Cost should not shut borrower out of mediation, sharemilkers say

22 August, 2019  
The Sharemilkers Section of Federated Farmers strongly supports the Farm Debt Mediation Bill (No 2) but would like to see changes to ensure a borrower isn’t shut out of the process because they can’t afford it.

The legislation could make it compulsory for lenders to make funds available to farmers to fund their share of mediation costs, Sharemilkers Chairperson Richard McIntyre told the Primary Production Select Committee this morning.

Alternatively, it could require the lender to fund the mediation, “which we as a sector would no doubt fund indirectly through increased fees”.

McIntyre said experience showed that the formal dispute resolution process in sharemilking contracts is not always followed due to the financial imbalance that often exists between a farm owner and sharemilker, with the latter unable to afford their share of the cost.

“Sadly, the resulting outcome is often less than fair.”

Federated Farmers doesn’t want to see the same thing happen with farm debt mediation, particularly when banks can have control over a farmer’s or sharemilker’s overdraft.

“Our concern is that financially distressed sharemilkers will waive their right to mediation with their lender due to an inability to fund their required share of the mediation.  As a result, the process may in effect become voluntary on the part of the lender, as in most cases they hold the purse strings and therefore decide whether or not to make the money available to pay for the mediation,” McIntyre said.

NZ First MP Mark Patterson said the average cost of mediation was around $6000.

Sharemilkers may be “first cab off the rank” if banks look to rein in their exposure on agricultural debt, McIntyre said.

“Sharemilkers are future farm owners, but higher risk.  When banks are looking to increase their market share in the dairy industry, they will gladly take on sharemilker debt.  However, when they are feeling over-exposed and are looking to reduce their level of dairy debt, it’s the sharemilkers who feel it first.”

The Sharemilkers Section and its parent body, Federated Farmers of New Zealand, want the Bill to proceed but are seeking changes, including that mediators are suitably qualified and experienced not only in mediation but also in agricultural and rural sectors, provision for multiple parties to a mediation, and for an independent party to appoint an appropriate mediator.

Answering an MP’s question, McIntyre said it would be useful for a mediator to ask a borrower about their mental health.  Pressure on finances can involve “a great deal of emotion, stress and sleepless nights”.

The point at which compulsory mediation is triggered by the proposed legislation should be set earlier, such as an unachievable condition – for example, a significant clampdown on an overdraft facility that makes it impossible for the business to pay wages and operating costs, he said.