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 | No formal OCR; rates ~6-10%, declined from 1980s highs amid economic reforms. | Steady growth; herd sizes increased ~70% nationally from 1995–2015; exports rose from $2b/year. |
| 1999-2003 | OCR introduced at 4.5%; rose to 6.75%, then eased to 4.75% by 2003. | Fonterra formed (2001); farm sizes expanded; exports grew steadily. |
| 2004-2008 | OCR rose from 5.25% to peak at 8.25% (2007–2008). | Boom period; cow numbers hit 5.2m; milk solids production reached 1.2b kg; exports surged. |
| 2008-2010 | Sharp cuts from 8.25% to 2.5% (2009). | Initial price drop strained margins, but low rates reduced borrowing costs; deleveraging began. |
| 2010–2014 | Gradual hikes from 2.5% to 3.5% (2014). | Exports hit ~$16b by 2014; land conversions to dairy accelerated. |
| 2015–2016 | Cuts from 3.5% to 1.75% (2016). | Reduced debt costs aided cash flow amid low milk prices (2015–2016 crisis). |
| 2017–2019 | Mostly stable at 1.75%; cuts to 1% (2019). | Cow numbers hit 4.8–5m; exports grew to $16–20b. |
| 2020–2021 | Emergency cut to 0.25% (Mar 2020). | Exports held firm (~$20b); low rates provided buffer for operations. |
| 2022–2023 | Aggressive hikes from 0.25% to 5.5% (2023). | Margins pressured by high debt servicing; herd reductions. |
| 2024–2025 | Cuts from 5.5% to 2.5% (Oct 2025). | Relief via lower costs; $640m revenue boost from high prices ($9.18/kg milk solids). |