One in four farmers feel under pressure from banks to reduce debt, survey finds

Nearly a quarter of farmers say they're feeling pressure from banks to reduce debt, according to a Federated Farmers survey.

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But the Reserve Bank warns farmers may find it tough to clear debt. Source: 1 NEWS

It reflects banks' reluctance to lend to the sector, and means more farmers are borrowing from family and other lenders.

The tightening on lending comes as the Reserve Bank says most dairy farms have been profitable over the past three years.

The central bank says milk prices are reasonable and production is stable but debt among dairy farmers is high with about 20 per cent of farmers owing about 45 per cent of the debt.

"We continue to be concerned about a strong tail of highly indebted farmers that's very concentrated," said the Reserve Bank's deputy governor, Geoff Bascand.

Federated Farmers surveyed its 1300 members and 23 per cent of them said they felt pressure from their banks.

The organisation's economics and commerce spokesperson Andrew Hoggard said some banks are now questioning whether overdrafts should be extended and asking customers to pay principal.

Richard McIntyre, who works with farmers in financial trouble, said it's very difficult to get a loan at the moment and some farmers are borrowing from family or third tier lenders.

He said at the moment most farmers can afford to pay back the principal banks are demanding, but if milk prices drop they will struggle.

The Bankers Association says lenders work closely with farmers and it points to the low number of mortgagee farm sales - fewer than 10 a year out of 52,000 farms across the country.