General Comments (September 2017)
This News Bulletin marks the 30th anniversary of the farm business consultancy now known as Rural Management Strategies, commenced by Robert Patterson in October 1987. It also marks another milestone in terms of employees becoming partners in the business, with Chris Minehan having become a director and equity partner as of 1 July 2017. Chris has been working from the Wagga Wagga office for over six years, during which time he has become a very valuable member of the team, with a long term commitment to providing farm business management advice to clients. During October, the Rural Management Strategies team will be boosted by another young consultant who will be working from the Cootamundra office.
During July, Robert Patterson attended the 21st IFMA (International Farm Management Association) Congress in Edinburgh Scotland, after which time he spent some time touring through the farming areas of northern Scotland, The Netherlands and southern Germany, observing and discussing their farming systems.
The 22nd IFMA Congress is to be held in Launceston Tasmania in March 2019. This may be of interest to some clients, who are encouraged to contact Robert Patterson for further information.
Some observations from Robert Patterson’s recent trip are as follows:
Food safety, especially water, is the major risk factor within the food chain.
Farming is water transport.
Sustainable farming definition: “site specific farming system supporting the integrity of the environment, society and farm economic viability over the long term”.
Farms in the UK are becoming more specialised eg potatoes rather than mixed farming.
The UK government will match EU payments until 2020 during the Brexit transition. It is evident that many farm businesses in Scotland will not survive financially without these subsidies.
Scottish agriculture has not moved forward; many practices are outdated as a result of subsidies, as there has been no imperative to innovate.
Innovation in agriculture has stagnated since the UK joined the EU in 1973. Cropping is subsidised to the tune of 74% while livestock production is subsidised to 102%. This is not surprising as 40% of beef farms in the UK have less than 9 cows!!!
Societal pressure is increasing for dairy calves to remain with cows rather than being sold as baby calves.
Scottish Highland farms are not profitable even with subsidies. Farmers are being paid to be custodians of the land. They appear to have no competitive advantage nor a business case for their existence, because Highland farmers have to shed livestock over the winter at high expense, mainly fodder supply and effluent removal.
The resilience of UK farms will depend on lowering inputs, an increase in farm size, the adoption of technology, plus the generation of off-farm income in many cases.
USA studies show that farms remain within the top or bottom of groups studied between years. There is very little differences in crop yields between farms, the main difference is in costs. Direct operating costs are very similar between operators; the main difference being in overhead costs, including land rent and interest paid.
Global land values are related to productivity. The main driver of land values is money searching for value. Farmland has strong fundamentals, stability, a hedge against inflation, plus low correlation with the other asset classes.
When expressed as $/t of wheat yield, Australian farmland is very low, equivalent to that in Hungary. Crop land in USA is medium and Germany is very high in terms of $/t of wheat.
Farm managers need to move from emotion to science and differentiate between data and information. Data requires transforming into information.
Crop production must become more flexible and efficient, with intelligently targeted inputs reacting to changes in current climatic conditions measured in real time.