PATHWAYS TO A STRONGER POSITION

Press, Volume CXI, Issue 32708, 10 September 1971, Page 14

PATHWAYS TO A STRONGER POSITION

Fanners were well off up until 1964 and 200 to 300 acres with a small number of ewes and a few acres of crop were quite economic. If you look back to your 1964 farm accounts and see what you received for your wool cheque, I would imagine it is about double what you are getting now—and you have probably increased your stock since ( then. There are numerous farms showing small surpluses of under $lOOO per year. You do not need to be bright to see what sort Of deficit they are going to show in five years’ time. It is these * farmers who should be looking very hard at their future prospects. On the majority of these farms expenditure is at a minimum. So much so in some cases that it is affecting the farm programme. This means that it is only in rare circumstances that savings can be made and even if savings can be made it is only marginal the difference it makes to net profit, so really this is not the answer. We must look critically at the output side of the farm. Again we can make marginal changes here, such as increasing lambing percentage or wool weights, or perhaps wait hopefully for an increase in produce price. The main problem is—are these changes big enough to give you a better living until such a time, as you wish to move off the farm? The answer to this is that it is highly unlikely. This does not mean to say you do not make these small changes and savings, because every little helps. They are an essential part of maximising profits. What alternatives are available? Purchase of more land: This usually means a lowering of equity once the extra land has been absorbed. It does, however, allow more efficient use of machinery. If you double the size of your property you would not double your machinery or labour. Furthermore, the idea of going further into debt is not as frightening as it seems, as long as the money is invested in sometiling that does not depreciate and it is earning a greater return than you are paying. This is the old principle of borrow at 7 per cent and invest at 10 per cent. If the scale is big enough then this 3 per cent adds substantially to net profits.

The bigger the property you have the less vulnerable you are, and as well as this, over a few years your equity position creeps back through capital gain. Your output increases at a greater rate than your expenditure, so the result is a larger surplus. This situation should be budgeted out on paper and compared to your present situation. Sell up and invest your capital either in another farm or in a business in town. Your capital could also be invested in town to give a good interest return and employment taken up. If you buy another farm, it must be a place that is bigger, or capable of producing a similar surplus to where you are now but with the potential to develop. In either case you will have to look at the possibility of a lower equity. This situation

Every farmer is well aware of the cost-price squeeze; some more than others. We have only got to look at the number of properties at the moment | that are showing virtually no surplus, i or even a deficit, after the year’s trading, ■ to realise it is time something was done.

of buying an undeveloped property attracts capital build-up faster than any other system by development and capital gain. The possibility of buying a business is a good one and this should be assessed now before you start eroding away what capital you have. Do not forget that by

moving off the farm you lose tax concessions that are not available to any other businesses. Also you would be involved in the purchase of a house and section in town. This could cost $20,000. You should work out what would be left to invest and compare the return to your present situation.

You could take over a business that would also provide accommodation, such as a hotel or motel. Then this $20,000 I was talking about in a house is paying you back interest. Intensify is another alternative. The main means of doing this would be by irrigation. There are many sites throughout Canterbury capable of being irrigated and the owners are not aware of this. Water source is the major problem but techniques such as water harvesting (storing winter flows in a dam and using it during the summer) are overcoming this. If you have a small stream on your property that flows only over the winter this is worth considering. It costs nothing to assess how feasible this is. Advice on planning, costing, and designing is available. If you think this is workable then spend some time looking over irrigation farms to see what can be achieved. The cost of irrigation should be assessed and. compared with the cost of purchasing more land, then consider the returns from each investment. Intensification into specialist crops should be investigated. Horticultural crops have created a lot of interest in the last few years and several of these are quite lucrative. Orcharding is another profitable venture, especially with the use of trickle irrigation, which is available to almost everyone. Again costs and returns are available by inquiry and these should be looked at. Investigation of the Mitchell theory: This theory

is based on the ideal that New Zealand farming, under conventional ryegrass white clover pastures, is limited to 10,000 to 12,0001 b dry matter per year. In other words, theoretically, we can run a maximum of 10 ewes per acre or thereabouts on conventional pastures. If, rather than white clover and perennial ryegrass, we grow high yielding crops such as maize and fodder beet, etc., our yields becpme 20,000 to 25,0001 b dry matter per year. Fully implemented, this Would mean on the easy country taking the feed to the animal rather than sending the animal to the feed, in relying on fertiliser nitrogen and pensioning off the clover, the use of a high carbohydrate feed as a basic ration for the animal with its protein requirements coming largely from special forms of urea and similar nitrogen chemicals. The key to this would be the establishment of low cost feeding and fattening areas for use at specific times. Syndication: This seems to be the in-thing at the moment and the principles can be applied quite easily to farming. The beef syndicates around at the moment are working very successfully and similar systems can be worked between farmers in different areas. For example, cattle could be wintered on a coastal Canterbury farm and finished on a friend’s property in the higher rainfall areas. Payment to each farmer would be in proportion to the time they are on the property and the liveweight they put on over this time. The system could work between two farmers only and it allows maximum feed utilisation and the flexibility that Canterbury needs in stock numbers.

Alternatively, joining one of the beef syndicates at present operating shows some interesting figures. Here I am suggesting the sale of the entire stock on the place and investing this capital, and replacing them with syndicate cattle either wintered only or run the whole year round, depending on the area. Expenses are minimal, income is received from the capital invested from the stock and grazing fees, which are fairly attractive, and labour input is low.

Some, or all of these alternatives fanners are well aware of, but the first thing you must do is establish your objectives. If your objective is to make as much money as possible then the alternatives are easily costed out and can be ranked accordingly. If your objective is something else then it is a little harder to assess, but you would look at all the alternatives and move in the direction that best satisfies your aim with minimum risk.

The primary aim is to be able to foresee what will happen in four or five years if you do not change, and to be able to act now to counter this.

The writer of the accompanying article is A. S. Brown, a farm advisory officer of the Department of Agriculture at Rangiora.