possible they haven’t got any fixed ones, like their housing target they’re movable.


Too little and too much

April 5, 2016

Oh Dear.

Labour leader Andrew Little still wants to stiff-arm banks:

. . . ‘I stand by the stance I took, which is to get very heavy-handed with the banks. Because the truth is when the banks fail to follow the signal that the Reserve Bank is sending, that’s keeping money out of the back pockets of ordinary Kiwis, and I will always fight for their interests and for their rights. If the banks don’t want to play ball when it comes to the way we run our monetary policy, actually, there’s only one outfit that can really take them on, and that’s the government.’. . .

The Reserve Bank is independent because it’s not the government’s role to set interest rates.

Retail banks are independent businesses and it’s not the government’s role to tell them what interest rates they should charge.

Interest rates are at historically low levels. They are higher in New Zealand than in many other countries which is partly a reflection on overseas investors’ perception of our economic and political stability.

That would be threatened by any stiff-arming of banks by government.

State intervention would also make business more risky for banks, the lenders and their borrowers.

Little’s not the only politician on the left who wants the government to get involved in banking.

Green co-leader James Shaw wants it to give $100m to Kiwibank which Prime Minister John Key described as dangerous:

He told Morning Report he did not support the idea, as the bank would be asked to make “non-commercial loans” – putting it in a weak position.

He said the Greens were using a state-owned enterprise (SOE) to bring about a policy goal.

“But to do that would be highly dangerous, because what you will end up doing is being in a position where you’re effectively asking them to make non-commercial loans, and potentially non-commercial returns.”

Mr Key said that would be “very poor public policy” and could lead you to a situation where the bank had to be bailed out. . . 

Jim Rose at Utopia points out other flaws:

Note well that the $100 million capital injection is to expand in to commercial banking. More aggressive passing on of interest rate cuts may jeopardise credit ratings if this lowers the profitability of KiwiBank. KiwiBank has an A- rating. . .

KiwiBank is minnow in the mortgage market and a pimple in commercial lending. Rapid business expansion is risky in any market, much less in banking. . . 

The proposal to use KiwiBank to lower mortgage rates does not add up. KiwiBank does not pay much in the way of dividends to fund such a foray.  KiwiBank is already far more leveraged than any other New Zealand major bank. 

Rob Hosking points out that while the policy might have political appeal it is bad economics:

Somewhat lost in all this is the risk of a policy that will encourage New Zealanders to take on more debt. . . 

 

New Zealand’s current account deficit has been there since 1974 and although it is now lower than the peak it reached a decade ago, it is still firmly in the red.

The Scandinavian and North European countries might be running larger household debts on their balance sheets, but these are internally funded: Norway and the Netherlands, for example, are running current account surpluses of  around 10% of GDP as opposed to New Zealand’s 3% of GDP deficit.

So they can afford to run up those debts.

New Zealand cannot. And a drive to push interest rates down – a taxpayer-funded drive no less – sounds more than a little foolish given New Zealand’s long-standing economic and financial vulnerabilities. . . 

Shaw’s suggestion of $100m sounds like a lot of money and it is far too much for taxpayers but it wouldn’t be enough to help many people.

Besides, if people can’t borrow money at the current very low rates, it would be a dangerous move for them, the banks, any other creditors and the wider economy, to try to make it easier.

When Labour was in power in the 1980s interest rates were higher than 20%. When it was in power in the noughties, interest rates were in double figures, well above current rates.

There were several reasons for that and the big one which politicians could have influenced was high government spending and mismanagement of public money.

If Little and Shaw want to keep interest rates low they should be supporting the current government’s efforts to keep a tight rein on its spending and developing policies which would continue that.

That is far better policy than either stiff-arming banks or using more taxpayers’ money to prop up Kiwibank.


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.


%d bloggers like this: