The impact of the dairy price drop is beginning to be felt in Parliament as Opposition parties go on the warpath against the Government.

And much of that argument was centred on a debate of how bad the impact of the dairy price drop might be.

That argument will be fortified today with the release of the data on the Reserve Bank’s stress tests of trading banks’ exposure to the dairy sector which was conducted last October and November.

Things were not helped on Monday after Radio New Zealand reported that in an interview the Prime Minister had claimed that 10% of dairy farmers could go to the wall.

That led to some excited exchanges in Question Time yesterday.

Andrew Little: Does he  (the Prime Minister) stand by his statement that New Zealand is on the “cusp of something special”; if so, did he mean a thousand dairy farmers being forced off their land?

John Key: “Yes. In answer to the second part of the question, the member is mistaken. As Dairy New Zealand said this morning, possibly around 5 percent of farmers right now are under pressure from having high cost structures and high debt; that is, around 500 farmers. That is quite different from being forced off their land, and a number of groups are supporting them through their current challenges.

Andrew Little: Is the 10 percent of dairy farmers that he said could soon be forced off their land part of the “something special” that he predicted?

John Key:  I did not say that, and there is not a quote to support it.

Hon Members: You did.


John Key: No, I did not.

Strictly speaking the Prime Minister was correct. He did not actually say 1000 dairy farmers would be forced off their land.

Instead Radio New Zealand Morning report presenter Guyon Espiner repeatedly asked him if the figure was correct; if he would agree that between 5 and 10% of dairy farmers could be forced off their land.

Stressing that he didn’t have an exact figure, Mr Key said “the sorts of numbers you are talking about are the sorts of numbers you hear the industry talking about. It would vary from bank to bank.”

Espiner suggested that this could work out at between 500 – 1000 farmers.

“I don’t have accurate information — I can only rely on what other people have told me,” Mr Key said.

“There’s certainly going to be some farmers that are not going to make it through this, unfortunately.”

By Monday afternoon all talk of 10% of farmers being forced off their land was gone.

Instead the Prime Minister told his weekly press conference that the Bank CEOs he had spoken to had indicated there was likely to be some stress and “clearly some defaults” in the agricultural sector.

He was also now adding that he thought the banks would be trying to do all they could to keep farmers on their land.

Bu yesterday afternoon the crisis seemed to be shrinking even more.

“There is no doubt that some farmers are likely to suffer and have foreclosure, because that happens, actually, in any one given year, even in very high pay-outs,” he told Parliament.

“But I suspect that the numbers will be less than what people think because the banks are going to work very constructively with them, as best they can.”

That was in response to a question from Greens Co-Leader James Shaw who unfortunately did not follow up by asking whether the “less than what people think” might be less than what the Prime Minister seemed to think on Monday morning.

But at the weekend, Labour Leader Andrew Little was quoting farm consultant and former Ministry of Primary Industry official, peter Fraser as saying that up to 25% of farmers could be vulnerable to bank action.

Mr Fraser has been arguing against the negative economic implications of dairy intensification for some time.

And the Opposition parties have been quick to come forward with their own responses to the dairy payout drop and these forecasts.

They got an added incentive to do that yesterday with a survey by Colmar Brunton for the accounting software firm, MYOB, which showed that

A snapshot result from the poll found that 21 per cent of the more than 1,000 SMEs surveyed stated their business’ revenues were negatively affected by the dairy price.

And 25 per cent said general consumer confidence has been directly hit.

Hit hardest of all the main centres was Christchurch.

When asked, “To what extent has the dairy price affected your business in terms of revenue?”, a quarter of all businesses in the city reported a negative impact on their revenue and 26 per cent stated consumer confidence was down as a direct result of the dairy price.

Labour has proposed that the Government call a crisis summit on dairy downturn, bringing farmers, bankers, Fonterra and government round the table to support rural economy.

But Labour’s Finance spokesperson, Grant Robertson, who like Mr Fraser has been warning of the dangers of too much supply for some time now, sees no immediate to take any other actions.

He told POLITIK though that if the scenario forecast by Mr Fraser did eventuate then it would be different.

“You would be talking about billions and billions of dollars coming out of the economy; you’d be talking about a big impact on the value of land,” he said.

In that case he believed the Government would at least need to be talking to the banks.

But he sees the present situation as being made worse by the failure to diversify thee economy over the past two years.

“There has been a  lack of urgency about diversification and the belief that it only takes place when one sector fails which is essentially Bill English’s mantra which is to say dairy’s down but tourism is able to pick up the slack,” he said.

“That isn’t how I would have done it.

“I would see the Government getting alongside those regions and industries to develop their diversification.

“It is a clarion call to urgency in diversifying the economy.”