Rifso

Executive Summary

Cultivation ideas, valuing the chain leveraging the investment – George Strachan

EXECUTIVE SUMMARY

As a relatively new asparagus grower, in the Waikato region of New Zealand, I am interested in exploring opportunities within this industry. The harvesting costs in an asparagus business are a significant portion of the total expenditure, so any efficiency gains would provide a direct contribution to profitability.

There are currently several different methods for harvesting asparagus, all of which involve manual picking of the spears. This project looked at which of the current methods was the most profitable for the New Zealand asparagus industry. Variations include paying staff a ‘per hour’ rate, a ‘per kg’ rate, or combinations of both. Picking methods vary from individuals walking along a row in their own time, harvesting into a bin or container carried on their person; to a team of pickers walking behind a tractor with a 20 metre boom, loaded with crates that they place the spears into as they pick.

The highly manual nature of the harvesting raised the question of what automation options have been considered or attempted in the past, as well as what the potential for this may be in the future.

The interviews held with existing asparagus growers provided a wealth of information regarding the picking process, as well as the potential for automation. The lowest cost system currently in use amongst the interviewees involves paying the pickers $0.87/kg through the entire season. The next lowest cost involved paying pickers a ‘per kg’ rate that varied from $0.85/kg at the start of the season, through to $1.20/kg at the end of the season when volumes were lower. The most costly system paid the pickers $18.00/hr, plus a $0.20/kg bonus for all ‘Class One’ graded asparagus. These costs were adjusted to reflect the wastage through the grading process, and therefore provide a more accurate actual cost per kilogram of saleable product. The results then saw the lowest net cost at $1.31/kg.

Although this assessment clearly showed the lowest cost, the determination of their relative profitability from a long term perspective was much more subjective. This was because each business had a number of unique considerations to incorporate into their decision making process around harvesting costs, for example the age and productivity of a block, access to labour and the typical profile of the labourers. The interviewee’s perspective on the potential for automation was explored and their opinions varied widely, from highly unlikely to occur, to highly likely to occur.

The potential for further study regarding innovative harvesting techniques, by incorporating automation, is significant. The challenge will be in balancing the needs of the growers for a cost effective and easy to use solution, with the research and development costs required to provide that as an appropriate solution.

What is the most profitable way to harvest asparagus in New Zealand – Tim Van De Molen

Executive Summary

Once Upon a Time Down on the Farm… – Cam Henderson

Executive Summary

Why is family succession planning an issue we should be concerned about? It comes back to the word family. Family succession planning within the agricultural landscape conquers within, an emotional connection to the land and a cultural identity within New Zealand. There have always been family businesses running farms and there appears to be a strong desire for this to continue long into the future within New Zealand Agriculture. Family succession also deals with the love and affection of those most dear to us and with significant wealth at stake it must be done well for family relationships to be enhanced through the process.
However when it actually comes to family farm succession, no one size fits all and that is primarily why succession is still discussed, researched, and written about. It has never been an easy conversation to navigate through to the desired outcome with operating environments constantly changing and continuing to evolve. However there are processes that can enable the conversations to occur within the family business to focus them on a desired outcome they can achieve together.
In some cases the terminology of family farm succession is also beginning to change. Being referred to as an ‘intergenerational business model’ and ‘family business continuance’ where the sole concept of asset transfer has broadened to include the transfer of knowledge and experience between the generations (McLeod & Dooley, 2012). This in itself infers a shift in mind set to intergenerational or continuance indicating a natural progression through the generations as opposed to simply succeeding in the family business or a sale of an asset.
Those spoken with and throughout the literature identified numerous triggers for a family succession process to begin ranging from a death in the family, an accident or injury, marriage or divorce, son or daughter wanting to ‘come home’, age and stage, someone asking the family the question of succession, through to business opportunities being identified which require a succession conversation. The trigger point will vary depending on the family situation. Once identified by the family as a priority the process can begin and conversations initiated to determine the way forward. Key attributes contributing to the success or otherwise of the process is a commitment and good will to see an agreed outcome achieved. This will often require patience and perseverance along with mutual respect for all involved.
Communication was identified time and time again underpinning the succession conversations because this is where and how the process has to begin. Addressing the ‘icebergs’ within the family business is about clearly articulating a number of often unspoken expectations, aspirations, assumptions, concepts such as fairness and equality and ultimately what the vision of the family business actually is. The part of communication which is often forgotten is the ability to listen and respect each person’s contribution and opinion to the conversations as the process unfolds. As George Bernard Shaw stated “The single biggest problem with communication is the illusion that it has taken place”.
Starting early often yields the best outcome for the family as time allows identified issues or concerns to be raised and addressed before it is too late. Dr James Lockhart points to the Dutch as an example of how to begin the conversations around family business governance. He indicates this should start from an early age discussing family business matters around the kitchen table. As the family grows and develops keeping the family involved in planning meetings and discussing the future helps to shape business principles and future conversations about their place in the business or what the future may hold. The family is exposed to the process of sharing ideas, listening and discussing plans for the current business and its future. By discussing the family business from a young age, siblings are exposed to business processes and skills which are required when it comes to more formal discussions around family succession planning.
What became clear from interviews with professionals and farmers is that strategic business planning is an area of running a family business that is not given enough priority. Rather time is spent working in the business but not on the business. The planning process involves disciplined time set aside to think about and plan for the future needs of the current business. Thinking through where are we now and where do we want to be with a plan of how to achieve that. Prioritising business planning enables a step towards succession conversations as this should come up within these planning sessions as the future is discussed. Encouraging business planning and governance principles within a family business is an important enabler for a strong platform for succession conversations to begin from.
Ultimately the outcomes of a family succession conversation will be determined by the family, for the family, as success will look different to every business. Following a structured process to succession planning which is led by a strong chair or independent facilitator to navigate a series of conversations, interviews and family meetings can enable this to occur and an outcome achieved rather than being put off or put in the too hard basket.
It is for the family to decide together what they want to see happen in the next phase of the family business cycle, how they determine that to occur, when the transfer will take place and why they want that to be their future.

Starting the Family Succession Conversations – Nathan Nelson

When looking at people and culture, it is difficult to use traditional academic processes to understand how we see the world, and how we think and feel. This is because the influences on humans tend to be more around emotions, rather than logic. Traditional academic process has been around logic or critical thinking, and this has served us well but I have strayed away from this discipline to explain the emotion behind our culture. I have chosen to deliver this paper in way that can explain the perception or the emotion of our culture – The Culture of Dairy Farming. I have also written this paper so a dairy farmer that reads this paper can easily follow the information. I have used the story telling approach to allow the reader to relate to different perspectives. The hope is to allow for a solution to develop by having a better understanding of different people’s perspectives.

I have relied on comments and perceptions from interviewees to explain an agricultural perspective. I have also conducted a survey of dairy farmers to understand how they see or think about their work and life.

The Dream That Made Us – Stuart Taylor

Executive Summary

Aoroa Farms Trust sees organics as a Get Out of Jail Card!

This report was written to enable two decisions to be made:

1. Whether or not Aoroa Farms Trust remain a conventional dairy farm or convert
   to becoming an organic dairy farm.
2. If the decision is to convert do they supply Fonterra Coop or Organic Dairy Ag
   Hub Coop

The people involved in this business plan and who are critical to its success are the directors of the Aoroa Farms Trust Hal Harding and Penny Smart. They fully realise that they will not fulfil their goals on their own however, they will need good advice and support. During their time farming and during their due diligence on the organic conversion they have surrounded themselves with people to fill the skills gaps that they lack. Their farm consultant Rodd Hodgson, accountant Charmaine O’Shea and bank manager Bryn Hughes have been integral in helping them with their decisions; there are no plans to change this combination. Aoroa Farms Trust also have a very skilled, steady and committed staff whom they have consulted with throughout the whole organic due diligence process and from whom they have full support. Hal and Penny along with Aoroa Farms have a strong vision, set of values and clear goals regarding the farm and how they want it to be now and in the future. Hal and Penny back themselves, work well as a team and are confident that they can make an organic system work well on their farm.

The opportunity for organics domestically and more importantly through export is growing very quickly and it would appear set to grow exponentially in the short to medium term. (The Organic Aotearoa Report March 2016). There is currently an undersupply of organic dairy and as more and more consumers want to know that the food that they are consuming is good for them and just as importantly the planet, this is set to continue. There will need to be ongoing improvement in the integrity of organic products as well as less fragmentation in the organic market place amongst suppliers, for the full potential of organics to be met and continue to progress at the current rate. (https://www.marketresearchreports.com/technavio/global-organic- dairy-products-market-2015-2019).

Aoroa Farms Trust has a high debt and in order for organics to be financially sustainable on the farm, they need to have an average $8/kgMS farm-gate milk price once fully certified. Benchmarking production, costs per kgMS and farming systems with other Northland organic dairy farms (which included on farm visits), has guided the figures and predictions used in making the organic decision. Being a ‘value add’ product the organic milk price is de-linked from the conventional global commodity milk price and so more likely to be as volatile/affected by global events as conventional milk pricing. This is one of the main attractions for the conversion as well as the ongoing benefits to the environment that occur when farming organically.

Risks that are involved and are beyond the control of the Trust are the weather, as Northland is prone to drought (affecting levels of production); the stability of the global economy, geopolitical disruption and the demand and supply equation for organics, affecting price paid.

There are two options available to Aoroa Farms Trust as to a processor to supply; Fonterra Coop and the Organic Ag Hub Coop. Fonterra (whom the Farm currently supplies with conventional milk) has recently stepped up/come back into the organic milk market. Fonterra have historically been unreliable in regard to renewing contracts in Northland for organic milk. They currently offer a transition premium linked to the conventional milk price pre full certification of .45c/kgMS with the share ownership requirement the same as conventional i.e. fully shared up at the market value which is north of $5.50/kgMS currently (May 2016). The Organic Ag Hub is a new cooperative that has a business model of matching organic milk to processors only i.e. they don’t own any processing plants themselves, they are small and intimate but as yet unproven. Their transition pricing is currently higher than Fonterra’s and shares in the Ag Hub Co-op are valued at $1per kgMS with the requirement to be fully shared up if supplying transition or organic milk.

The Trust feel that the rewards are there for the conversion both financially and environmentally which fit with their values, vision and goals.

The backstop if organics do not work out would be reconvert to conventional supply.

The decision was made on the 18th May with the approval of the bank to start the conversion to Organics and supply the Organic Dairy Ag Hub from the 1/6/16.

Organics: fat into the fire or get out of jail card? – Penny Smart

Executive Summary

The coarse wool industry has been described as being in a state of malaise by the existing literature and industry experts. Back in 1981 Prime Minister David Lange infamously boasted that agriculture was a sunset industry (Federated Farmers, 2014). At the time this was challenged by industry sector leaders as being false. However, whilst undertaking an analysis of the coarse wool, the research has indicated the industry has passed through the ‘sunset phase’ and now is in the ‘decline’ phase and may be irretrievable, unless major changes occur.

The primary reason for this research is to investigate the future for coarse wool. Wool is a hugely under rated product that has so many positive, environmentally conscientious and natural benefits that are being over-looked in favour of synthetic alternatives.

The report continues on from the previously titled “The New Zealand Coarse Wool Industry – Does it have a Future?” (Oliver, 2015). As reiterated in the prior report, the only way forward now for the industry in the expert’s opinion, is for the industry to commit itself seriously to advanced research to take the coarse wool fibre into new uses. This report outlines the potential of using a foresighting, backcasting concept incubator, named ‘Blackroom’.

The key to the utilization of a Blackroom futures concept is to takes the researchers away from the present and places them in the distant future, envisaging the future system state and then bringing it all back in order to determine the pathway to the future product use. The resulting outcome of the Blackroom will be to develop new research pathways for the future of the wool fibre and industry.

Blackroom: A Concept Incubator for the Future of Coarse Wool – Nicole Oliver

Executive Summary

Investment in time and capital to satisfy compliance requirements in the dairy industry is increasing year by year. While this is a necessary requirement to operate a business in our modern environment there is potential to create value out of this at the same time. Often when we look at disruptions we look for solutions as to how to get around them or avoid them rather than embracing the change and making the most of the opportunity.

The aim of this project was to investigate an opportunity to develop an audited farm assurance scheme in New Zealand. The process included looking at the existing programmes which have recently come to the market as well comparing the opportunity in New Zealand with what is in place in Ireland with Origin Green Ireland. DairyNZ’s Sustainable Milk Plans which have been used in different catchments across the country could also offer a template to be built on to develop an assurance programme.

While Synlait and Miraka have recently launched their assurance programmes in anticipation of demand from consumers as well as showcasing an opportunity to create extra value. This could be expanded and rolled out across all primary industries and also the tourism sector. There is a large amount of commonality in what the primary industries and tourism are focussed on and that is selling New Zealand products and experiences.

Based on findings from this study and looking at similar assurance schemes, the following recommendations could take the opportunity to the next level and should be investigated further.

• An assurance scheme committee should be started with representatives from supply companies, DairyNZ, Beef and Lamb, MPI, and other interested parties
• It will be wise to canvas farmers early and ensure that a majority of suppliers are in support of such a scheme to give it the required critical mass to get moving
• Marketers within supply companies should investigate the value of this increased brand value to determine a return for the scheme
• Logistical aspects of an assurance scheme would need to be sorted at the start of the project to ensure that the workload requirements are able to be met (data collection and auditing)
• It is important that the industry support (rural professionals) have the capability and capacity to handle the likely increased demand from farmers also

The next steps following this report in my view are –

• A meeting of interested parties should be gathered to further work through details of how such a farm assurance scheme could be implemented and funded (look to the case studies as examples of a template)
• There may be an opportunity to incorporate the Synlait and Miraka programmes under a New Zealand umbrella programme that satisfies the other requirements of a cross sector assurance scheme
• Once a clear and defined strategy has been established it will be important to get a group of influential and innovative farmers on board to ensure that a critical mass of product supply backs the initial proposal to ensure that a large majority (ideally all) of farmers are on board before any programme is launched
• Marketing will be important so any initial committee should consider getting suitably qualified marketing personnel on board to establish an easily recognisable brand to go along with the launch

While there would undoubtedly be some resistance to this opportunity by farmers seeing more compliance as a hassle, the reality is that most of what is being reported and audited is legally required to operate a business in New Zealand anyway. We need to stand back, have a critical look and identify the opportunity from challenges which are placed in front of us. All New Zealanders should strive to improve our environment and be excited about an opportunity to increase the value of our products by meeting an auditable standard.

How can we create value from compliance in the dairy industry? – Sam Williams

Executive Summary

New Zealand’s pastoral industry was founded on the breaking in of the land, and the romanticised image of cattlemen droving stock across rugged countryside remains a powerful image, even today. In abrupt contrast, however, is the more recent focus on stock access to waterways and its power as a catalyst for intense debate about water quality.
The aim of this report is to better understand the manner in which the problem of stock access and proposed solutions have been constructed. The approach used involves a case study of the Marlborough region. Ten individuals from a cross section of the community were interviewed in depth to gain insight into the values, experiences and understandings they had of the issues in question. Essentially a piece of qualitative research, the interview data was extended through an analysis of both the published and grey literature, including policy documents, discussion papers and media reports. Participant observation, was an additional component.
Participants framed the water quality problem in different ways. There was no consensus either on the scope or nature of the problem. There was some general acceptance that stock access as a component in hill and country farming was different from stock access in the lowlands, due to relative density of stock numbers in both areas. Almost all interviewees believed there was little difference between dairy and beef cattle in terms of their impact on water quality.
What were presented as issues of stock access on further examination were viewed as symptomatic of broader environmental concerns, including the intensification of agriculture over the past two decades, habitat destruction, and lack of pest management.
Perception was identified by interviewees as shaping the views of of the general public. The “community” was referred to as demanding of change, yet it was difficult to get an understanding of who makes-up that community. Most interviewees had some connection to farming in their background and their childhood experiences of local rivers became important to their narrative.
Council representatives saw stock access problems as easily address through better communication between their staff and farmers to encourage riparian planting and fencing. Farmers with experience of fencing and riparian planting identified numerous barriers to resolving the issues.
The report makes a number of recommendations.

1. We need to develop good frameworks to ensure that environmental problems are well defined. We cannot underestimate the importance of the problem definition at the outset.
2. Members of local communities need to be empowered, and given the agency, to determine their desired water quality and environmental outcomes, as part of a regular and iterative process. Fundamentally, this is about values.
3. It is important to recognise that science has a critical role in informing the development of people’s opinions, informing options for possible solutions, and in comparing relative degree or extent of an issue. But science alone will not provide us with the answers; they exist within the community.
4. We need to think carefully about our discourse, how we communicate our intentions, our experiences, and our beliefs. Language is more powerful than we might first realise.

The stock access debate is as much about how environmental and social problems in New Zealand, in regions, in local communities are constructed and pieced together as it is whether stock should be allowed access to waterways.
In the midst of much debate, discussion and heightened interest, and on the cusp of recommendations from Central Government that will determine the pathway forward for stock access, I consider that we need to crystalise our thinking on the problem definition. It is time to return to the problem definition, and acknowledge and debate the preconceptions and assumptions that are contained within that definition. Put simply, I believe the problem needs reframing.

Exploring Stock Access: Perspectives on Framing the Problem and Solutions – Kristy McGregor

Executive Summary

Use of private equity is well established in the agriculture sector. The dairy industry, in particular, has used private equity partners to fund purchases and conversions, successfully driving growth of businesses across different stages.
This report identifies the limitations and opportunities of private equity for the sheep and beef industry, where capital constraints and cash-flow issues are an inherent hurdle to growth.
Modern farming systems, technology, and sciences are evolving along with the way businesses are being financed and governed.
This evolution is influenced by such factors as investment costs, social and environmental pressures, availability of skill sets and price volatility – factors that shape how we farm today and into the future.
The backbone of New Zealand agriculture is family-farmed businesses. The industry has been further shaped over the last two centuries by strong trading cycles influenced by political and environmental dynamics ranging from economic recessions, global conflicts and subsidies, to technological and land use advances and high interest rates.
While the traditional family-owned farm remains a strong part of the agriculture industry now and into the future, structures are evolving with the rapid growth of corporates, foreign investors, multi shareholder businesses, leases and their relative hybrid models.
My views and interest in private equity are based on my personal background of growing up on a family farm, my education, work, business experience and the family succession process.
Capital – or lack of it – is probably the largest factor influencing the sustainability and growth of my farming businesses.
The focus on both cost of capital investment in the farming business and on ownership structures has elevated rapidly, driven by high levels of capital appreciation in the last two decades.
Perhaps the issue is best demonstrated by a discussion I had with a former employer about the cost of buying a farm, this was about the in the year 2000. He reflected on how tough farmers thought things were in the 1980’s when the capital cost was about three times the gross turnover of a stock unit. He noted that this was nothing compared to where it sat in 2000 – nearly eight times the gross turnover.
So, 16 years after that discussion, the cost is over 10-12 times the gross turnover, and there are now far greater compliance costs and social and environmental concerns increase the cost of doing business.
While high capital gains have created wealth, this has created its own challenges around succession and entry into the industry. Issues over land availability, land use change and investors paying aesthetics values for marginal producing land have all impacted on the environment we farm in today.
I hope this report will stimulate debate and highlight opportunities with the use of private equity for the benefit of industry businesses.

Opportunities for private equity investment within the sheep/beef and deer industries – Edward Pinckey