The Farm Debt Mediation Scheme

The Farm Debt Mediation Scheme is a new service that will help farmers facing financial problems. It will be operational from 1 July 2020. Find out about the scheme and how it will work.

Purpose of the scheme

The Farm Debt Mediation Scheme will help farmers struggling with debt. Under the scheme, a neutral and independent mediator will be available to help a farmer and their creditors work through debt issues.

The aim is to provide a structured, confidential, and impartial negotiation process that leads to an agreement on how to proceed.

It will be mandatory for secured creditors to offer mediation before taking any debt enforcement action against farmers and other eligible primary production businesses. Also, farmers can ask for mediation at any time.

The scheme has come about as a result of increasing recognition that farmers (and other primary producers) need to be better supported when they're under financial strain. That's to ensure the long-term viability and resilience of both individual farm businesses and the primary sector as a whole. Helping farm business people to better manage financial stress also supports wider efforts to promote positive mental health and resilience among our rural communities.

The Farm Debt Mediation Act 2019

To get the scheme going, there has been a law change.

The Farm Debt Mediation Act 2019 was enacted on 13 December 2019. Part 1 and subparts 1 and 2 of Part 3 of the Act come into force on 1 February 2020. The rest of the Act comes into force on 1 July 2020.

This allows time for the Ministry for Primary Industries (MPI) to put in place systems and processes. We need to:

  • approve mediation organisations to authorise farm debt mediators
  • ensure there are enough mediators with the skills to provide farm debt mediation services.

The scheme has been consulted on widely. People from the farming, lending and mediation sectors are among those who contributed to the scheme’s design and made submissions on the legislation as it went through Parliament.

Benefits of farm debt mediation

Mediation creates a safe environment for farmers. It gives them a chance to work constructively with creditors through debt problems.

Mediation may not always save the farm business. But it can allow farmers to make a dignified exit. Or it may allow the parties to explore options for turning things around.

The scheme means a more level playing field for farmers who are tackling financial issues. Otherwise, there is a significant power imbalance when they deal with creditors.

Lenders view it positively as it brings a transparent and timely process to work through debt issues.

For mediation organisations taking part, the scheme provides a new, standardised process.

It will ensure: 

  • qualified and competent mediators are delivering services
  • a consistent, quality-led approach to the mediation process for all parties.

Implementation of the scheme

The scheme will be overseen by a new Office of Farm Debt Mediation within MPI. The office will administer, promote and monitor the scheme.

Its role will include:

  • evaluation and reporting
  • setting rules
  • approving mediation organisations (who will oversee mediators)
  • making sure farmers are connected with mediation services
  • connecting farmers to other financial support where needed.

How mediation would work

The Act makes it compulsory for secured creditors to offer mediation to eligible farmers when they default on payments, before taking any enforcement action. Farmers can also request mediation at any time.

Farmers and creditors will have up to 60 working days to complete the mediation process unless both agree to extend this.

Where possible a Mediation Agreement is produced at the end of the mediation process. This sets out the agreed actions for future management of the debt. The agreement must be agreed to by both sides and is binding.

It is important all parties in mediation take part in good faith. If the parties don’t agree on a Mediation Agreement, the parties can apply to make a determination on whether enforcement action can proceed or not.

If creditors don’t want to take part in mediation, a farmer can apply for a Prohibition Certificate. This means the creditor can’t take enforcement action on the debt for 6 months. After the 6-month period, the creditor will have to offer mediation before undertaking any enforcement action.

If a farmer declines to take part in mediation, creditors can apply for an Enforcement Certificate, which will allow the creditor to proceed with enforcement action in line with the terms and conditions of the loan agreement. The certificate has a duration of 3 years from the date of mediation concluding. The farmer will not be able to initiate further mediation processes in relation to that debt during this period.

Eligibility for the mediation scheme

The scheme will be open to those involved in a primary production business. That's any business that mainly produces unprocessed materials. This can be through agriculture, horticulture, aquaculture, or apiculture activities. It includes sharemilkers.

Example: Christine’s company produces buffalo milk as its primary activity. As well as producing milk, the company also makes and sells a limited range of cheeses. This makes the company eligible. It is primarily producing milk, and the cheese-making is a related activity covered under the scheme.

Types of loans covered

The scheme would cover debts owed by any business involved in primary production in connection with these activities, including loans secured against: 

  • farmland
  • farm machinery and livestock
  • harvested crops and wool.

Example: John, a farmer, borrows money from a bank to buy more land and stock. As part of the loan, he takes a mortgage over the farmland with the bank. If he stops repaying the loan, the bank could sell the land and use the money to repay the outstanding loan. But before this can happen, the bank must invite John to mediation. The bank must do that in good faith before enforcing any sale. John can also choose to start mediation at any time.

Exclusions

The scheme:

  • won’t apply to lifestyle farming, forestry, mining, wild harvest fishing, or the hunting or trapping of animals
  • will exclude any business that primarily provides materials or labour as a service to the primary sector.

Examples

  1. Josephine works in town as an architect. She also owns a lifestyle farm and has some chickens and sheep. The produce taken from the animals is for personal use. Because Josephine is not farming the sheep and chickens as a business, she's not eligible for the scheme. It does not fit the primary production criteria.
  2. David’s company provides shearers to farmers on a contract basis. Because the company is providing a labour service, there is no primary production aspect to David’s business.

Fees and charges

The average cost of farm debt mediation is estimated at about $6,000. These costs would be shared equally between the farmer and creditor under the scheme but only up until the farmer’s contribution reaches $2,000. After this point, the creditor(s) will have to meet any further costs. This helps to ensure fair and reasonable access to mediation for financially struggling farmers. We're also exploring ways that farmers facing even more extreme hardship can get help to use the scheme.

Next steps

Planning and policy work to support the implementation of the scheme has begun.

We expect mediation organisations will be able to apply for approval from 1 February 2020. Then mediators will be able to talk to these organisations about the qualifications, competencies, and training required to be authorised to do farm debt mediations.

We expect farmers will be able to access the scheme from 1 July 2020.

Find out more

Policy and design decisions (from December 2018)

Cabinet paper [PDF, 1.2 MB]
Cabinet paper Appendix 1 – Parties consulted [PDF, 606 KB]
Cabinet paper Appendix 2 – Detailed design of the Farm Debt Mediation Scheme [PDF, 951 KB]
Regulatory impact statement [PDF, 3.6 MB]
Cabinet Economic Development Committee – Summary [PDF, 721 KB]
Cabinet Economic Development Committee – Minute [PDF, 714 KB]

Legislation design decisions (from June 2019)

Cabinet approval [PDF, 1.4 MB]
Regulatory impact statement [PDF, 6.2 MB]
Key themes from targeted consultation and final policy approvals [PDF, 888 KB]

Who to contact

If you have questions about the scheme:

Last reviewed: