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Funding the flow of milk: Dairy industry capital requirements.

Executive Summary

Overall there is no clear picture that explains how the industry should fund future growth. However, if some simple rules that have been defined as part of this research are followed, then access to capital to grow the industry shouldn’t be a limiting factor. The key factor is the relationship between the asset values and profitability. Therefore, capital invested in the industry needs to be allocated to growth in productivity and if asset inflation occurs it needs to be at a rate slower than the growth in profitability. Being able to focus on the factors within farmer’s control, namely management, will improve the overall access to capital for the industry.

To answer one of the key questions of this research, is the amount of debt in the industry an issue or a limitation to future growth then the answer is, it depends. Simply put, what is important is the relationship between, asset value, debt and profitability.

Funding the Flow of Milk: Dairy Industry Capital Requirements – Hamish Fraser

Improving communication of primary industries research, science, technology and innovation

Executive Summary

By the year 2020, over $1.6 billion of New Zealand taxpayer money will be invested in science and innovation per annum. What share will Primary Industries have of this investment?
“With the coming of the fourth industrial revolution – fundamental change to our daily personal and professional lives from the combination of physical, digital and biological technologies – the primary sector will find itself at the centre of change.”
Ian Proudfoot, Global Head of Agribusiness, KPMG 2016
The aim of this project was to understand what the benefits might be of improving communication of government-funded Research, Science, Technology and Innovation related to the New Zealand Primary Industries and how this could be achieved. Ten stakeholders from a wide range of areas in the science and innovation ecosystem were interviewed and findings were related to literature and initiatives already underway in New Zealand. Benefits of improving communication include:

  • Attracting science and innovation talent to the primary industries and building future capability
  • Positive engagement with the public ensuring social licence to operate
  • Building New Zealand’s international reputation as an innovative country – to attract skilled migrants, build partnerships with global experts, and be seen as a trusted producer of safe, premium food and fibre products
  • Improved cross-sector collaboration and learning
  • Faster and more advanced innovation in industry from research, science and technology uptake

To achieve sustainable growth in New Zealand Primary Industries, attracting and retaining a diversity of talented people is critical. Recommendations from this report for key stakeholder groups include: Government:

  • Improve the New Zealand Story Business Toolkit information on science and innovation
  • Government funding agencies could publicise their science and innovation investments more
  • Include a section on the quality of the communication plan in assessment criteria for government science funding

Research Organisations:

  • National Science Challenges could increase their focus on engaging school children in science and innovation (and the government could incentivise or reward them for doing this)
  • Universities and Crown Research Institutes could include positive public engagement in their promotion criteria for staff (likely if the government funding criteria changes)

Primary Industries:

  • Industry associations or businesses could develop more graduate programmes with a science and innovation focus to create career pathways for attracting talented young people
  • Businesses could sponsor employees and their research providers to visit schools to talk about science and innovation being invested in and the future career opportunities in their sector
  • Industry could investigate how to collaborate on opportunities of the fourth industrial revolution

Improving communication of primary industries research, science, technology and innovation – Kylie Phillips

The 50/50 Sharemilking: Where are we in 2013.

Executive Summary

The purpose of this report is to have a better understanding of the 50/50 sharemilking industry in 2013.

The perception within the dairy industry is that the 50/50 sharemilking business structure is on the decline and not enabling sharemilkers to progress to purchasing their own properties or enter other business investments.

Having been a 50/50 sharemilker for seven years, from the late 1980’s to mid 1990’s and having gained significant benefit from the system, I identified the need to ensure this unique pathway endures. Due to this interest in the succession of our industry, I investigated where the 50/50 sharemilking system stands today and provided some solutions for how it may develop in the future.

The body of the report looks at the actual numbers today and the trends over the last decade. I also decided very early on in my research that there appeared to be, as I have termed it, a “natural progression bottleneck”. This in itself was having a significant effect on how the 50/50 sharemilking system was functioning. To illustrate this more clearly; I chose to survey 10 long term 50/50 sharemilkers from around the country.

My findings were conclusive in that the industry needs to look seriously at its 50/50 sharemilking contract to more closely align itself with the current economic landscape, market changes and farm demographics.

The 50/50 Sharemilking: Where are we in 2013. – Phil Butler

Defining the cost of within orchard production variability on the overall profitability of a NZ apple orchard.

Executive Summary

Growing conditions in New Zealand have historically been recognised as being some of the best in the world for producing exceptional volumes of excellent quality apples. To remain financially sustainable New Zealand apple growers need to specifically focus on their natural strengths, ensuring that the production they achieve maximises the advantage of their location.

NZ apple growers have spent significant time and focus on cost reduction in orchards this may have been detrimental to overall profitability. The NZ apple industry does not have the same access to cheap finance as many of its international competitors such as the USA. New production techniques generally come with significant costs, areas of new production have a relatively long lag time from initial investment to final repayment. New growing systems also have financial risk, with the potential cost of mistakes made during the learning and development process.

Increases in the overall production of market acceptable apples can be achieved by ensuring all trees are working individually at an optimum level with minimal variation between them. This has potential for gains in cost reduction, resource use efficiency, minimisation of fruit quality variability and improvement in overall profitability.

To ensure tree to tree variability is minimised systems need to be created to efficiently measure key differences between trees. Similar populations of trees are grouped and then analysed to quantify each groups impact on overall block performance, in an easily understood format.

Beyond the scope of this project, tree to tree variability information can be used to assist with investigations into potential solutions and financially justifying the cost of variation mitigation.

This study was undertaken in a commercial Royal Gala apple or chard with 6159 – 10 year old trees planted on M9 rootstock. The assessment focuses on 1887 trees within this block. The use of trunk diameter measuring was decided as the basis for ranking variability. Fruit size and total fruit number per tree was assessed in a small trial. 5 different trunk size groups were eventually formed and the profitability of these assessed using a computer based profitability benchmarking model.

  • The missing new trees returned a negative profit of – $19,755 per ha.
  • Weak/small trees returned a profit of $ 8,516 per ha.
  • The average size trees returned a profit of $14,435 per ha (approximately the same as the overall block profitability).
  • The largest of the average trees returned a profit of $21,344 per ha.
  • The excessively large / scion rooted trees returned a profit of $5,435 per ha.

Defining the cost of within orchard production variability on the overall profitability of a NZ apple orchard – Jonathan Brookes

Connecting with the Conscientious Consumers.

Executive Summary

The following report has been completed as part of my participation in the 2013 Kellogg Rural Leaders Programme. The scope of this individual research project was to select a topic of interest to the participant and spend ‘Phase Two’ of the Kellogg Rural Leaders Programme completing the individual research project. Findings are then presented on return to Lincoln University during November 2013.

After a great deal of deliberation, the topic of research I developed was to investigate the different ways that producers were connecting with consumers, and vice versa. Of particular interest to me was the concept that producers were taking control of the messages that were being portrayed with regard to production. Thus I came up with the title “Connecting with the conscientious consumer.”

Those involved in the food production industry are keenly aware that consumers are becoming increasingly discerning about the origins of their food. Of particular concern to consumers is the way ‘meat is made’. This concept is reflected in a number of different signals and includes the consumers desire to understand the way their product was raised, what chemical and additives were used during the production process and the animal handling techniques employed during the lifespan. The purpose of my report was to investigate some of the different techniques being employed to connect our increasingly metropolitan and city-­‐based population with the origins of their food. I was able to segregate the different themes of these techniques into three categories: education, food service and practical. As such this report is split into these three themes.

The major finding of this research and exploration is was that there are a huge number of innovative and energetic producers who are going above and beyond to connect with their consumers. These concepts will be explored through the report. Another major finding was that those buying from these producers are content with buying in this manner. The shoppers appreciate the integrity that can be attributed to this kind of purchase, particularly with regard to those producers who engage in direct marketing. Due to the immense scale of people engaging in ‘connecting with the conscientious consumer’ this report is not all conclusive. Instead of simply listing all of those producers who are connecting with their consumers I decided to complete an investigative case study into some of the unique elements of their businesses. However, I can come to the conclusion that Australian consumers are becoming more discerning and cautious to know about the origins of their food. I see there is a great opportunity for people, particularly those from smaller, family based businesses, to employ tactics of direct marketing, selling the story of their exemplary land management and animal welfare techniques, along with the traditional protein (or fibre) product.

With this in mind, my main recommendations are that there is a great deal of appetite in the marketplace for a product that has both a story and integrity. There are great opportunities for producers to engage in employing techniques, as detailed in the following discussion, to enhance their business model.

Connecting with the Conscientious Consumers – Mary Johnson

Farming under nitrate leaching limits.

Executive Summary

This report investigates the impact that altering the farm system of Singletree Dairies in mid Canterbury to achieve a predicted nitrogen leaching loss in Overseer of 24kgN/ha/year will have on both the operation management of the farm and the financial effects of this.

Singletree Dairies currently has a predicted leaching loss of 32kgN/ha/year and through the implementation of more pivot irrigation, increasing the area that effluent is applied along with altering nitrogen fertiliser management in April and May the level of leaching loss can be reduced to 24kgN/ha/year. The management and financial implications of these alterations are minor and are viewed as quite achievable.

When modelled on a ‘light’ soil with and available water holding capacity of 60mm, the leaching estimate for Singletree Dairies increased to 62kgN/ha/year. Significant management alterations are required to reduce leaching to the desired 24kgN/ha/year – notably a decrease in stocking rate from 3.76cows/ha to 2.90 cows/ ha. The financial implications at a farm level of these alterations were not as great as initially thought with a reduction in return on asset from 6.91% to 6.75%.

Singletree Dairies is able to continue to operate profitably under the level of nitrogen leaching suggested in this document, however there is likely to be a decrease in production levels in dairy farming areas of light soils which may affect the local communities the greatest.

Farming Under Nitrate Leaching Limits – William Grayling

The true cost of managing a 1000 plus cow dairy farm through a single cowshed.

Executive Summary

Defining what is the true cost of managing a large scale dairy farm in New Zealand is not just about the financial cost but also the social cost and what the perception of the industry is. Through my study I have defined each area into the financial impact and the social impact it has on people in the industry.

The financial side of running these businesses is not just what we pay for a manager but also the network that is around them or in a corporate scenario above them. This is what I would call the true cost. For example, if a manager is paid $100,000 and you have a farm consultant that charges $15,000 then the true cost of managing that farm is $115,000.

If you are running a corporate farm the same equation would apply but also the cost of governance and in some cases a central desk would be added to that cost. If the entire board is paid $10,000 per farm and a central desk is charged at $40,000 per farm then the true cost could be between $150,000 and $175,000.

I found the social impact side of my interviews the most trying and difficult of the process. The willingness and just how open my fellow farmers were with me was very humbling. The emotional journey that I went on through this process was incredible. From meeting farmers that did not have a worry in the world nor did they have any significant stress levels nor frustration around their business to then drive down the road and interview another farmer that had actually attempted suicide or had a serious relationship breakdown.

The true cost of managing a 1000 plus cow dairy farm through a single cowshed – Murray Jamieson

Farming in the family with positive succession planning and governance

Executive Summary                       

The fundamental drive behind completing this research is to identify various key procedures and initiatives that successful New Zealand family businesses instrument to ensure their achievements and wealth are passed down through the generations successfully. I was also concerned in clearly recognizing some of the common issues which arise in family succession strategies and methods in which these matters may be avoided.
This project will benefit the rural community to hopefully provide an insight into farming families to think about the big picture and long-term viability of their business. I want the project to benefit farming families and professional advisors by also providing some context around governance and effective structures which have been planned. I hope the rural industry will relate to this report and understand that all families are different and not one plan will work for everyone. I want this report to provide guidance around communication and when and how to remove the elephant in the room, leading to successful conversations and positive outcome for all parties involved.

Succession planning is the progress of a strategy that ensures transition of the family farm, from one generation to another with minimal disruption. Succession planning can often be a living document to safeguard all family relationships and future ownership of assets, aspirations and involvement in the farm. Rushed or poorly planned and implemented succession strategies can have major impacts on family relationships along with extreme financial implications on the business.

What I relished most about putting this research paper together and gathering the required data was the chance to spend time with farming families who had extremely successful industry knowledge; and sit around the kitchen table with them and speak openly about their own businesses and experiences. They each happily shared with me the issues and barriers they had challenged along the way, and what they had learnt along the way from any mistakes. These people have been there and done it and could share their real stories with passion; their experiences and knowledge in my opinion, is considerably more valued than any other material source obtainable. I enjoyed this part of my research to be extremely exciting, and it reiterated to me how much I enjoy the Agriculture industry and what a joy it is to be involved in.
From gathering my data for this literature report I have made three recommendations for effective and successful farm succession of the family farm.

  1. Start early with conversations to avoid any assumptions or expectations which members of the family may have. These discussions should start at an early age, as young people’s interests do change, along with abilities and skill set. A poorly executed plan and approach can often be put together at short notice with damaging effects to family relationships.
  2. Open communication to stimulate a range of sophisticated thinking throughout the farm succession process will help to get an enhanced understanding of all family members’ idea and vision for the family farm. In my opinion both farming and non-farming family and spouses should be involved in this communication. It is also essential to seek independent advice from a succession facilitator, and have other trusted advisors involved including Bank Manager, Accountant, Lawyer, and Farm consultant.
  3. Document everything with a completed business plan which is handed to all family members. Consider including minutes from meetings, farm succession strategy including time frames, roles and responsibilities, goals, and updated wills.