PR - NEW ZEALAND DAIRY FARMERS’ DEBT MANAGEMENT STRATEGIES

Abstract

New Zealand’s dairy farming sector has changed dramatically over the last two decades. As a result of growth in demand, dairy farms have become more intensive in production, more capital- intensive and have more debt. Previous empirical studies show, rather than keeping debt low, dairy farmers in New Zealand are more focused on monitoring and managing debt to control financial risk. Despite this, little is known about the structure of debt and the debt management strategies that dairy farmers use within their farm businesses. So, the objectives of this study are to provide insights into New Zealand dairy farmers’ debt structure and the strategies they use to manage debt.

Results on farmer determinants for leverage ratios indicate an awareness of the reality of farming in an unprotected environment and the need to have their own backstop for poor years, at the same time as having the agility to capture opportunities when they arise. While adopting floating rates has taken precedence over fixed rates in recent years the most important determinant of debt amortization policies is debt repayment. This strategy suggests a strong focus on liquidity, or cash, with the farmers maintaining control on when cash is spent.

Keywords: dairy farming, New Zealand, financial management, debt management