Farmers to get interest free loans

Fonterra is stumping up $15 million for interest free loans to dairy farmers struggling with lower payouts and high debt.

The dairy co-operative said today it was lending up to $15 million to its 50 percent owned subsidiary RD1 Ltd to enable the rural lender to offer interest free terms for farmers buying essential dairy supplies.

Fonterra forecasts a payout of $4.55 per kilogram of milk solids for the 2009-10 dairy season, down from the expected $5.20 payout for the 2008-09 season. Fonterra initially predicting a $7 per kilogram payout for the 2008-09 year, on the back of the previous year's record $7.90 per kilogram payout. But this has been whittled away as recession continues to grip the world, softening demand.

Federated Farmers estimates that in the two years to April farm debt rose by about 30 per cent to $45 billion. Some 60 percent of this was held by dairy farmers whose income was boosted by strong payouts. Government ministers recently spoke to major rural lenders about rural debt levels.

Fonterra's director for milk supply, Barry Harris, said the loan would be repaid to Fonterra by April 30 next year.

Harris said Fonterra's loan was part of a package of targeted initiatives to help farmers under pressure due to the lower payout environment.

"it's a tough time for our farmers and we have been looking at every avenue we can to help them, particularly in finding ways to cut costs and manage cash flows while continuing to keep their farms productive," said Harris.

RD1, whose other 50 percent owner is Australian firm Landmark Rural Holdings Ltd whose ultimate parent is the Australian Wheat Board, will fund the interest costs of the loan. 

RD1 chief executive John Lea said his firm, the country's biggest retailer of agricultural services to dairy farmers, would promote details of the offer to farmers over the next few months. It would also continue offering practical advice about managing farm input costs.

- © Fairfax NZ News