For generations New Zealanders have farmed for capital gain but they need to make a profit every year, says Te Puke chartered account Trudi Ballantyne.
The nine-year average rate of return on total assets for sheep and beef farmers is 0.97 percent and for dairy farmers the average during seven years is 4.74 per cent return, says Trudi, who is owner of Business Results Group.
“Is this good enough, especially given the risk in farming?” she asks.
“Volatility is a given in agriculture – weather, exchange rates, commodity prices, biosecurity – whatever the reason the stars will hardly ever be aligned.
“Therefore farmers need to build capacity to handle that volatility – they need to plan for the bad years.”
There are lessons to be learned from 2009 when the milk price crashed. “It had been a good year previously and was expected to be a similar year again. But how many farmers had to go to the bank manager, cap in hand and borrow on average another $1 per kilogram of milk solids?”
The latest milk payout record of $8 saw many farmers bank a lot of their profits by repaying debt.
“Sure they may have had to borrow it back again now – but they built capacity into their system which put them in a much stronger position than if they had made other choices with that cash.
“This needs to be the mentality moving forward – make hay while the sun shines – but be prepared to batten down the hatches when bad times come – because they will come again.”
Despite media reports, not all dairy farmers are making cash losses. There are some that will still make money this year. “When they make money in a bad year – guess what they do in a good year – makes lots of money. Without those profits we are not going to see people wanting to invest in our farms,” says Trudi.
There are a number of hurdles to being consistently profitable, says Trudi. “I definitely have two types of farmers on my books – those that are out there and are driven to continually improve their businesses – run things like a real business with business plans, goals, budgets, group of trusted advisors around them that they consult on a regular basis.
“The second type would be the ‘lifestyle farmer’ – not someone on a two hectare plot of land – but a real farmer who is happy in his space and doesn’t want to push the boundaries – doing what was always done.”
However, the future lies in getting talent, the right people doing the right jobs, including farm staff, family, accountants, bankers, farm advisors. “We need to create pathways for people in agriculture and not just on the farm but in all other aspects including science and processing.”
Maximising resources and making the most of what you have got is also vital. “How can we do all of those things we need to in order to continue farming if we don’t have consistent profits?”
Farmers may need to look at other opportunities and think about different crops, better grasses more suited to conditions now. The opportunities which tourism offer and the chance to deal more directly with the consumer could also be considered.
“Farmers need to think more creatively about all aspects of their farming system and to make some of the changes they are likely to need capital – where’s it going to come from? Doing things the way they have always been done won’t cut it moving forward.”
Trudi was among the speakers at the 70th Annual Provincial Conference and AGM for Bay of Plenty Federated Farmers.