Wednesday, 30 October 2019 10:55

No time to stand still

Written by  Tom Pow, founder of Herd Homes
Rules around farming are getting tougher, resulting in increased costs with no extra returns. Rules around farming are getting tougher, resulting in increased costs with no extra returns.

Tom Pow, founder of Herd Homes, on the banking and environmental pressures facing farmers.

With a few years under my belt now, I have more than half a century experience of seeing banks watching landowners, changing markets and seeing farmers switch from wool to milk and back again.

I’ve even seen some farmers indulge in hand-rearing possums for fur, and breeding angora goats and ostriches. 

Various successful enterprises have popped up, and more than a few dead-end ones. I never did think milking seagulls would catch on. 

You can see the stage the bankers have now got to in the economic cycle: it’s the ‘suck in the money’ stage -- lending money at low interest rates with only a small deposit required. 

But the Reserve Bank is applying pressure in wanting banks to retain more capital, so no doubt the banks will soon come back around to where they started: taking deposits and basing their lending on what they where doing -- and shortly over-extending.

The Reserve Bank could require our banking sector to raise at least $20 billion extra capital. Is this a bad joke? Do they really think it will work? It would take a huge sum out of the economy just as farmers are being required to spend large on technology and infrastructure to reduce waste, greenhouse gas, runoff and to meet a vast range of sometimes arbitrary-seeming compliance costs?

A previous government set up a ‘rural bank’. Why?

1. Was the NZ Rural Bank just to help farmers?

2. Was it just to help the NZ balance of trade?

3. Was it for employment?

4. Or was it to help to develop poor land? (They even had a marginal land programme.)

Banking criteria can change but for farmers one fact remains timeless: growing profits are king for any business. Whether you have low debt or high debt, making a poor profit is no fun for anyone and has no future.       

Right now, dairy farmers should have smiles on their dials. 

Dairy farming is a skill and not just an investment, not anyone can just leap in. Dairy factories and/or companies may change over time but the milk supply was and will be highly sought after by investors. We must not lose the skill and skilled people in NZ dairy farming. 

Our Government says all the right things but for all their talk we are not seeing progress across New Zealand. On September 11, a news story said our country’s banks are struggling to maintain profits from their loan portfolios. At the same time, there’s a tsunami of compliance coming our way. We need to be nimble and think ahead.

As dairy farmers, what can we do and are there options to suit? Let’s look at a few and problems that could arise:

1. Standing still: No way, the downside is too steep. The rules around farming are getting tougher, resulting in increased costs with no extra return. Standing still may work for a few farmers but in reality it means going backward. 

2. Taking small steps forward: this would keep your business moving forward slowly, but while small steps every year should keep you compliant, your profits will wane.

3. Likely outcomes of dropping the bank off your back by following bad advice (because banks appear to be looking after themselves before their clients): tax demands would go up, farm improvements would stand still, opportunity would pass by and the farm would go backwards.

4. Find options that will grow the business and profits: keep in step environmentally while increasing profits. Use the profits and increase revenue in a way that will keep you ahead of the pack. This could help to keep tax at manageable level. 

Returning to compliance costs: how many people does it take to change a lightbulb? On a farm these days -- judging by the number of rural inspectors beating a path to the farm gate -- the answer is: quite a few. Attacks, sometimes even a surprise ambush, come from all directions and most bear an associated cost. 

Why do farmers need all these people poking into their business and telling them what they must do or else? Government, local government, industry compliance groups, feel good groups and even farmer owned bodies, to name a few, are all at it. And many of these entities have more than one group of inspectors ready to come out with their checklists to pronounce their verdict on your operation. This needs to be sorted out.

Clean water is another hot topic – and ‘clean’ seems to be a much misused and misunderstood word. Water from the roof of cowsheds and farm sheds and houses wouldn’t pass clean water tests. There are plenty of feathered flying creatures who squawk and do other stuff on our roofs. And we all know the downstream effect from fish farming. Nature recycles nutrients, nature is not wasteful. Here’s an idea: if you don’t like the water, drink milk.    

To clean up the rivers in Northland you would have to get rid of all the birds along with any live fish in our streams and rivers. 

Sediment in rivers is another interesting test of common sense. My farms are on silt/sedimentary soils which are thousands of years old. Our land shows the scars of old riverbeds with the healthy appearance of nature just doing what it does. Banks erode, trees fall, plants sprout.

Are we expected to stop nature’s constant cycle of decay, death and regrowth to maintain a picture-perfect scene fit for a photograph? As our climate changes, our waterways will need to change too to remain fit for purpose, getting wider and deeper during wet years.   

Planting riparian belts around Northland rivers will help to stop some of nature’s ongoing changes, as well as make managing the bed almost impossible. 

• Tom Pow is the founder of Herd Homes Ltd.

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