When offering professional advice, I frequently turn up at the kitchen table of a farmer tired of searching for answers to questions he or she perceives as overwhelming.
When my client’s main driver is to protect their life’s work, maybe over more than one generation, my role as a rural professional is to help bring hope and empathy, not to be the bedfellow of misery. While that never involves taking them on a fairy-chasing mission, unless I can bring hope and realism, I will not provide a convincing case to do anything.
My advice always centres around owning the challenges: look at the options around you and work out how to improve the potential outcomes. Sometimes, that may include selling the farm, but without a plan you are simply reacting.
With payout levels aligning with expectations, the 2024 spring brings a degree of confidence for the dairy industry. Since 2017 dairy farmers have focused on reducing debt, and although costs have significantly increased, businesses with stable foundations may now have the capacity to expand.
Those with strong balance sheets and sound operational models will take advantage of this environment. They tend to focus particularly on opportunities for succession, productivity improvements and land use change. Whereas a few years ago corporate investment was the dairy property market’s main driver, we are now entering an era where the focus has shifted to the expansion of family businesses. Prospective farm purchasers are driven by improvements, water and an operating system able to be picked up and implemented by the incoming operator.
In these circumstances, vendors of dairy property need to ensure that any farm they put in the shop window is at its best and can be documented as such.
Although the dairy sector has grounds for optimism, up the road in sheep and beef farming liquidity is much more elusive. A significant number of farmers are finding it challenging, with financial constraints tighter than we have seen in the last 20 to 30 years. For example, income levels have dropped from say $180 gross income per stock unit to $130. Meanwhile, depending on locality, farm expenses have risen from $55 per stock unit to between $70 and $90. Budgeting becomes almost impossible. Although a recent shift in schedule prices and stock quantities at livestock sales might indicate that the darkest days are behind us, there is a way to go yet.
In addition to regulation, capital is the constraining factor.
Restrictions on overseas investment make reliance on traditional capital sources for liquidity for the agricultural sector problematic. Farmers need to be aware of alternative income streams and look hard at what resource consents they will need to diversify their land use. Contemplating such a change must include ensuring that you fully understand the relevant regulations. For example, can you take a traditional cattle system and start running dairy heifers? Don’t just rely on perception: research, dig deeper and check it out.
Looking further and wider, on the face of it farming operations often offer opportunities around renewable energy, including but not limited to solar, wind, and micro hydro generation.
As a country we are driving towards a carbon-free future by 2050. To achieve that, to complement existing farming systems farmers must capture and develop alternative income streams that we can generate from our land. Farmers need to be curious and open to these opportunities. Beyond renewable energy, that might also include enhancing water and soil health and carbon sequestration, particularly when this ties in with our mission as environmental custodians. How can a primary producer use those natural resources and turn that caretaking role into something that makes money?
Every farmer will find his or her own answer, as long as they remain curious and hold onto the philosophy that while the property may be doing one thing today, any number of alternatives might be possible in the future.
Since last year’s general election, several more MPs have experience of or affiliation to agriculture, and the government’s intention of doubling primary sector exports bodes well for primary producers. While they are working hard for the sector and making some positive changes, so far the government has avoided or delayed confrontation with the industry’s larger issues, including the Emissions Trading Scheme and He Waka Eke Noa (Primary Sector Climate Action Partnership). Denial will not make such challenges vanish. While regulators have a bark regarding these issues, the markets in which we sell our primary produce will bite. We need to be mindful of consumer power and act accordingly or risk our produce’s position in international markets.
New Zealand would greatly benefit from a national food strategy we can all sign up for, linking the producer, the consumer, the environment, people and profit. This will enhance, validate and project our origin stories and the reality of New Zealand’s low carbon footprint. Can we more effectively monetise direct relationships between farmers and consumers? Will digitisation of the food production system provide an effective means of leverage?
If you are on the other side of the rural property deal, as a vendor, you need to understand that the market is not what it was three years ago. Reasons for vendors to list a farm are much the same as they have ever been: retirement, restructuring, and succession. Anyone seeking to purchase land is still looking for exceptional assets. Is your property as good as it can be to appeal to the market?
While the economic cycle hopefully poised to start swinging back to the positive, with recent improvements in market interest rates as a starter, exactly how that will manifest is something we do not yet know. Until it arrives, we never quite see the true light of dawn. The best you can do is to be proactive and prepare for it. Control the controllables and in that you’ve done your best.
Brent Love is an Enterprise Partner at KMPG, specialising in fostering long-term relationships with agriculture businesses and rural families across generations to support their success. Brent has over 30 years of experience in the agribusiness sector, originally in rural banking.
BRENT LOVE
Enterprise Partner KPMG
