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+ Issues

joanna wane is North & Souths deputy editor. photographs by ken downie and nicola edmonds.

sold down the road

As new figures released by the Chief Coroner show suicide kills more rural men than car or quad-bike accidents, the Commerce Commission is investigating whether farmers some of whom have been forced off their land have fallen victim to a multimillion-dollar banking scandal. Joanna Wane reports.

sometimes the thought still comes back to haunt her. What if shed kept a gun on the farm?

God knows, shed have used it. Right at that moment, alone

and with the walls closing in, just for the relief it would have been to stop fighting and simply let go.

Instead Janette Walker jumped onto her farm bike and gunned the engine.

Id had a particularly shitty call from the bank at seven in the morning, recalls Walker, whod been locked in an 18-month battle to stave off the forced sale of her land, an 800ha sprawl of rugged hill country in the southern Wairarapa.

I can remember putting down the phone and thinking, Im overwhelmed. I just want this to go away Ill drive out to Green Hill and just keep driving and go off the bluff.

It took 20 minutes to reach the steep ridge, deep in the heart of her farm. By the time I got out there, Id had a chance to think, she says. But in that moment when I hung up the phone, if I was a guy and thered been a gun handy, I would have done it.

They say that about suicide. If you can get through the next 10 minutes after youve had that thought, you generally dont do it. But pull the trigger and its done. And thats how it is for a lot of farmers.

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per cent of farmers barely hanging on, ac-cording to Fraser, who says the banks are already picking them off one by one. If inter-est rates start creeping up as they look likely to do next year he predicts farmers could start walking off their land. Its a time bomb.

That legacy of debt has led some families to encourage their children into a different career. One farmers daughter says her par-ents liken passing on such a financial burden to a form of child abuse.

Economic pressures have also been linked to incidents of animal abuse, with a number coming to light since the drought. The wife of one farmer jailed for ill-treating his cows says her husband snapped from frustration and despair after taking on too much debt.

With three children to care for at home, she was horrified the bank agreed to lend them so much money and blames that, in part, for his mental breakdown. I felt sick, she says.

He never talked to me about how worried he was. But hed work till 10.30 or later, night after night, on his own, trying to fix up a farm that was falling apart. He has to take responsibility for what happened, but the bank had a role to play too for loaning him all that money in the first place.

down in the Wairarapa, Janette Walker was clinging onto her land by the fingernails. Farming alone since the break-up of her

marriage left her with three young children, shed gradually traded up buying the Pon-garoa sheep and beef block in 2005 with a healthy 70 per cent equity.

But after three years of drought and record low commodity prices, her business plan went out the back door. I had a meeting with my bank in early 2008 and they said, Dont worry, Janette, its fine. Six weeks later, I was told my business was no longer viable and that if I didnt sell it, they would.

Despite having her overdraft facility with-drawn, she survived until 2010, when her lower leg was shattered in a fencing acci-dent. Then a company she was grazing for went into receivership.

Her property, valued during the boom at $4.2 million plus stock, was finally sold for $850,000. Id been with the bank for 20 years and never defaulted on my payments. I was extremely frugal with my living. I didnt overspend. And at the end of it all, I came away with nothing.

Laid up while her leg healed, Walker be-gan talking to other farmers as part of a nationwide survey she ran for Massey Uni-versitys Centre of Banking Studies on the

Don Fraser: I can go onto a farm and smell depression, feel it, breathe it. I know whats going on. But people just put a lid on it.

One farmers wife would see lights blazing late at night in the milking shed and be afraid to go down there for fear of what she might find.

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women can be just as bad as our men. Were dedicated to our families; well talk about our children, our husbands and our finances, but we dont stop and talk about ourselves.

Dairy farmers call it cow sickness, where long hours alone in the milking shed start playing on your mind. One woman who knew her husband was in a precarious men-tal state would see lights blazing in the shed late at night and be afraid to go down there for fear of what she might find.

Rural farm finance consultant Don Fraser, whose beat covers the Waikato and Bay of Plenty, reckons he can smell depression the minute he walks in the front door. I can go onto a farm and smell it, feel it, breathe it. I know whats going on. But people just put a lid on it and keep getting up every morning, because they see it as a sign of weakness.

Fraser knows what its like to walk along-side the black dog of depression. At Lincoln University, he suffered anxiety attacks after taking a bad knock to the head during a rugby game. Years later, a father of five by then, he fell to bits while he was dairy farming and his marriage collapsed.

Theres so much beyond your control when youre a farmer. You put yourself under extreme pressure, and the depression and anxiety comes back. So I know how it feels, and I know the right questions to ask.

Even in the boom time, Fraser never leveraged higher than $26 of debt per kg of milk solids produced. But in the early 2000s, a time of excess when land values went through the roof and banks were almost giving away money, some debt ratios slid out to $40-$50 a kg. Farmers had no show of servicing at that level on a long-term basis.

Such reckless rural lending created a culture of crippling debt thats left up to 10

In February, rural debt hit a record high, topping $50 billion and still climbing. Up from just $18 billion a decade ago, its a staggering sum that gives our ag-

ricultural sector the dubious distinction of being one of the most indebted in the world.

Already at the whim of the weather, New Zealands farming fortunes are knitted into the fabric of the global economy. The dairy industry is our biggest export earner, bring-ing in more than $10 billion a year. In 2008, the GFC sent the markets into a death roll. Over the next three years, the suicide rate among Kiwi farmers doubled.

In its latest Financial Stability Report, the Reserve Bank warned it was carefully moni-toring the fallout from a parched summer, which could expose financial vulnerabili-ties as farmers faced lower incomes and higher costs heading into the next season.

The same week, the big four Australian-owned banks reported total cash profits of $1.8 billion in the first half of the financial year.

Vulnerability of any kind doesnt fit the traditional picture of our men of the land. Resilient, stoic, stubborn bastards who tough out the knocks thats how most of us like to think of farmers, if we think of them at all. Yet at the peak of the drought, police had to remove guns from some farm-ers in a dangerously fragile state, according to one of the speakers at a FarmSafe confer-ence in Wellington last month.

Figures released by the Chief Coroner show the suicide rate in rural communities is almost 50 per cent higher than in urban areas. For farmers, its the leading external cause of death killing more than car crashes and five times as many as quad-bike accidents, despite the latters high profile in the media.

At an inquest in April into the quad-bike death of an Auckland farmer, Federated Farmers health spokesperson Jeanette Max-well told the coroner safety issues needed to be kept in perspective, when compared to the rural suicide rate. This is something that is really killing farmers.

Maxwell, who has a sheep and beef farm near Mt Hutt, told North & South the number of both suicides and farm accidents spike during hard years. Every rural family can tell you about someone [who has killed them-selves], she says. For whatever reason, depression is seen as a real stigma youre loony, youve lost the plot not as an illness where you get sick and you get better. Some-times the whole family can be ostracised.

Farmers are very independent and stoic, so theres that whole isolation factor. Physi-cally and emotionally, you do it alone. And the

level of rural debt. That was the first time I heard of swaps.

She soon discovered there were plenty of other farmers who wished theyd never heard of swaps, either.

A type of financial derivative, swaps have been widely used since the 1990s by corpo-rates and big institutions to manage exposure to interest-rate fluctuations, by swapping the floating interest rate on their loan with another party (such as a bank) for a fixed rate or vice versa without needing to alter or redocument the actual loan.

But in the mid-2000s, when the finance markets were awash with easy money, banks began targeting the rural sector, promoting swaps to farmers as a way to protect against interest rates then heading relentlessly in one direction: straight up.

From 2007-2009, its estimated more than $6 billion of interest rate swaps were sold to farmers from dairy to sheep and beef cockies to the wine industrys grapegrowers. When the world economy imploded, those farmers found themselves exposed to the very thing they thought swaps had protected them against skyrocketing interest rates.

Over three years, one dairy farmer estimates he paid more than $1 million in interest above the market rate, as banks hiked the credit margin on his loan while floating interest rates fell to historic lows (see How Swaps Were Supposed to Work, page 60).

The credit or funding margin is an addi-tional component calculated by the bank, based on an assessment of the customers risk profile and the banks borrowing costs. Whether farmers who took out swaps realised the bank could raise that margin if circum-stances changed is a key issue thats been called into question. In one sales pitch by a major bank from 2007, sighted by North & South, only passing reference is made to credit margins, and the fact that these margins could fluctuate is not explained.

Although banks recommend customers seek independent financial advice, they have no duty of care. However, rural banking has traditionally been a relationship based on trust, and Walker who has never had swaps says alarm bells began to ring as she talked to more and more farmers who did.

Some of the stories were really sad; it cost them their farms, she says. People were telling me they had no idea what they were getting into. They made a decision based on trust and never expected to be screwed over.

All the farmers were consistent in what they were saying they didnt understand the product and what they were told about

tive farmers who signed up for swaps, think-ing it would provide stability as they prepared to pass on the reins to their children.

North & South spoke to a third-generation farmer in Hawkes Bay who owed the bank $10 million and was advised to sell up, even though he had never missed a payment and his milk production was increasing. Eventu-ally, he was forced to let go of one farm and pay $860,000 in break fees to close out his swaps before he finally managed to convince another bank to refinance him.

We were getting desperate. You just dont sleep at night. Other farmers were paying five or six per cent and we were hung on 9.1 per cent. Thats half your interest bill again. Then they had the audacity to say we were making no money. Well, they were taking it all!

Now in his 60s, he came home from board-ing school at 15 to work with his father on their farm, which gradually expanded to a herd of 1100 cows over 480ha. He says the bank which hed been with for 22 years had undertaken to manage his swaps, but was nowhere to be seen as the deal turned sour.

labour MP Damien OConnor, whos following the Commerce Commis-sion investigation closely, sits on the primary production select

committee and has called for a full inquiry into swaps. Like Walker, hes scathing of Fed-erated Farmers pathetic response to the crisis and claims the organisation has let down its members by not championing their cause. These are very honest, trusting people the heart and soul of New Zealand agriculture who have been taken to the cleaners by smart-arse head-office bankers.

OConnor predicts rural debt is set to soar again, with a bullish Fonterra forecast likely to prompt another rash of lending and fierce competition between the banks for market share. Hes putting forward a private mem-bers bill that would make mediation com-pulsory before a farmer is forced off the land. Similar regulations are already in place in Canada, New South Wales and Victoria.

A review of the NSW legislation found mediation resulted in a settlement in more than 70 per cent of cases. Both the Greens and the Maori Party have indicated initial support. However, Federated Farmers presi-dent Bruce Wills, a former banker himself, is yet to be convinced regulation is the right approach. Banks would also inevitably pass on their costs to all farmers, he says.

As for swaps, he thinks the whole affair has been overblown by the media. In the federations latest farm confidence survey

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in January, issues around interest rates, debt and the banks were the most worrying for only 4.5 per cent of farmers. Commodity prices and government regulations were much higher concerns.

There are a bunch of farmers who have too much debt and get into problems; some farms are sold and thats tragic. But when you analyse the numbers, the vast majority have sustainable debt levels and are entirely happy with their relationship with the banks.

Janette Walker, who supports OConnors Farm Debt Mediation Bill, doesnt buy that. Shes negotiated bank settlements on behalf of 50 to 60 farmers a number of them in-volving swaps. She says theres a huge prob-lem with farmers self-medicating with alco-hol, and last months FarmSafe conference highlighted concerns over under-funded, under-staffed rural medical centres ill-equipped to deal with clinical depression.

She tells of one farmer who hit the rocks after losing his land. His GP put him on anti-depressants, but he didnt tell anyone even his wife. It took a while to get his medication

sorted and he went into a massive funk and killed himself.

Farmers are as hard on themselves as they are on each other. If someone breaks down and cries, hes a weak bastard and needs to harden up. Thats got to change.

Dave Hadfield, a mental skills coach for the NZ Rugby Union, has worked with the Crusaders, the Hurricanes and now the na-tional under-20s team. Once a farmer, like his father and his grandfather before him, he sank into a deep depression after selling up in the mid-80s, before reinventing himself in the field of sports psychology.

He sees plenty of similarities between the rugby and farming psyche, and like former All Black John Kirwan isnt shy to share his own story. Farmers will run a mile from a shrink but theyll talk to a big, ugly ex-cockie like me, he laughs. Youd be sur-prised at the people Ive worked with who you would think are bulletproof.

Staunchness, toughness, resilience theyre enduring positive traits of farmers. But they can be your worst enemy, too.

Farmers advocate Janette Walker: Wheres the human response in all this?

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it wasnt the reality. Youd expect one or two to get it wrong, but it was the same story up and down the country. Thats what started me thinking this thing had been mis-sold.

In the UK, the mis-selling of swaps has been exposed as a public scan-dal expected to cost banks an esti-mated 1.5 billion in compensation. An advocacy group, Bully Banks,

has been set up to represent more than 1000 victims largely small-business owners who didnt have the financial savvy to know what they were signing up for.

Coming hot on the heels of the Libor con-troversy, which exposed the deliberate ma-nipulation of global interest rates by more than a dozen major banks, its sparked a back-lash that has seen passions running high.

In February, the Daily Telegraph reported that a London banker had fled to Asia after a contract was taken out on his life by a client whod gone under after taking out swaps and took exception to being told by the banker that hed backed the wrong horse.

Late last year, the Commerce Commission here launched an investigation under the Fair Trading Act (see A Fair Go?, page 59) after concerns over swaps were raised in a series of articles in the Sunday Star-Times and the rural newspaper Straight Furrow. After an initial assessment, chairman Mark Berry announced in March that there were sufficient concerns to probe further.

Compensation can be awarded by the courts if its found the act has been breached. But Walker, whos spent the past three years ad-vocating for farmers embattled with their banks, says thatll come too late for those al-ready driven off their land.

One dairy farmer who she was negotiating for committed suicide, leaving behind a wife and young children. He was a very good farmer, but he couldnt pay his bills and thats what got to him, she says.

When I got the email to say hed killed himself that morning, I was pretty devastated really. It was one of those moments you just sit back and think, Wheres the human re-sponse in all this?

Walker says it was often the older, conserva-

What they were told about [swaps] wasnt the reality.

These people the heart and soul of New Zealand agriculture have been taken to the cleaners by smart-arse head-office bankers.

the orchard. Geck, whos now 59, says people who knew him were shocked to find out hed fallen into such a black hole. Several other farmers have since talked to him privately about their own battles with depression but, in the rural landscape, admitting youre not coping is still seen as a sign of weakness. Even Gecks best mate had no idea how precarious his hold on life had become.

I didnt want to burden him with it, but I should have. And I would now. You have to reach out to people.

I regard myself as a phoenix rising from the ashes. Going through something like that makes you so much stronger than before. I looked death right in the face death was right there. Now I dont fear death anymore and I know I will never let myself get into that situation again.

60 or so formal complaints being laid.The banks involved have refused to

reveal publicly how many swaps were sold to farmers, although Westpac CEO Peter Clare has said hed be mortified if they werent handled appropriately. ANZ National, Westpac, ASB and BNZ actively marketed them to the rural sector (all four banks declined to comment for this story). However, at Rabobank, chief executive Ben Russell has said swaps were considered more appropriate for a specialised financial market.

If the commission finds the Fair Trading Act has been breached, it can issue a warning, negotiate an out-of-court settlement, or take legal action in the criminal or civil court. Companies found to have broken the law can be fined up to $200,000 per breach, and the courts may also award compensation.

Labour MP Damien OConnor, who is championing the farmers cause, held a meeting with the commission in May. He was told a large team is working on the inquiry, reflecting its high priority.

Investigators have been in contact with the Financial Conduct Authority in the

the Commerce Commission has asked banks involved in selling interest rate swaps to farmers to make a commitment

that people who give evidence to its investigation wont face repercussions.

A number of farmers signed confidentiality agreements as part of a deal to restructure their loans after rising credit margins sent interest payments skyrocketing. Many others paid break fees of hundreds of thousands of dollars to close out their swaps (calculated in a similar way to break fees on a standard fixed-rate mortgage) and then took their business elsewhere.

However, farming advocate Janette Walker, who has compiled files on 142 cases, says those still locked in with their bank have told her theyre reluctant to lay an official complaint in case theyre victimised. Some are too scared to do anything because they think the banks will come down hard on them when they find out.

She says most people falling foul of swaps were older, established farmers with profitable properties who had been looking to protect their estate and feel theyve been duped. They werent the bottom feeders; they were good, strong, conservative businesses.

The commission has told the banks that, in its view, any witness is able to provide information without fear of adverse consequences.

Its investigation, launched under the Fair Trading Act, is looking at whether interest-rate swaps were marketed to rural customers in ways that may have been misleading as to their true risk, nature and suitability. So far, more than 100 people have contacted the commission, with some

lost in GreyFor 12 months, Cambridge dairy farmer Allen Geck was a dead man walking.

theres something special about the light in the Waikato; the golden cast of the sun dipping over the horizon, the flash of a

farm dog across a field of emerald green. But when Allen Geck lets his mind

drift back something he tries not to do too often hes washed into a world thats drained of colour. Everything is totally grey.

I thought of myself as a dead man walking, he says. Its like youre not looking out through your eyes but right back inside your head. Theres nothing but grey in front of you. And theres no way out.

The nationwide drought of 2007-2008 bled $2.8 billion from the New Zealand economy, and the Waikato had it toughest of all. For month after month, farmers bought in whatever extra feed they could lay their hands on as the milk take steadily dwindled.

In Cambridge, the kiwifruit orchard Geck and his wife had planted on part of their farm wasnt making budget, either. Money kept pouring out and not enough was coming back in. As they struggled through another season, the dairy payout forecast fell.

My brain just shut down, says Geck, a third-generation farmer who runs a pedigree jersey stud. Id get up to milk the cows in the morning, then work in the orchard on my own all day. There wasnt any money to employ someone else. I was like a zombie. I didnt feel exhausted, but I was actually totally exhausted all the time.

For 12 months, I hardly slept. Night after night, Id lie there with this problem and that problem whirring round in my head. I could never get any peace.

One of the worst things was the isolation. I stopped going out. I wouldnt answer the phone. I didnt talk to anyone. All I wanted to do was hide away in bed. It was my refuge.

Cambridge dairy farmer and kiwifruit orchardist Allen Geck.

But every morning youd have to force yourself back out on the farm.

He began stockpiling sleeping pills, stashing away a secret supply then panicking when he couldnt remember where hed hidden the bottle. I didnt want to do anything too gory. And it was quite comforting to know [the pills] were there. I needed to have a way out.

For the sake of his children he didnt go through with it and eventually the family convinced him to see a doctor, who prescribed antidepressants. Despite his initial resistance, Geck says his mind started to clear within three weeks once theyd got the medication right. He also began seeing a counsellor, but it took another six months before he felt securely back on his feet.

Five years on and the farm is flourishing, with 10 workers employed on

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UK, where banks have just been given the green light to begin paying out an estimated 1.5 billion in compensation for mis-sold interest-rate swaps largely involving small businesses, from B&Bs to patisseries. Last year, Germanys biggest bank, Deutsche Bank AG, was also ordered to pay damages to customers who took out swaps, after the courts found it didnt adequately disclose the risks.

The complex nature of swaps meant even experienced money managers took a hit when the market turned. In the United States, a story in the Financial Times estimates losses by government and municipal agencies (including public schools) in cities such as Philadelphia and Oakland have cost the taxpayer billions of dollars.

The Banking Ombudsman, Deborah Battell, says its difficult to gauge the true extent of the problem here. Her office has received only a handful of complaints about interest-rate swaps, compared to the 800 or so cases it investigated in relation to finance company collapses.

Some of the people shes spoken to were extremely embarrassed about their situation and hadnt even told their families. Another was worried the bank might cut them loose if they kicked up a fuss.

In any situation, people who feel embarrassed are unlikely to complain, she says. The sense that Ive got is people just wanted to manage as best they could and were focused on survival. Their energy was going into just holding the line.

Rural customers involved in swaps can report their experiences positive or negative by downloading a questionnaire from the Commerce Commissions website (www.comcom.govt.nz).

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a Fair Go?Banks could be ordered to pay compensation if a Commerce Commission investigation finds interest rate swaps were marketed to farmers illegally.

Last year, Germanys biggest bank, Deutsche Bank AG (its head office in Frankfurt pictured above), was ordered to pay damages to clients who took out swaps, after the courts found it didnt adequately disclose the risks.

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swaps watched in horror as their credit margin shot up from 1 per cent to 3.9 per cent on top of their base rate leaving them paying up to 11 per cent interest on their loan. At the same time, market interest rates fell below 4 per cent.

Worse news was to follow when farmers phoned the bank and were told closing out their swaps would cost hundreds of thousands of dollars in break fees. And the longer they delayed, the higher the break fee became, as interest rates kept falling.

Some farmers were able to restructure their loans, negotiating a concession on the break fee. Others bit the bullet, paid up and got out if they could find another bank willing to refinance them. However, many found themselves in a double trap. Post-GFC, tumbling real-estate values had wiped out huge chunks of their equity, so as spiralling interest payments ate into their cashflow, the farm was no longer considered a profitable enterprise.

One couple spoken to by North & South had their funds frozen and watched in frustration as productivity fell because they couldnt afford basics like feed or fertiliser. Eventually, the bank advised them to sell up and move into town.

We felt sick, really sick. Farming is all weve ever done. We didnt sleep. We were both on antidepressants. We got behind on our bills. I couldnt even face answering the phone. It wasnt good. We begged the bank to lower the break fee but they wouldnt even consider it. They showed no sympathy at all.

Eventually the couple were able to refinance after selling a run-off property for $300,000 less than they bought it for and paying a $217,000 break fee. They calculate the time they spent in swaps cost them $240,000 in extra interest above the floating rate.

Philip Poppe, the managing director of Forex Ltd, a financial markets risk-management advisory company, says bank-loan documentation has generally included the right to change the margin, but the clause had never needed to be invoked before at least not in the past 20 years. The world didnt see the GFC coming. The market moved so fast everyone was caught like a possum in the headlights. Most new loans now have a market disruption clause, which protects the banks in the event of another global economic collapse.

Poppe says financial derivatives like swaps are used extensively by big corporates, who have dedicated treasury specialists in-house monitoring their risk

bank was recommending it, they werent going to put us crook. It was all about trust.

But after signing up for swaps, the only contact they had with the bank was when the rural manager visited every three months. Even then, swaps were never discussed. It wasnt until the credit margin went up on the loan and it started looking bloody hard to make things work on paper they wanted to talk about them then.

The old rural lending rate was traditionally a bundled product that was all-inclusive, including the banks cost of funding, plus a product margin and various other fees and margins. That changed in 2000 as borrowing was unbundled to give a more transparent market base rate, plus a margin on top reflecting the customers individual credit-risk exposure to the bank.

Because swaps were revalued against the BKBM (our market benchmark rate) on a fixed periodic base, farmers loans were priced off the BKBM as well. What many claim they didnt realise is that the credit margin could be increased if the banks borrowing costs rose or if a customers risk profile was deemed to have changed.

When the global economy collapsed, huge reservoirs of cash vanished almost overnight, driving up the cost of borrowing. Rural real estate crashed, halving the value of some properties.

At the time the GFC hit, the banks were sourcing more than half their funds offshore. As cash became tight and lenders demanded a higher return, banks ramped up their credit margins to pass on the increased costs. One family locked into

Interest rate swaps have been described as absurdly complex products by the head of the UKs financial markets regulator. The US media calls them golden handcuffs, while risk advisers

here compare them to gambling unless youre an expert. Yet when the banks went on a promotional blitz to farmers, the pitch sounded appealingly simple.

In the mid-2000s, interest rates were creeping inexorably higher. At the same time, overseas investors who saw New Zealand as an attractive market were flooding the economy with cash. Asset prices, including land values, were high and for banks with money to burn the relative cost of risk (or lending) was low. The word went out from head office and rural managers, selling on commission, began door-knocking farmers to say, Have we got a deal for you!

Not only were the banks making extra cashflow available for a new tractor or cowshed, perhaps, or a chunk of the neighbours land but by swapping the floating interest on their loan for a fixed rate, farmers were told they could protect against future rises in interest rates.

Roadshows went on a tour of country halls, where Powerpoint presentations were illustrated with colour-coded graphs. One sales document compares swaps to a traditional fixed-rate loan, listing their greater flexibility, quick entry and exit from the market, and the ability to take advantage of higher or lower interest rates. Market specialists would be used to proactively manage the risk something that appears to have simply not happened.

The key issue being investigated by the Commerce Commission is whether farmers understood the risks of what they were signing. Although the documentation contained standard disclosures and a recommendation to seek independent advice, most took the bank at its word.

I did struggle with it, admits one dairy farmer. But the way we looked at it, if the

how swaps were Supposed to workFor farmers whose swaps agreements went sour, the gap between expectation and reality was vast.

I did struggle with it, admits one dairy farmer. But the way we looked at it, if the bank was recommending it, they werent going to put us crook.

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exposure. Hes seen little evidence that the banks reviewed farmers swaps until it was too late, and questions whether rural bank lenders themselves understood farmers could close out their original position and swap loans back to floating interest rates at any time, and advised them of that. Instead, swaps seemed to have been marketed as protection against rates going up, but with no strategy in the event of them going down.

With financial derivatives, a lot of intellectual thought goes into deciding what youre doing and why youre doing it. I would imagine the average farmer was reliant on the bank to answer those questions for them.

In the 1980s, farmers were badly burnt when some banks encouraged them to take out mortgages in foreign currency at a low interest rate to reduce their loan repayments copping serious losses when the Kiwi depreciated against those currencies. History is littered with well-meaning advice being given to farmers that all turned to custard, he says.

Swaps are still used by some farmers, who understand how they work and why theyve opted for them, stresses Poppe. He recently transacted a 10-year deal for a rural client who knew exactly what he was getting into and was happy with the result. However, regulation changes brought in after the collapse of the finance companies have set a much higher bar around the promotion of such complex products to retail customers.

Whether swaps were mis-sold is for the Commerce Commission to decide, says Poppe, who believes the banks will have already made provisions for a possible compensation payout. The fundamental change is the destruction of trust between the farmer and their bankers, and for the vast majority that will never return.

Theres no question [swaps] were a new revenue stream for the bank and rural managers were getting a little lick of the profit pie as well, so they were incentivised to promote them even though it appears many of them never really understood swaps themselves.

A bank is a provider of debt funding to enable you to run your business. For many bigger farming operations, which run more as corporate entities, the days when you went duck shooting or fishing with your bank manager and invited him to a family wedding are gone. They are lenders of money, and farmers are no different to any other client. If you fail, they want their money back.

a dairy farmer who came home from the saleyards to find receivers at the door says rural communities are like war zones, with farmers looking around their neighbours wondering whos going to be sold up next.

My heart just fell out of my chest when I saw them, she says. There was nothing wrong with me, nothing wrong with the farm and nothing wrong with my cows. But we were being strangled in all directions.

After attempts to refinance failed, the land was sold for half of its previous value leaving the family still owing $2.5 million to the bank. I spent the last two weeks saying goodbye to every paddock, every corner of the farm, and then I walked out with my pride.

The mother of three has laid an official complaint with the Commerce Commission but didnt want to be named in case it jeopardised her case.

She took out interest-rate swaps to fix the rate on her loan of $3.5 million in 2007, when she bought the property where shed been sharemilking. But instead of the stable budget plan shed been expecting, her interest payments fluctuated wildly, rising from around

$30,000 a month to a peak of $55,000. I still dont really get why.

With her profits slashed, she was forced to almost halve stock numbers. At the same time, the market value of the farm plummeted and the bank, now viewing her as a business risk, eventually placed her into receivership.

She says swaps had been promoted as a smart way to protect her investment at a time when low interest rates were unheard of. She doesnt recall being advised to seek independent advice.

I thought I was on a normal fixed rate. Are you going to read a 60-page document when you really want [to buy] your farm? I was 37 at the time, a sharemilker with three little kids. But what farmer in their right mind would have signed up if theyd been told their interest payments would fluctuate by as much as $5000 to $15,000 every month?

Since leaving the farm, shes been relief milking and working in a pack house to make ends meet. I understand why people top themselves, she says. The banks have so much power. Everything youve worked for is just gone. But Ive decided not to be scared anymore. I chose to keep my mind and body healthy. You just have to keep on going. +

Milking the Cash CowInstead of protecting her investment, swaps cost a mother of three her farm.