Time for group farming says consultant

Press, 11 February 1983, Page 21

Time for group farming says consultant

This article has been contributed by Mr JOHN FORD, valuer and farm consultant of Alexandra, who, after working all his career in farm valuation and management, believes New Zealand needs a new method of farming.

No profits and no capital gains! This is the stark reality today for a large percentage of New Zealand farmers, many of whom, until recently. appeared to be not overly concerned about the lack of profit from their enterprises because there were capital gains in large doses to compensate. It would have been obvious to most that this artificial environment could not continue indefinitely because, when the price of rural land gets further and further away from its productive worth, the end result is inevitable. Finding solutions to the

farming industry’s difficulties has now become an urgent priority. The reasons’ for the lack of profit hardly needs spelling out — costs have escalated while the prices for sheep, wool and beef have remained static or even declined. Economy of scale is normally the key to viability. In the’ past, the purchase of additional land to offset declining profitability has usually rectified the situation. However, this is an option which today has largely disappeared because the high price of land, coupled with high interest rates, has

negated the benefits which would usually result. In times of financial stress, pruning non-essential expenditure has been the conventional approach to balancing the budget. But the extent of the shortfall in revenue predicted by the Economic Service of the Meat and Wool Boards means other considerations must be examined. There are

not many positive options left to pull out of the hat.

Group farming would be one. Admittedly the qualifications necessary for such a concept to be successful are many, so much so that, in the immediate future at least, it would be unlikely to have a significant impact on the economic difficulties which beset the majority of New Zealand farmers.

Nonetheless group farming has been very successful in many countries, including Australia. It may come as a surprise to learn that the Australian farmer, a rugged individualist if ever there was one. should involve himself in a communal type of farming. It is because Australians farm for profit and, if these are low or nonexistent, they are obliged to look for an alternative.

What is group farming? It is the bringing, together of a number of adjoining or adjacent farmers — a minimum of say four and a maximum of six — pooling their resources. and in particular their individual specialist skills. For example, there would be little point in forming a farming group when the members all had the same skills.

The participants involved in a group farming venture retain ownership of their land and responsibility for any existing liabilities (mortgages) pertaining to that land. The land is leased to the partnership (a minimum of five years) while stock and plant is sold to it. In most circumstances there would be a rationalising of plant and machinery. In essence, the members become shareholders of a large scale farming venture. They ' are also landlords, tenants, wage earners, and

co-directors (one of whom would be managing director cum operations manager). They would also receive dividends from the profits of the year's operations. Becoming a member of a farming team radically changes not only the family life but the daily work schedule. Decisions concerning farm profits become a separate issue from decisions on capital growth and other matters relating to the individual family assets. Apart from the increased financial benefits which normally result from group farming, there are the benefits from increased opportunities for recreation and education. There are opportunities for objective reviews of the day-to-day farming operations as well as for the over-all planning and policy-making decisions of a large-scale enterprise. There are many farmers in New Zealand who have organising and management skills far beyond the oneman unit but, because of finance and other factors, the opportunity to get involved in a large enterprise does not occur. Group farming gives

such people that opportunity without them having to front up with additional finance. Other benefits from group farming include opportunities for bulk purchasing and. of course, "trading muscle." or marketing power in the sale or purchase of stock. A well-managed large-scale enterprise would normally give it larger and more favourable borrowing accommodation both for seasonal and term lending.

Personal security, which has always been an important objective for a farmer, is enhanced under group farming. particularly in respect to accident or sickness as obviously the sharing of these risks over the group significantly reduces this potential problem. Group farming is not going to be everyone’s scene nor would it be a practical alternative in many situations, but I believe it could have wide application in many districts in New Zealand. North Otago and South Canterbury in particular have, in my view, potential for this concept. There are many farmers and those associated with the industry who will condemn group farming out of hand,

but I see this as a realistic solution to non-profitability, particularly when an early return to profitable farming appears to be some time away.

Those who have become involved in group farming have told me that they would never go back to farming on their own. I am familiar with one group farming enterprise which has been so successful financially that, in addition to their own individual farm units, they now own in partnership an area twice the size of the group's original combined holdings.

Frankly, when one considers the exceptional talents of the New Zealand farmer and. in particular, his readiness to embrace new ideas and techniques. I am surprised that group farming hasn't developed.

As I see it. those who are tempted to consider it. have nothing to lose and everything to gain provided they enter into such an arrangement with the firm resolve to make it succeed. I mention this because the foundation stone in such a venture is domestic harmony. Potential disharmony is an argument most knockers of group farming put forward, but I consider this to be something of a red herring because thousands of groups of people work together successfully in a wide variety of enterprises. The important thing is to have the administrative mechanism for deal-

ing promptly with the first sign of a group member having sand in shoe, or more appropriately in his working boots!

I consider group farming could play an important role in this country, certainly so long as land continues to be over-priced and interest rates remain at their present high level. Group farming effectively solves the continuing problem plaguing the New Zealand farmer, namely economy of scale and the viability of his unit.