The Government should support New Zealand First's Agricultural Debt Mediation Bill to discourage banks from forcing indebted farms into receivership, a farm debt mediator says.
Jeanette Walker lobbied for a similar bill in 2011, which was proposed by a National Party MP but rejected by the Government.
With the dairy payout falling, New Zealand First MP Ron Mark wants independent mediators called in before banks foreclose on farmers. He has put forward a proposed law change but it will not be considered until it is drawn from the members' bill ballot.
Ms Walker said, in some cases, banks have extended unscrupulous loans to farmers.
"I think pre-GFC [global financial crisis], there was lending that was done on no rigourous basis whatsoever, literally over the phone, and money was lent out very willy-nilly," she said.
"What's happened now is that commodity prices for dairy have fallen through the floor and [it] looks like it's continuing to go sour for some time.
"The only thing that is making banks reasonably comfortable at the moment and not necessarily so aggressive is that the land values have held up."
Ms Walker said 40 percent of dairy farmers would not be breaking even in the current environment.
"So when land values drop and their debt-equity ratio becomes compromised, you'll wind up with a lot of farmers going straight into negative debt-equity positions."
Prime Minister John Key told Radio New Zealand today that the Agricultural Debt Mediation Bill was unnecessary, as land values were holding and banks were supportive of farmers.
But Ms Walker said the Government needed to ensure farmers were supported.
"I think it's time the Government stepped up and started acknowledging that the rural sector is in dire financial straits. People need support. Banks are very adversarial, they've got a lot of money they can throw at litigation and making a person's life uncomfortable," she said.
"So, in terms of what John Key says, his Government never wanted to support [the bill] in 2011/2012, particularly at a time when rural suicide had quadrupled over that period of time.
"I find it ironic that the National Party purports to be the farmers' Government, but, when there's an opportunity for them to come out and support farmers, they're not keen to do it."