I went to the meeting this week (Thursday June 29) at the Havelock North Community Centre where Government officials briefed a standing room-only crowd of Hawke’s Bay growers on the support package on offer.
To say the package went over like a rotten apple would be generous.
There are two pots of funding in the package, one providing Government underwriting of loans up to $10 million each, the other capped at $240 million overall and $4 million per grower is specifically targeted at primary producers.
Sounds generous, but both pots are available to all flood-affected regions of NZ and both involve loan and/or equity financing only. No outright grant support. BayBuzz reporter Bonnie Flaws provides the details in this post.
The Government rationale – beyond, understandably, not wanting to make a financial commitment they couldn’t possibly replicate across NZ in future disaster after future disaster – is that banks and private investors should be the preferred sources of finance for restoring viable businesses. The Government role is to encourage or facilitate that commercial financing (they can’t require it) via guarantees, or stepping in as a last resort – via its own lending or equity investment – in the case of growers who are badly enough off to not qualify for commercial financing … but still salvageable.
The growers – at least those who spoke at the meeting and seemed representative of the crowd’s sentiment – scoffed at the package, effectively terming it no help at all.
That sounds right to me, if you are a small-scale grower who has been nearly or totally wiped out by the flooding.
In that situation, the grower/borrower would have no income to pay interest on a 7% Government loan, while awaiting 5-6-7 years for newly-planted trees to yield a marketable crop. And meantime that interest would be compounding annually, sharply increasing the value/cost of the loan. If you grow veggies, with quicker income, you might be better off.
If you are a major corporate – like Rockit, Mr Apple, T&G, Bostock – you will still have cash flow from undamaged blocks (and other businesses) to service any debt you might require … and you’ll probably have no trouble getting your loans directly from your bank … no Government needed! To say nothing of tapping into previous years of significant profit.
The smaller growers would be helped by a loan programme that was interest-free until crops were yielding income, but that doesn’t appear to be in the cards.
Ironically, Labour ministers have cooked up a welfare scheme that might provide un-needed support to corporate growers, while leaving the little guys twisting in the wind.
The likely outcome is that the big corporate growers will swallow-up the remaining little guys. Maybe the financing is irrelevant, there aren’t enough replacement seedlings to go around anyway. And the little guy is likely to come out on the short end of that stick as well anyway.
That might be an acceptable business or macro-economic outcome, but it sucks as a social outcome.
Saturday morning addendum:
Tukituki MP Anna Lorck replies, hopefully credibly (with information the dozen or so Government officials fronting the policy were either unaware of or simply too incompetent to explain even when the issue was specifically raised):
Tom – I’ve read your online story – following the meeting clarification has been provided to growers because there is concession on interest free periods – this was not communicated at the meeting I understand.
A key part of the support package recognises that no business is the same – the purpose of the government loans is to be highly concessionary, including interest free periods, (not capitalising on deferred interest).
The package aims to provide cheaper access to finance and flexible terms especially for those family owned and smaller businesses who are going to take years to recover.
“The packages have been developed with the horticulture sector.
- Support is tailored not one size fits all. Specific concessionary arrangements will be geared towards the position and needs of the business.
- There has been no agreement to specific interest rates, but it will obviously need to be highly concessionary to meet the policy intent.
- Alongside deferral of interest, Kānoa will have the discretion to support interest-free periods (not require capitalisation of the deferred interest) or other bespoke arrangements.
- While standardised terms are preferred by Kānoa, as it supports the efficient administration of the scheme and getting funds out, support will be bespoke where it needs to be.
We have a Govt committed to making money out of misery and paying megabucks to “consultants” “experts” who either can’t see the bigger picture or are pawns in a pantomime.
It seems to be not only a poor social outcome, but also a bad environmental outcome, because huge ‘monocultures’ of any sort suck up a lot of water for irrigation and require the big harmful agrichemical inputs that smaller units do not. The smaller units can be regeneratively operated. Profit is not the only consideration.
How would other parties handle this?
it’s the banks, big growers become a big problem for the banking industry if they go under. Little guys can get sold up and banks usually get out with their initial investment or small loses, big corporates hurt the banks with millions of dollars of unrecoverable loans. Taxpayers to the rescue again.
The key issue is that these taxpayer guaranteed loans can be ‘refinancing’. As loans roll over they will be replaced with the guaranteed version. If your balance sheet & income are impacted there will be few new loans for recovery. It also allows the banks to quietly tip over growers for 5 years,all the while reassured that they won’t lose anything as the taxpayer has their back. So it is a stay of execution for many but not a pathway to recovery. The uber-profitable banks have been looked after while the storm-ravaged growers still can’t see a future. It’s a disgrace.