Dairy farmers in no hurry to pay back Fonterra loan despite interest kicking in

Most farmers will not be in a hurry to repay the loans they have taken out with Fonterra because of the low interest rate offered.

The loans have been interest-free from the time they were offered in October 2015 and remain so until June 1, when farmers will have to pay back at a rate yet to be set, but likely to be about 2.5 per cent.

Dannevirke farmer Lisa Charmley said her and her husband would be happy to repay at the low interest rate.

“A farm loan is about 5.6 per cent, so this is much cheaper, it’s a great interest rate. Last season we took it up and used it for cash flow.”

But economist Shamubeel Eaqub, who attacked the loan when it was first offered, said he still held to his view that investors buying units in the Fonterra Shareholders’ Fund (FSF) were poorly treated.

“It’s giving a concessionary loan to shareholders at the expense of investors who have no voting rights,” he said.

As soon as Fonterra lifts the forecast payout above $6 per kilogram of milksolids, the co-operative will start to claw back what was owed, but it will do so gradually.

Analysts are tipping Fonterra’s opening season forecast to be $6.25, in which case it would hold back 25c per kg/MS from each liable farmer until the amount had been paid off.

In all Fonterra lent $383 million to 76 per cent of its farmer/shareholders in order to smooth the impact of low global milk prices, which went from a high of $8.40kg/MS in 2013-14 to $3.90 in 2015-16.

Farmers applied for an interest-free loan of 50c for every kilogram of share-backed milk solids produced from June 1 to December 31, 2015.

A Fonterra spokesman said so far only $20m of the loan amount had been repaid.

The interest rate would not be set until late May, but given current interest rates, it is “likely to be approximately 2.5 per cent”.

Federated Farmers dairy spokesman Andrew Hoggard said he envisaged few farmers would be in a hurry to repay the loan because the interest rate was still well below that of a bank loan or overdraft.

“I still have a lot of maintenance to carry out on races and tracks so I’ll be fast tracking that maintenance and then clear the loan after another good year.”

There were a number of farmers who had been hit hard by recent storms who would use the loan as a chance to get their farms in shape.


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