Hamish Midgley of Rabobank
Roger: My guest this week is the executive manager of Rabobank, Hamish Midgley. Hamish, welcome to the show.
Hamish: Pleasure to be here, Roger.
Roger: Hamish, Rabobank have been in New Zealand for about 11 years now, and youve become quite a significant player in the rural finance market.
Hamish: Yes, we came into the New Zealand market in 1994 with the purchase of Primary Industry Bank of Australia, or PIBA, and then later in 1998 we purchased Wrightson Farmers Finance which gave us a branch work of 25 branches throughout New Zealand, as well as transactional banking.
Roger: Rabobank is a big international bank based in the Netherlands. What attracts you to little old New Zealand?
Hamish: Rabobank is the largest specialist agribusiness bank in the world today. Were an agricultural based economy still. Were very innovative, and so it was a very good fit for us to be here and I must say that its been extremely successful over the last eleven years.
Roger: What about the rural debt market hows that changed?
Hamish: Well its changed quite significantly, actually. When we came into the market, if you go back 10 years ago to 1995, the rural debt market in New Zealand stood at about eight billion dollars. Today its trebled in size to twenty-four billion dollars.
Roger: Whats driving that, and is it sustainable?
Hamish: Theres three main drivers I believe. Theres the change of land use, theres the intensification of existing land use and theres the agrigational consolidation of farming units where the bigger players are getting bigger. And I guess, to use a simple example of that, if youd look at say a dry land sheep and beef property in Canterbury in the mid 90s, say 300 hectares, might have been running 3000 stock units, been producing gross income of $150,000. Today thats been bought by a dairy farmer or a dairy farming syndicate its been converted to dairy, including irrigation, its milking a thousand cows, producing approximately 400,000 kilograms of milk solids. So depending on the payout its got gross income of somewhere between one and a half and two million dollars, and it can carry a debt of around about six million dollars. So the debts increased by 20 times but the income outputs have increased substantially, exports have increased, economic farm surplus has increased and the bottom line profitability has increased. So its good for all sectors, and we believe it is quite sustainable.
Roger: And of course the New Zealand dollar is sliding back against the US now. What sort of impact is that expected to have short term?
Hamish: I think it will be a very positive impact short term. The three main drivers in New Zealand farming in terms of their returns, tend to be exchange rate, interest rates and commodity prices. Weve been in a situation with very high dollar and high interest rates, but thats been more than compensated by the high commodity prices that weve had. There is signs now that commodity prices across all sectors are starting to come off their high, so we are hoping to see some compensation from the drop in the US dollar with compensating that drop in the commodity price so I think that will be a positive.
Roger: Hamish, thanks for joining us.
Hamish: Thank you very much.
Hamish: Pleasure to be here, Roger.
Roger: Hamish, Rabobank have been in New Zealand for about 11 years now, and youve become quite a significant player in the rural finance market.
Hamish: Yes, we came into the New Zealand market in 1994 with the purchase of Primary Industry Bank of Australia, or PIBA, and then later in 1998 we purchased Wrightson Farmers Finance which gave us a branch work of 25 branches throughout New Zealand, as well as transactional banking.
Roger: Rabobank is a big international bank based in the Netherlands. What attracts you to little old New Zealand?
Hamish: Rabobank is the largest specialist agribusiness bank in the world today. Were an agricultural based economy still. Were very innovative, and so it was a very good fit for us to be here and I must say that its been extremely successful over the last eleven years.
Roger: What about the rural debt market hows that changed?
Hamish: Well its changed quite significantly, actually. When we came into the market, if you go back 10 years ago to 1995, the rural debt market in New Zealand stood at about eight billion dollars. Today its trebled in size to twenty-four billion dollars.
Roger: Whats driving that, and is it sustainable?
Hamish: Theres three main drivers I believe. Theres the change of land use, theres the intensification of existing land use and theres the agrigational consolidation of farming units where the bigger players are getting bigger. And I guess, to use a simple example of that, if youd look at say a dry land sheep and beef property in Canterbury in the mid 90s, say 300 hectares, might have been running 3000 stock units, been producing gross income of $150,000. Today thats been bought by a dairy farmer or a dairy farming syndicate its been converted to dairy, including irrigation, its milking a thousand cows, producing approximately 400,000 kilograms of milk solids. So depending on the payout its got gross income of somewhere between one and a half and two million dollars, and it can carry a debt of around about six million dollars. So the debts increased by 20 times but the income outputs have increased substantially, exports have increased, economic farm surplus has increased and the bottom line profitability has increased. So its good for all sectors, and we believe it is quite sustainable.
Roger: And of course the New Zealand dollar is sliding back against the US now. What sort of impact is that expected to have short term?
Hamish: I think it will be a very positive impact short term. The three main drivers in New Zealand farming in terms of their returns, tend to be exchange rate, interest rates and commodity prices. Weve been in a situation with very high dollar and high interest rates, but thats been more than compensated by the high commodity prices that weve had. There is signs now that commodity prices across all sectors are starting to come off their high, so we are hoping to see some compensation from the drop in the US dollar with compensating that drop in the commodity price so I think that will be a positive.
Roger: Hamish, thanks for joining us.
Hamish: Thank you very much.