There’s an increasing positivity around farming and the farming community right now, and why wouldn’t there be? The agriculture sector has come out of 2020 as the shining light for the NZ economy – strong commodity prices coupled with significantly lower interest rates are contributing to what are some of the strongest on farm returns seen in recent memory. The outlook also appears positive - at least in the short term.
Farming businesses should be taking the time to enjoy these good times, while being mindful not to let complacency slip in. Dynamics such as emission targets, freshwater reform and bio-security risk are not disappearing any time soon. These are material challenges facing the sector and strengthening your business to prepare for these challenges is vitally important.
It was recently published that one of our leading research institutes had their dairy herd infected with Mycoplasma Bovis. This illustrates how no business is exempt from the disruption that nature and government alike can bring. Making solid plans, having good governance practices in place and being prepared will set your business up to positively navigate whatever is thrown at it – allowing you and your team to be on the front foot.
Governance is a word we regularly hear thrown around these days, and we often don’t liken it to the smaller family-owned farming business. Governance could be seen as a mystical word, however in simple terms it provides a body or group of people creating appropriate processes, structure and accountability with a clear purpose.
Do you regularly consider your farming business from a Governance perspective?
- What is it that drives you and gets you up in the morning? Are you doing the things you enjoy in life, or getting bogged down with the compliance?
- Have you communicated your business purpose, goals and ideals to your advisors, stakeholders and staff?
- Are you, your advisors and stakeholders working effectively toward your purpose and goals, or could you all do better?
- When was the last time you all got around the table and talked about your farming purpose, plans and goals, and how are you measuring the progress?
It is becoming more and more important that you, your advisors and all key stakeholders are singing from the same song sheet. There is no better way to achieve this than getting into the habit of meeting together regularly to discuss business type matters, in a more formal setting. Getting everyone around the kitchen table as little as twice a year can bring some real focus and positive results to your business.
Having sound governance can ensure you are ready to pounce on opportunities that will arise, often unexpectedly – whether that’s purchasing the neighbours farm, developing or simply refining what you are currently doing. When your business has a clear direction and positive financial position, it is much easier to recognise and grab the right opportunity when it arises.
Utilising these strong farm gate returns in a meaningful way, while keeping in mind the end purpose or goal, can help to ensure your business is ready for what’s around the corner. We don’t mean foregoing the annual holiday or pleasures in life - simply sticking to your budget and being savvy around how you utilise your free cash will set your business up for the long haul.
Interest rates are the talk of the town, but do you know if you are achieving the best possible outcome with your finance provider? Meeting with your advisory team regularly, including your banker, will help you understand what you can influence in this space and ensure your team understands the banks position. There are a number of evolving dynamics affecting the finance sector currently, particularly in Agribusiness, and it is hard for any business owner to keep across these on their own.
Until recently, in many cases there may not have been a lot of cash to invest in keeping the farm maintained and up to scratch, and this may be starting to show on the ground. While we don’t promote going and spending lavish amounts of money on unplanned capital or repairs, now could be a good time to do some well needed maintenance. Whether you plan on selling the farm in years to come or keeping it in the family, having well maintained infrastructure can be to your advantage. Many dairy farmers will be needing to do significant upgrades to effluent and the like in the coming years, and by doing the planning and budgeting now, it will ensure large costs don’t come as a surprise. Keeping your advisors and bank informed of these plans will also assist when it comes to tax planning and structuring of loans, just to name a few.
It all comes down to creating good habits and keeping the lines of communication open with your trusted team. Having a couple of formal advisory meetings a year could be the beginning of something great for your business. Whether it’s taking full advantage of the low interest rates on offer or better utilising the increased farm gate returns - obtaining advice from your advisory team on a more regular basis will set your business up to handle whatever the future may bring.
With only 4 months until the start of the new season, now’s the time to take control of your business and develop a plan moving forward. Get in touch with a BDO Adviser today.
Author Chris Harvey
B.Com.Ag – Advisory Principal, Agribusiness Specialist, BDO Taranaki
Before joining BDO, Chris spent 10 years in agribusiness banking working across the Central North Island but also large parts of the South Island in various banking roles. His experience has been working with Agribusinesses ranging from sharemilkers to some of New Zealand’s largest farming entities. Chris has assisted in a number of aspects in these businesses including strategic planning, governance, succession, opportunity analysis and structuring.