Fonterra's offer of interest-free loans to dairy farmers coincides with a survey showing nearly a third of them intend increasing debt to fund working capital.
The Rabobank rural confidence survey, released yesterday, revealed 28% of dairy farmers would increase debt to fund working capital and just 13% intended decreasing their debt.
Last Friday Fonterra announced it was lending up to $15 million to its subsidiary, RD1, to allow the rural retailer to continue extending interest-free terms already offered to its dairy farmer clients for the purchase of supplies.
RD1 was to repay the interest-bearing loan to Fonterra by April 30 next year.
Fonterra's director of milk supply, Barry Harris, said the loan to RD1 was one of several initiatives by the co-operative to assist its suppliers while the milk price was low.
Federated Farmers dairy section chairman, Lachlan McKenzie, said the loan facility was a case of farmers helping farmers.
"It fully vindicates the co-operative model, as I couldn't imagine a non-co-operative acting in this way," he said.
Mr McKenzie said farmers used RD1 to buy everyday farm items such as animal health products.
Over a period when farmers did not have any income, the interest-free terms would be useful, allowing farmers to spend $10,000 a month on supplies.
"Most farmers will not have significant cash flow until October, when they get paid for the milk produced in September," Mr McKenzie said.
