Driving through Scotland, Ireland, Wales and now England I see the farms here exhibit a large variation in size, topography, climatic conditions and pasture management.
However, some broad commonalities become very apparent.
The farms have insufficient infrastructure, they are under-stocked and have very inefficient pasture management.
Most farms require subsidies s to be profitable.
The subsidy system ensures that regardless of farm management a cheque will be available to cover costs and deliver an income.
Indirectly, the subsidy simply acts as a disincentive to efficient management.
Farms can afford to run very low-risk systems, allowing pasture covers to get completely out of control and to provide a feed buffer as required.
The subsidy payments coupled with an extremely low change of ownership have resulted in most farms having little or no debt, pocketing profit provided by the government and with no incentive or requirement to innovate, improve or optimise systems.
That puts United Kingdom agriculture in a brilliant position.
Why? Because there are a significant number of farms that have a massive latent potential to deliver more efficient production and profit in a very low-debt environment.
Though development might require some capital spending many farms can make revolutionary efficiency changes simply by putting up some extra fencing and closer management of stock policies to match feed supply.
In stark contrast NZ has the world’s most efficient farmers.
Our farms produce more product and profit per kilogram of drymatter of inputs than any other country on the globe.
An important reason for that is NZ’s pasture management. Our farmers are hailed around the world as farm system experts and they deserve that title.
NZ farmers have reached this success through a transitional pathway, where history shows us the industry’s’ broad phases of development.
Phase one, primary production is subsidised and farmers are relatively inefficient because of the stifling of innovation and performance incentives.
Phase two, subsidies are removed and a large portion of the sector suffers, causing lower performers to drop out.
Phase three, the top farmers excel in a non-subsidy environment and expand their businesses, picking up the place of those who have fallen out. Efficient, successful farming is achieved.
Phase four, opportunities for improvement decrease and farms are targeted in every direction by an industry seeking to clip the ticket. With farms close to optimum, profitability leans on a balance of capital investment, lending rates, land prices and tight margins.
NZ is in phase four.
Every extension segment of agriculture including processors, marketers, fertiliser, seed, engineering, technology, industry bodies, accountants, insurers and government all reside in an industry which is dependent on the primary production platform. That is, farmers completely support NZ’s biggest industry and exporters on their backs.
Now, it’s important to note each part of the industry can add value to the farm business or to the end product.
However, if we count the number of offices, corporate car fleets and domestic and international travel NZ’s farmers deliver their ‘luxury’ provided per kg DM grown would be even further exponentially disproportionate to the rest of the world.
The success of NZ farmers becomes an issue when these farms that are the most efficient in the world are also some of the most indebted in the world because next comes Phase five.
When farm systems are optimised, margins are still tight and more external pressures are applied so there comes a breaking point.
Farmers now face stricter health and safety regulation, increasingly volatile markets and greater environmental regulation. At the same time they operate in a political landscape with disproportionate power at district, regional and national levels controlled by disconnected urban people.
There are two directions phase five can go for NZ.
Firstly, if prices remain reasonable, interest rates remain low and regulations are introduced at a manageable rate, NZ farms can continue to succeed. In this scenario, an urgency to reduce agricultural debt must still be encouraged. Spending must be prioritised to ensure financial resilience can withstand short-term, external impacts whether they be climatic, financial or regulatory.
The second potential direction is that income drops for an extended period, interest rates rise or regulations are thrust on farms too fast. In this scenario, a second wave of loss occurs in a situation very similar to phase two when subsidies were removed.
Here we can expect to see NZ’s farmers go through another bout of suffering but this time a number of the efficient and effective farmers won’t even be spared. It certainly won’t mean the end of our industry, as undoubtedly we would see the farmer platform become more commercialised and corporate investment and scale will eventually restore a balance.
There’s a common saying that the early bird gets the worm. NZ has flourished from the success of a globally leading agricultural industry, delivered from a platform of the most efficient farmers in the world.
There’s also a saying the second mouse gets the cheese. Will NZ’s situation collapse or at least damage our industry because we are leaders and don’t get the chance to learn from others?
UK farms are at phase one. These farms are generally able to grow as much grass as their NZ counterparts, are less geographically isolated, have a larger domestic market and are more supported by their government.
Their farm businesses have low debt and their farm systems have massive potential.
Sure, they’re very insufficient and make a financial loss but they also carry a lot less baggage.
With the globalised world there’s no doubt whatsoever that if the mouse trap snaps shut on NZ farms our agricultural skills, knowledge and technology will be exported to this and other industries of opportunity, providing easy and instant access to the cheese.
So what must happen now?
The NZ farm businesses remaining viable are those that are financially sustainable.
It seems obvious but the level of debt on farms must be dropped through prioritised spending.
Equally or perhaps more important is that the support industry must be exactly that, an industry that delivers more value to support farmers than it extracts and that’s a challenge to every single organisation involved in NZ agriculture.
Some of these organisations will undoubtedly look to scale international opportunities, as many are already doing.
This should not be discouraged but should be occurring with clear acknowledgment that every NZ agricultural company exists because of farmers and there is a moral responsibility to ensure that international expansion ultimately delivers more value back to farmers or the NZ economy than is exported internationally.
We must remember the entire basis of our industry is the farmers and after those farmers have given so much to our country, it’s paramount we focus on giving back.
