What separates our top-performing farmers and growers from the average and the mediocre? How might the bar be raised? And how important is that to Hawke’s Bay’s economy? Tom Belford investigates.

Talking with two successful farmers at a recent council event, the word that came up was ‘uncertainty’ – referring to the extraordinary degree of risk and the uncontrollables that farmers must contend with.

One said, “My dad’s advice was to just not waste time worrying about things I couldn’t control … to focus on the things I could.” The other seconded that advice: “I take it further and tell my kids, do not worry about something that may or may not happen in future … that is stress!”

Good advice for all of us, but obviously easier said than done, especially for New Zealand farmers, who have worrisome suicide rates. Rural suicide rates are 50% higher than the level of urban areas, an issue on Federated Farmers’ radar. NZ’s Chief Coroner attributes that to stress levels, the isolated nature of the job, and fluctuating prices and other uncontrollables.

Later that day, I received an email from another grower in the Bay, commenting on the cold snap that arrived the night before, bringing frost, and noting: “A frost like last night hammers process crops and tomatoes here are wiped out.”

Another day in the life of farming in Hawke’s Bay.

The stakes

The recent Winder report on the Bay’s socioeconomic performance says this:

“The Hawke’s Bay economy is driven by primary production, but is home to those sectors on New Zealand’s agri-business complex that have been amongst the poorest performers over the last decade. The region’s economy is thin and vulnerable to external factors, including drought, global commodity prices, exchange rates and interest rates.”

To those uncontrollables, Winder could have added: increasing cost of fuel (driving up both on-farm and export transport expenses) and petroleum-based fertilizer inputs, and rising competition from other southern hemisphere producers with lower costs and greater scale.

Optimists see these factors as cyclical or occasional in impact; pessimists (realists, perhaps?) see them as unrelenting trends.

Either way, it’s abundantly clear that the 40% or so of Hawke’s Bay’s economy driven by primary production is fragile.

And it’s an environment where only the most able producers and growers can truly and consistently prosper.
Predicting the next two years are likely to be gloomy for agriculture in the Bay, observers still like to say, as does the Winder report, that: “The longer term prospects for the regional economy are rosier. In a world where production becomes increasingly constrained by scarce water the productive capacity of New Zealand and Hawke’s Bay will become more valuable.”

That said, the Winder report also recommends that: “Hawke’s Bay will be more prosperous if it is able to diversify and significantly deepen its economy; and insulate itself to some degree from the cyclical nature of primary production.”

The challenge of ‘diversifying’ the Hawke’s Bay economy, while often noted in regional strategy papers, seems to overwhelm the imagination of our provincial leadership, so few concrete ideas or initiatives have ensued.
Discussion focuses instead on squeezing more out of the farming and growing sector, despite the ominous trends mentioned above.

The most frequently mentioned ideas for doing that are adding more value to what we produce (as opposed to simply selling the basic commodity), and attaining a ‘premium’ positioning in targeted global markets by capitalizing upon our ‘green’ … ‘pure’ … ‘natural’ image.

Longview Packhouse

However, it’s not clear that farmers and growers themselves benefit from the ‘add value’ strategy, as those returns tend to accrue to processors like McCain’s and Watties, whose profits head offshore. The ‘premium positioning’ strategy arguably could deliver more value directly to the folks with dirt under their fingernails.

Underneath all this, however, is the core issue of farm productivity. Some farmers and growers are better than others at what they do … just as some doctors, teachers and chefs are. And maybe some are simply unlucky or lack critical mass.

Regularly we see signs in the media, trade publications and studies, and dinner party conversations that all is not well:

  • Another winery – this time Matariki
    – in liquidation.
  • Seven dairy farms in Patoka, owing over $40 million, are in receivership.
  • Below breakeven dairy payout expected to put even the best
    dairy farmers under duress.
  • The Psa-V vine disease attacking kiwifruit (causing industry-wide
    losses of $500 million) arrives in Hawke’s Bay; meantime, growers nation-wide who produce 70% of kiwifruit volume are not profitable.
  • So and so has gone bust.

And yet the pressure is on to do better … and to do better in the face of increasing demands for environmental safeguards.

Pressure to do better

The Ministry of Primary Industry and other expert groups, like the Riddet Institute in its recent A Call to Arms, want New Zealand’s agri-business to do better and contribute more.

According to A Call to Arms, New Zealand produces enough food (calories) to feed around 20 million people, enough protein to supply the needs of 45 million, and enough dairy products to meet the consumption of 165 million.

From there, the Government’s Economic Growth Agenda calls for the near trebling of the real value of agri-food exports, from $20 billion to $58 billion (2009 figures).

Coriolis Research points out that Canterbury is the size of Denmark, but Denmark produces over twice as much food and beverage as NZ, with only a slightly higher population. Italy is the same size as NZ, but feeds its larger population (60 million) and still exports twice as much food and beverage as NZ.

The experts behind A Call to Arms (which included local wine entrepreneur Graeme Avery) comment that meeting the Government growth goal would require a compound annual growth rate of around 7%. Over the past 25 years this growth rate has been around 3%, and they estimate that ‘published strategies’ would lift this to about 4%. The result is a gap of about 3% growth required in addition to ‘business as usual’ growth.

To close that gap, A Call to Arms proposes four “transformational” strategies:

  1. Selectively and profitably increase the quantities and sales of the current range of agri-food products.
  2. Profitably produce and market new, innovative, high-value food and beverage products.
  3. Develop value chains that enhance the integrity, value and delivery of NZ products and increase profits to producers, processors and exporters.
  4. Become world leaders in sustainability and product integrity.

The report supports these strategies with myriad specific action recommendations. Of interest to those pondering how Hawke’s Bay farmers might fit into this picture, the report suggests:

“New Zealand can be a high value niche producer, targeting small affluent populations, and/or a supplier of high value (preferably branded) nutritional ingredients to improve the nutritional value of food in developing markets.”

But amongst our sector weaknesses, says A Call to Arms:

“Personnel skills development and investment in the development of talent in the sector are lagging behind those of strongly growing economies.” We have “poor availability of experts to industry.”

Regarding talent, the report argues mainly for a stronger cadre of scientists, engineers and marketers focused on agri-business needs, supported by significantly more R&D. However, the starting point in this food chain is the army of farmers and growers on the ground. Hawke’s Bay has about 7,500 of those, mostly in fruit growing and pastoral farming.

And on the ground, what New Zealand and, by extension, Hawke’s Bay needs are superstars.

Average, better, best

Farmers know that the same piece of land can yield quite differently in different sets of hands, as can two adjacent properties in different hands.

A local sheep and beef farmer recently walked me through the family’s five-year financials. This husband and wife team (let’s call them Farmer Jones) farm about 500 hectares, and have made a profit in each of the past five years. Their Gross Farm Income (GFI) over those years ranged from $57/ha (in the drought years 2006/7) to $564 (in 2010/11).

Where does this place Farmer Jones amongst their peers?

In 2010/11, their GFI of $564 compared to the average of $335 for farms of their type, whereas the ‘Top 20%’ averaged $540 in GFI. By this and other measures, this is a well-performing team.

What makes them this successful?

  • Data and benchmarking

Perhaps the first thing to note is that Farmer Jones indeed has comparative data and uses it to benchmark their performance. They subscribe to a service called FARMAX, enter their own farm data – costs, inputs, income, stock numbers, production – and then access heaps of comparative analyses that help identify opportunities for improvement.

If they are not performing as well as the ‘Top 20%’ in one aspect or another, that’s flagged and they set out to find out why … and how they might do better. “One good decision and we get our money back.”

Where do they get that help? Occasional farm consultants, material from Beef & Lamb NZ, veterinarians, and heaps of reading! And a great deal advance planning to anticipate risk and deal with it.

Obviously it’s not the data alone at work here; it’s the mindset of the farmer.

Indeed ANZ reports that only 33% of farmers they’ve surveyed benchmark their performance against others in their industry. When asked, Farmer Jones said that would track accurately against what they observe.

  • Debt

It would be hard to find any farmer without debt ($48 billion nationally).

Sheep/beef farming is New Zealand’s dominant agricultural land use, occupying four times as much land as the next closest use, dairying. In Farmers Weekly, a Beef & Lamb NZ economist comments that S&B farm debt grew 55% from $760/ha in 2004/5 to $1170/ha in 2010/11. “There is a legacy of debt that built up from refinancing to maintain farm operational and family needs with less emphasis on farm investment.”

HB farmer and national Fed Farmers president Bruce Wills says (Rural News): “We are living beyond our means …

I know that about 10% of farmers, roughly, are struggling to cope with debt loads and some of those 10% won’t make it.”

Farmer Jones carries very heavy debt, a function of having begun farming from scratch. And then doing well enough to trade up. Said Farmer Jones, “Nothing focuses us better than meeting interest payments.”

This family, a bit more than 20 years into farming, isn’t at a point where they can relax, not sweat the details, and not strive to make improvements. Mrs Jones works off-farm for the family’s “fun” money.

Clearly what you see in Farmer Jones is the farmer as entrepreneur.

  • Life cycle

The Farmer Jones husband and wife are in their mid-40s. Bruce Wills says the average sheep & beef farmer is age 58.

Understandably, the motivations and goals of a 45-year-old farmer and an older, say 65-year-old farmer might differ. And with that, interest in innovation, use of new technology, change in farm systems, commitment to environmental mitigation measures, new investment and borrowing.

One can clearly visualize Farmer Jones poring over computer spreadsheets and researching online for new products, or experimenting with methods; less so the farmer in the home stretch of the 50-year farming life-cycle. Especially when changes might take years to bear fruit and/or would involve new debt … and when mistakes could require years of recovery time.

This issue is drawn into focus by the Regional Council’s dam proposal for Central Hawke’s Bay. Any farmers taking up this scheme would be taking on considerable new debt (HBRC projects $300-$400 million in on-farm costs) and be committing to more intensive and different farming … neither a welcome prospect in one’s twilight years.

All in all, given their attitude toward learning and improving, their financial motivation, energy, and life stage, Farmer Jones and those like them can look to make money farming in Hawke’s Bay … barring nasty surprises from nature.

Agbiz in Hawke’s Bay

What is the overall scale of the primary sector in Hawke’s Bay?

According to figures compiled for the Winder report by economist Sean Bevin, the primary production sector accounts for 21% of approximately 18,100 businesses operating in the region. Of these, 59% are pastoral farming enterprises, 12% fruit growing, 5% grape growing, 7% forestry/logging and 10% primary industry support services. Another 1.8% of businesses fall in the food, beverage and forest products processing category.

Enterprises like these directly contribute $1.84 billion (or 28%) of the region’s GDP, and 25% of its employment. By comparison, the total Service economy of Hawke’s Bay accounts for $4.5 billion of GDP and 71% of employment.

When pundits speak of Hawke’s Bay’s ‘rural sector’ driving 40% or even 50% of the region’s total economy, they are assigning a percentage of the value of the service providers – from accountants and lawyers to car salesmen and baristas – from whom the primary sector purchases.

Lawrence Yule told a public meeting recently that he liked to think of Hawke’s Bay as the “food capital of New Zealand”.

That spurred me to try and tick off a number of Hawke’s Bay-owned food or agribiz companies that might be consistent (if not major, in every case) money-makers … helping to extend Hawke’s Bay’s food reputation far and wide. Try it. It’s not as easy as you might think. The adjoining box reflects the collective wisdom of a variety of pundits I asked.

And while all of those might make money, at least occasionally (indeed, some modest owners on this list would stress the ‘occasionally’!), how many of those do you think have been heard of in Shanghai, San Francisco, Sydney … or even in faraway Auckland?

But at least most of those have a hand in bringing money into Hawke’s Bay, for which we parasitic service providers are thankful. Together, the primary production and processing sectors account for 75% of total regional exports.
Could these companies grow more, generating more wealth for the region? At the root of it, each of these companies either grows (or catches) things, or depends upon those who do.

One of the star performers on the list has grown 25% year-over-year in revenue for the past five years. When I asked the owner what most limited his business, the answer, somewhat surprisingly, was adequacy of suppliers, not market demand. He expects overseas market demand for his premium products – which can command a 15%-25% price premium – to continue to grow. His problem is finding suppliers with the right quality and entrepreneurial orientation.

And so we come back to the individual farmer and grower, who today must be both green and black.

Improving productivity

Here, another point made by Ru Collin is relevant. He says:

“Technology transfer – where good science is practically applied – has been an ongoing issue for a long time in NZ. It didn’t use to be, when government really understood the productivity agenda, and its field staff via the science agencies, ag and fisheries got on with really effective tech transfer. Over the ‘60s, ‘70s and ‘80s, even though EEC tariffs had come off, good science was being applied en masse. And the country responded.

“However that changed when government decided that CRIs were to produce a profit, and their job was confined to do the science, and make it available. So since the ‘90s, we saw MAF and other entities downsized dramatically in the field, and as a result effective tech transfer has languished. Today many entities are trying with tech transfer, but the litmus test being uptake, it can be slow and, worse, inconsistent. To me it’s a real shame to see really useful science sitting in boxes or on websites, and not being fully harnessed.”

Fed Farmers president Bruce Wills points out that Beef & Lamb NZ has six farm advisers; Dairy NZ has 42 advisers. It would appear that sector groups could stand to do more educating and skill improvement and less lobbying.

Does advice make a difference?

A project now underway in the Upper Waikato, as reported in the Dominion Post, says emphatically, Yes!

There, dairy farmer Colin Guyton is leaching less than 20 kilograms of nitrogen a hectare, half the catchment average, and still managing to record a return on assets of 5.4%. He’s part of a group of dairy farmers who are being advised and monitored by farm consultant Alison Dewes in a project funded by the Primary Industries Ministry and DairyNZ, with help from the regional council there.

Says farmer Guyton: “We’re showing farmers it is possible to get your leaching down and still be profitable. We’re giving them belief … We can’t hurt the rivers, we can’t be responsible for that. That’s being silly. If we’re damaging the rivers we must change the way we farm.”

“Farmers fear they have to make huge change when a lot of them don’t need to,’’ says consultant Dewes. “They need to be aware of what they’re doing, understand the numbers and be guided through the change.”

So it appears that smart farming is green farming is profitable farming. A lesson the HB Regional Council needs to embrace and evangelise, particularly as it champions intensified farming supported by irrigation. Its model for the CHB water scheme assumes that all farmers in the irrigation footprint will be ‘Top 20%’ performers.

Farmers I mention that to generally scoff. Others predict a wholesale turnover in farm ownership that will bring in more ‘modern’ and ambitious, if not more capable, farmer superstars. And still others, like biological farming adviser Phyllis Tichinin (see her article on p46), say more fundamental changes in farming practices – focused on rebuilding soil health – are needed to optimize performance.

Going back to the 3% productivity gap for agbiz estimated by the A Call to Arms experts, as important as R&D and ‘adding value’ might be, at the end of the day the burden still falls on the individual farmers and growers of Hawke’s Bay and all of New Zealand to significantly lift their game.

May their tide lift all our boats!

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