The Government will underwrite bank lending and offer cheaper finance to critical regional industries, while commercially viable primary producers will get targeted finance of $240 million, Cyclone Recovery Minister Grant Robertson announced on Thursday morning.
Growers, farmers and businesses affected by North Island weather events this year will be eligible for this support, intended to ensure their long-term survival, he said.
“Business have been hard hit by the North Island weather events earlier this year and the impacts continue to be felt, particularly for those in the horticultural sector. This package was developed with primary producers and will provide relief to key growers, farmers and businesses and help their regions continue to recover,” Grant Robertson said.
Loan guarantee scheme
“There will be three components for different types of support: a loan guarantee scheme in partnership with banks and other lenders who choose to participate, and a concessionary loan and equity scheme run by Kānoa to help hard-hit businesses get to a position to be able to re-engage with their banks and work toward being cashflow positive again.”
The North Island Weather Events (NIWE) Loan Guarantee Scheme would provide commercial lending to affected businesses and leverages Crown finances, which would take on 80% of the credit risk on loans. This means banks can then reduce interest rates and offer more flexible terms, he said.
“The Government’s underwrite will support loans of up to five years agreed by businesses and their banks of up to $10 million from the scheme, including refinancing of existing loans. For example, a reduction in interest rates of 0.3 percent to 1.5 percent would be equivalent of $9,000 to $45,000 in interest cost savings per year for the average supported firm, based on borrowings of $3 million. Over the five years the Scheme is in place, these savings could total between $45,000 and $225,000 for a firm with an average amount of debt, providing meaningful relief.”
Robertson said Government was looking at the end of July for the scheme to be up and running. This would give banks times to get organised and meanwhile customers could register their interest in the scheme.
“Different businesses in the same industry, let alone across different industries, have all been affected by these weather events differently, meaning they all need slightly different recovery plans. That’s why this scheme isn’t going to be overly prescriptive and instead is about supporting banks and their customers to be able to get loan agreements in place. It is one part of our support for businesses affected by the weather events,” Robertson said.
Financing for primary producers
Emergency Management Minister Kieran McAnulty said primary producers will get targeted finance too, under the NIWE Primary Producer Finance Scheme. The scheme was designed to provide capital to those who can’t currently access finance but who have a reasonable likelihood of being commercially viable.
“Many businesses severely affected by the weather events are likely to be commercially viable with the right support. This scheme enables the Government to provide concessionary loans and equity finance for land-based primary sector producers up to $4 million per business from a pool of up to $240 million set aside in total.
“It will provide a way for businesses to fully re-engage with lenders at a later date, once we have helped them get back on their feet. This will in turn contribute towards their recovery, and provide better regional, social and economic outcomes in cyclone-affected regions,” McAnulty said.
To be eligible a business must have incurred losses of 30% or more of their uninsurable productive capacity.
Horticulture New Zealand chief executive Nadine Tunley said many businesses were still grappling with funding repairs and rebuild efforts.
“We hope this package and announcement will help relieve the pressure and stress people are facing, so they can get on with the recovery and provide jobs for people in regional New Zealand,” she said.
Robertson said while Government couldn’t pay the full costs of recovery and rebuilding, the support package had been designed to ensure banks could play their role.
“We are committed to helping affected regions recover. Around $2 billion of support has already been committed so far, including $74 million in grants to farmers and growers and a $1 billion flood and cyclone recovery package as part of Budget 2023. Another $6 billion in initial funding has been committed for National Resilience Plan to focus on building back better from the recent weather events,” he said.
Grower reaction mixed
Brydon Nisbet of Hawke’s Bay Fruit Growers Associations said there wasn’t much in it for smaller growers.
“There will be some disappointed growers, smaller growers who were hoping for some grants to get them back into the black. Because even though there’s loans [available] it will mean that they will have to go back into debt. Some growers won’t want to do that, they might be of an age. You’ll get that.
“The second issue is that it has taken so long to get to this point considering the [grower] taskforce report, and then the Boston Consulting Group report, which was submitted mid-April. First we thought May, then we were told June and it has come at the end of June. But at the end of the day there is now something for growers to make decisions on,” he said.
The interest rate discount wasn’t as much as growers had expected, at 0.3 per cent.
“You can go and hassle the bank for that kind of discount, anyway.”
Grants on a per-hectare case-by-case basis for smaller growers would have really helped. There had been about 80 growers impacted by the flooding from large-to-small, but every grower would have to sit down now and decide what they would do for their business, he said.
Scott Lawson, from the The Hawke’s Bay Vegetable Grower’s Association, which helped produce an important report for Government based on losses and calculated investment needed for the horticultural sector to recover, said the funding options on offer were not appealing to growers.
He said it was difficult to see how they would help support food and job security in the region when it came to vegetables and that the support on offer needed “serious clarification” for growers and bankers alike.
A Government briefing on Thursday afternoon had left growers with more questions than answers.
“Industry was surprised and blindsided by the detail released today. One of the examples being compounding interest loans, i.e. a $3 million loan at 7% over 10 years would cost $5.9m to pay back, whilst still incurring the unknowns of the weather and climate change,” Lawson said.
“There’s lots of details to be finalised. Once again the plane is being built while flying.”
BayBuzz editor Tom Belford’s harsher review of the Government proposal is here.
Public Interest Journalism funded by New Zealand on Air.