With the dairy sector remaining the principal sector for Agri lending, the OCR cut will be welcome relief to many across the country. Coupled with higher commodities prices and factoring in the potential for next years Fonterra divestment distribution to shareholders we can expect a Dairy to continue to grow in strength come the 26/27 season.
But it’s not just lending that benefits from the OCR cut, the New Zealand dollar dropped marginally off the back of the reserve bank’s decision, providing dairy exports additional gains on global markets. With elevated commodity prices already supporting the primary sector, this should boost revenues for exporters.
As the whole, the rural market accounts for around $62b NZD worth of lending, a significant amount, and Interest savings across the sector are great for New Zealand. While typically it may take some time for Farmers to feel the full benefit of rate cuts, as debt prices move lower, the ability to invest or expand become real options.
Speaking to Real estate agents across New Zealand, the feeling is that interest is growing, with REINZ annual report confirming a rebound in sales activity. Dairy sales data shows Canterbury, Bay of Plenty, Manawatu, Northland, Waikato and the West Coast all saw increases in the Median Price per Hectare. This will likely continue to improve into the end of season as interest rates improve.
Below is a Table showing the history of Interest rates and effects for the Dairy Industry.
Period/OCR Cycle
Key Changes
Dairy Sector Response
1990-1998 (Pre-OCR era; high to moderating rates)
No formal OCR; equivalent rates (e.g., 90-day bank bills ~6-10%, deposit rates ~4-7%, mortgages ~8–12%) declined from 1980s highs amid economic reforms, deregulation, and falling inflation. Stable but elevated compared to later periods.
Steady growth with co-operative consolidations (leading to two major co-ops by 1999); herd sizes increased around 70% nationally from 1995-2015 overall, starting in this period; farm sizes grew from ~72 ha/166 cows in 1990; exports rose from $2b/year in 1989 amid deregulation benefits; focus on efficiency and mechanical milking adoption.
1999-2003 (Initial OCR; mixed tightening/easing)
OCR introduced at 4.5% (Mar 1999); rose to 6.75% by 2000 (tightening), then eased to 4.75% by 2003 amid post-Asian crisis recovery and global slowdown.
Industry restructuring; Fonterra formed (2001) via merger, controlling 95%+ of milk; farm sizes expanded (to 105 ha/286 cows by 2001); transgenic cow research began; environmental focus with Dairying and Clean Streams Accord (2003); exports grew steadily despite moderate rates.
2004-2008 (Tightening cycle)
OCR rose from 5.25% to peak at 8.25% (2007-2008) to combat inflation and housing boom; early Global Financial Crisis (GFC) hints prompted an initial cut to 8% (Jul 2008).
Boom period; cow numbers hit 5.2m (2005), farms at 12,786 covering 2.1m ha; milk solids production reached 1.2b kg (2005); automated milking proven (2008); high debt for expansions but buffered by rising global prices (65% above prior decades); exports surged to ~$10b+ by late 2000s.
2008-2010 (GFC easing)
Sharp cuts from 8.25% to 2.5% (2009) to stimulate amid global recession; stable at 2.5% before minor hikes to 3% (2010).
Initial price drop (2008–2009) strained margins, but low rates reduced borrowing costs and weakened NZD, aiding export recovery; deleveraging began; production stabilised; Fonterra's global push continued.
2010–2014 (Post-GFC recovery/tightening)
Gradual hikes from 2.5% to 3.5% (2014) amid growth and inflation; stable periods in between.
Prosperous expansion; exports hit ~$16b by 2014; land conversions to dairy accelerated (70% herd growth 1995–2015); cattle numbers up; innovation in sustainability; higher rates squeezed some but offset by commodity boom.
2015–2016 (Easing)
Cuts from 3.5% to 1.75% (2016) due to low inflation, dairy price slump, and global weakness.
Supported by low milk prices (2015–2016 crisis); reduced debt costs aided cash flow; herd growth slowed but production efficient; regional shifts (e.g., South Island expansion); costs rose faster than income overall (trend over 30 years).
2017–2019 (Stability then easing)
Mostly stable at 1.75%; cuts to 1% (2019) amid slowing growth and trade tensions.
Cow numbers hit 4.8 – 5m; exports grew to between $16–20b; shift to crossbred cows for efficiency (48.5% by 2019); Westland Milk sold (2019); focus on sustainability amid environmental regs; low rates encouraged investment.
2020–2021 (COVID-19 easing)
Emergency cut to 0.25% (Mar 2020); held low amid lockdowns and uncertainty.
Exports held firm (~$20b); stable loans (~$36–37b); offset input rises; production growth despite volatility; low rates provided buffer for operations.
2022–2023 (Tightening)
Aggressive hikes from 0.25% to 5.5% (2023) to fight inflation.
Margins pressured by high debt servicing; herd reductions and land shifts to horticulture; loans stabilized at ~$36.5b; acted as economic shock absorber via exports; production dipped due to weather (El Niño).
2024–2025 (Easing)
Cuts from 5.5% to 2.5% (Oct 2025) amid weak growth and cooling inflation.
Relief via lower costs; $640m revenue boost from high prices ($9.18/kg milk solids); rebound expected post-2023/24 dip; greater flexibility for investment and sustainability.
