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New finance option provides dairy farmers with flexibility

Wednesday 23rd January 2008

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Farmers will gain access to the capital tied up in their dairy cows, which are currently worth $7.83 billion nationwide, thanks to a new product launched by PGG Wrightson Finance this week.

PGG Wrightson Finance general manager Peter Engel said the financial product, based on farmers leasing rather than owning their herd, will give farmers greater flexibility in the use of their capital.

"PGG Wrightson Livestock Lease Plan offers farmers the opportunity to expand or release capital through the leasing of dairy cows from the company.

"This may involve the company working with the client to source lease stock, or farmers may sell their own stock to PGG Wrightson and lease back," he said.

According to Engel, leasing is currently rare in New Zealand agriculture, but this is set to change.

"Leasing is common in other businesses, and the practice of leasing livestock is expanding in Australia, as well as elsewhere. We believe the leasing option will be of value to our farming clients, and in particular to those expanding dairy operations with strong cashflows," he said.

New Zealand's herd of dairy cows is worth an estimated worth $7.83 billion, an increase of 63% over the last 12 months. In 2005/06 the national dairy herd was 3.83 million strong. For the 2006/07 season it had grown to 3.92 million. At the same time the average value of a single dairy cow rose from $1,250 to $2,000, making the capital value of an average dairy herd worth between $650,000 and $700,000.

Engel expects that innovative farmers who want to maximise the productivity of their capital will welcome the opportunity to lease, rather than own livestock.

"Many farmers will prefer to use equity for an appreciating asset, such as land, rather than a depreciating asset, such as a dairy herd or other livestock.

"Dairy farmers often have the opportunity to enlarge their operation through the purchase of additional land or the expansion of their herd. However, many face difficulties doing so, as they are unable to meet conventional financing requirements. With a PGG Wrightson Livestock Lease Plan they can release the capital from their herd to enable the expansion, while retaining the productive use of their existing stock."

"This is just one example. The capital released can be utilised for any other business or personal requirement," he said.

As well as dairy cows, the PGG Wrightson Livestock Lease Plan is also available for rams, bulls, stags and ewes.

Engel says the PGG Wrightson Livestock Lease Plan is designed as an operating lease, enabling the full cost to be tax deductible. For many farmers this offers tax advantages.

"The livestock lease product has been designed to enable our farming clients to optimise the use of their capital in the most tax effective manner."

Source: Press Release, PGG Wrightson

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