Planning for the future of Farming

14 April 2020

If there is one thing that the last few months has reminded us of, it is just how volatile the business of farming can be.  Prior to Christmas the season overall had been a favourable one, rainfall had been consistent, commodity prices were at all-time highs and farming business in general were on track to generate record profits.  Within two months, particularly in the North Island, we have seen a drought kick in and forward looking commodity prices take a significant hit, again for reasons well outside of our control.  A number of leading economists were picking the farm gate milk price to hit $8.00/Kg next season, looking back to mid-January the 20/21 milk futures prices reached close to $7.50/KgMS, they are now trading under $6.50/KgMS.  Because of the combination of drought, and more recently Covid-19, red meat prices are also materially lower.


This highlights that farming businesses cannot afford to be complacent.  Businesses can’t afford to take the foot off when times are good, but need to be maximising the bottom line and protecting their margin as we have no idea when the next change in our operating environment is coming.


The other evolving picture that is having a material impact on the industry at present, is changing bank appetite and tightened liquidity.  The Reserve Bank has concerns about the amount of debt in the agriculture sector, its sustainability, and is imposing some significant regulations on the banks to manage this risk.  This is leading to banks pulling back and actively looking to reducing their loan exposures to the sector - they are seeing better, lower risk returns elsewhere meaning NZ agriculture, and farmers, are now in competition for their capital.


These factors combined mean farmers need to get better at planning, they need to present themselves in the best possible light at all times, and communicate more regularly with their bank. Whilst the research shows that businesses who plan and regularly monitor their financial performance tend to achieve better results, obtaining access to capital is now demanding this level of financial acumen – it’s a non-negotiable.  If you’re not being proactive in this space, you are likely to achieve a less favourable outcome.


BDO have been backing our clients to refine their approach to tackle this challenge head on.  There is an old saying, “You can’t manage what you don’t measure”.  Our team have embraced this motto whole heartedly with our clients and are finding, with the technology now available to them, that there is no excuse for not being able to get a better handle on your real time financial performance.   Through budgeting and regular review our clients are feeling more in control and are achieving better results.  These results combined with better transparency are leading to better outcomes with their funding providers.


“Failing to plan is planning to fail” could not be more appropriate in this environment – if you haven’t been one to budget, now is the time to invest in this area.  The time you spend refining your skills and forming a plan will improve your performance and improve your bottom line.


The new financial year is fast approaching.  To take control of your business get in touch with a BDO advisor today.


Author Chris Harvey B.Com.Ag – 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.