Westpac's head of Agribusiness sees a change in farmer attitude to their business, from one of growing capital, to goals of cash surpluses.
While applauding this approach it must be kept in mind that for years poor product prices affected levels of profits on many farms, and it is only recently that competitive returns are earned from investments in agriculture.
Poor profits for farmers meant cheap food for consumers, but now a side affect of better returns for agriculture is the rising costs of products grown, with no better example of this than the price of milk and meat.
Another consequence of the drive for better profits is the intensification of our farms, as operators try to utilise their land area more efficently, but sometimes at a cost to the environment.
The domestic market is unhappy that these staple costs have risen but need to understand farmers need a sustainable return on their investment for future growth.
Historically farmers survived with a low return on the business of farming by adding in the capital growth to achieve a realistic return. The new approach may mean milk, meat, and wool may become too expensive for our domestic market.
Your views on the conflict of rising food costs and farm profits?
It has been a while coming but farmers are changing their investment behaviour from farming for capital gain to driving cash surpluses for reinvestment into productive assets, says Westpac head of agribusiness David Jones. He was in Gisborne to meet customers, farmers, farm advisers, accountants and business people to discuss Grow NZ where the bank is working with businesses to help identify what needs to be done to help restore confidence in doing and growing business in New Zealand.
He said the agriculture industry was stepping up and growing, and this was New Zealand’s number one economic engine reports The Gisborne Herald. “We are starting to see some confidence coming into the market where people are actually looking at improving productivity and reinvesting in their existing operation through retention of profits — bringing in new money (financed or private equity) to drive efficiencies and productivity.
“People don’t have as high a cost to get into an industry as before because capital values have come off land assets. “While it has hurt some (through reduced equity), financially it is good for the whole agricultural industry, including the support industries.” He says people are still wondering and waiting to see if there will be any further drop in asset and commodity prices, and in fact if the bottom of the cycle had been reached yet.
“It is about doing the appropriate level of due diligence in the investment and seeking advice from independent parties — whether it be financial institutions, farm advisers accountants, solicitors and people in the know.” he said. Mr Jones said the bank fully supported the industry through the recent climatic and economic events. “We support the industry whether it be for a season, a generation or inter-generation. We are there for the long haul so we move with the events.”
He believed climatic events had as much if not more impact on farmers than an economic cycle.“Generally, when you go through drought or a flood the implications are such that it takes time to restore the property, pasture and build stock numbers back up. Climatic events also take a great personal toll and this is where we need to provide the greatest level of support to restore personal well being. These events take one to two or even multiple seasons to correct.” He said New Zealands Agriculture industry was in good heart and would continue to be significant contributor to our economy and economic recovery.