Accounting and TaxAgriBusiness

Commodity prices remain as greatest concern for New Zealand agribusiness

Hayden Dillon
22 March 2019
4 min read

A recent survey conducted by business advisory firm Findex during the Southern Field Days asked farmers, rural professionals and others heavily involved in New Zealand agribusiness for their views on the industry’s key influences. Technology, farm management practices, favourable interest rates, improved rural connectivity and continued education and training were identified as the factors most likely to have a positive influence on the industry over the next 12 months.

Respondents were most concerned about the negative impact of low commodity prices, regulation (both at a local and central government level), succession issues, climatic conditions and human resources.

“The results are not overly surprising and have reaffirmed what our clients have been telling us around what concerns them,” said Hayden Dillon, Findex’s head of corporate agribusiness and capital advisory.

On the negative side, commodity prices created the greatest level of concern with nearly 65% of respondents identifying this as highly likely to have a negative impact on the sector during the next 12 months.

Succession, which seems to continually crop up as a major issue for New Zealand farmers, scored highly as a negative influence with 60.82% agreeing it was highly likely to impact negatively on agribusiness in the next 12 months.

Dillon agreed that given the current state of the industry, succession was a pivotal issue. He advised, “The challenge around bringing the next generation into farming is nothing new and with the state of the some parts of the industry at the moment, it is no surprise it might not be seen as the most attractive career path.”

Given the recent press coverage around environmental and health and safety law reform, survey respondents were also concerned around both central and local government regulation and the impact this may have on their businesses.

On a positive note, the sector is optimistic about the continuing advance of new technology both in terms of production and business management with 73.02% of respondents believing that this will have a positive impact on New Zealand agribusiness in the next 12 months. Going hand in hand with technological improvement is the increasing level of rural connectivity being driven by large investments in rural broadband and mobile coverage from both government and the private sector.

Farm management practices were also identified as being a key factor in the success of the sector.

This sentiment was backed up by experienced farm adviser, Chris Crossley of AgFirst. “The opportunity is there now for farmers to reassess the basics and focus on building a more resilient farm system by correctly structuring their farm system fundamentals. In particular, aspects such as stocking rate, calving date, pasture production and the like,” advised Crossley.

According to Crossley, efficient and effective farm systems go hand in hand with using the best technology. “There is good farm system decision-support technology available now, which farmers can make use of in this process, as well as working with a good farm adviser who knows how to best utilise this technology.”

While current favourable interest rates scored highly as a positive influence, Dillon had a word of caution on this front. “While there was a possibility of a drop in the OCR that would see the underlying interest rate fall, there are a number of factors placing upwards pressure on credit margins, those being the banks seeing an increase in the liquidity costs of their funding, an increase in the risk premium for agribusiness debt, where banks were looking at funding a third year of losses for some dairy clients, and the dairy farmers own risk rating deteriorating in light of continued cash deficits, and downward pressure on security values.”

Dillon continued, “But farmers can take ownership of this by ensuring, as Chris stated, that they are running the best farm operation they can, getting access to the best quality financial information and proving themselves to banks as quality farmer that are not high risk.”

Along with Crossley, Dillon encouraged farmers to focus on things they can control. “Unfortunately there is nothing we can do about commodity prices except hold on; however, the adoption of new technology and adaptation of farm management practices are things that farmers can influence. But it is important that farmers act early, to review and manage their systems, the longer a farmer leaves it the less options they tend to have. The big positive is that the farmers have back a sense of control, and become pro-active rather than reactive”

To read a full review of the survey results click the below link. Key influences on New Zealand agribusiness – full report To read a one page summary of the survey results click the below link. Key influences on New Zealand agribusiness – short report

Author: Hayden Dillon | Managing Partner - Agribusiness

Hayden is the Managing Partner for Waikato. Hayden’s background and experience provides him a unique perspective as an adviser, in developing strategies, managing risk, and identifying new opportunities for companies. This allows him to fulfill his passion of working with great people to build and grow businesses successfully. He holds various leadership roles in one of New Zealand’s largest economic regions being Waikato, and has strong banking, risk management and financial skills. This, coupled with extensive experience in agribusiness from the farm gate to developing international distribution channels means Hayden has a sound understanding of the role and responsibilities of value adding governance. Hayden has held key roles in corporate banking within the food and fibre sector of the Bank of New Zealand and National Australia Bank, as well as his involvement directly in the Australian milk processing industry. Hayden grew up on his families station in Central Otago, and has been involved in agribusiness throughout his career. Hayden is still involved in farming with his Bloodstock farm in Waikato. He holds a Bachelor of Commerce in Agriculture majoring in Farm Management and a Graduate Diploma in Applied Finance and Investment majoring in Treasury. He is a Fellow of the Financial Securities Institute of Australasia, a member of the IOD, and holds various directorships.