Farm debt mediation (“FDM”) provides for mediation between the lending provider and the farmer before the appointment of a receiver.
For those who are not familiar with the term, mediation is a process of dispute resolution in which the disputants meet with the mediator to talk over and then attempt to settle their differences. The mediator facilitates discussions, assists in finding satisfactory solutions and in reaching agreement on matters in dispute.
New Zealand has never had a legislated farm debt mediation programme, however there is now a Farm Debt Mediation Bill in front of parliament. This article will outline why we need FDM and how the American, Australian, and Canadian experiences can inform our Bill.
Federated Farmers tell us that agricultural debt rose from $12 billion in January 2002 to $61 billion in May 2018. Dairy farms hold the most debt – around $40 billion – the average current mortgage for dairy farmers is $5 million plus. On top of this, dairy farm sector faces a number of long-term challenges, including the impact of tighter environmental regulations, more volatile weather and commodity pricing.
Reviews have revealed that a notable proportion of New Zealand farmers feel “undue pressure” from their banks. Farmers are an important and recognised part of our community.
Commercially, farm debt issues can be complicated by:
- uncertainty over income, outgoings, values and weather events;
- additional/separate debt owed on stock and plant;
- family based ownership and succession structures that compromise farmers’ ability to restructure ; and
- variations of financial literacy and competence.
At personal level, farmers are often the type of self-reliant and indomitable people who are the last to ask for help. Some would say a toxic cocktail with the potential for tragic results. Recent US research – individuals in farming, fishing and forestry have a higher rate of suicide (84.5 deaths out of 100,000) than war veterans (35.3 out of 100,000).
Common features of existing statutory FDM schemes set up in the US, Australia, and Canada include:
- have tended to have independent or government administration
- use third-party neutral mediators who act in a facilitative role
- oblige lenders to give farmers notice of a right to mediate for commencing debt enforcement steps
- typically require enforcement steps to be paused while mediation is attempted
- supported financially by governments
- recognise the unique circumstances that can affect farm debt.
In the US there are state and federal scheme’s and the USDA reports that mediation has been utilised in “tens of thousands of disputes over farm credit”.
In its first year, 2008, the Minnesota FDM Program opened 2002 mediation cases, “Nearly 80% of such cases reached some kind of settlement, meaning farms stayed in business, lenders got paid and people stayed in their communities.”
Some take-outs from the US schemes:
- it is preferable to use skilled specialist mediators, who are subject to a code of ethics
- mediation is a more effective if pertinent information is furnished in advance
- even if mediation does not resolve the dispute it can still improve relationships and outcomes
- there will be more than one way to mediate these disputes, they may be one single meeting or it more may take more
- experts and or/lawyers may or may not need to be involved.
In Australia, NSW has had a scheme since 1994 and there are now schemes in Victoria, Western Australia and Queensland. It appears that the New Zealand scheme will be based on the NSW legislation.
The NSW scheme is well used and between 1995 - 2016 there were 1659 “satisfactory mediations” that took place with a settlement rate of nearly 90%. The bankers have recognised that farm debt mediation creates an opportunity for bankers to finally sit down with farmers. Recently the range of activities covered by the legislation was extended to include aquaculture and timber harvesting. They take steps to ensure that farmers are fully aware of their rights and are encouraged to seek mediation earlier. There are enhanced penalties for failing to comply, including fines for lenders who taken enforcement action in breach of the legislation.
In Canada during the period 2000 – 2010 there were approximately 500 cases a year. That scheme provides for an administrator who can assist the farmer, including by preparing a detailed review of the farmer’s financial affairs.
Previous attempts to provide a scheme in New Zealand have gone nowhere. There is a sense that a farm debt mediation statute will be passed by this government. Submissions to the Government have included that:
- there should be broad definitions of Farm, Farm Debt and Farm Debtor
- mediation should be available at an early stage in the deterioration of the relationship - default, or significant default, should be the “trigger point” and at that stage lenders must advise farmers that they have the opportunity to mediate
- mediation should be mandatory for the lender, where requested by the farmer
- once mediation is in train all forms of enforcement action, other than for interim relief, should be deferred pending conclusion of the mediation
- considered preferable costs are low shared
- parties should exchange relevant, non—privileged, information ahead of mediation
- party should be allowed legal representation and must attend in good faith
- the scheme will have a reporting and review regime.
Arbitrators’ and Mediators Institute of New Zealand have submitted that they should have an exclusive role in the provision of mediators to the scheme.