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When it comes to running a business, it pays to focus on what you can control. That was the key message from economist Cameron Bagrie, guest speaker at the Findex rural economy briefing at Southern Field Days.
In a world full of geopolitical noise and constant policy debate, it is easy to get distracted by the bigger global picture. But the reality is that most farmers have little influence over what happens in parliaments or international markets. The real opportunity lies much closer to home, at the farm gate. Concentrating on the microeconomic factors within your control is what ultimately drives success.
It’s easy to spend time debating political developments and global affairs, but that energy is often misplaced. We all get tempted to chew the fat over what is coming out of the Beehive or the White House. In practical terms, there is not much any one of us can do about it.
The underlying message is simple: micro beats macro every time. Focus on what you can influence and get on with it. For farmers, that means concentrating on operational efficiency, cost management, and long-term planning, rather than trying to predict or react to every global headline.
After enduring some of the toughest conditions seen in more than three decades, many rural businesses are now recovering. Much of that recovery is being driven by the primary sector.
Farmers are currently in a strong position thanks to several favourable factors. Solid dairy payouts and steady global demand for meat and produce are helping lift farm incomes.
We are seeing good growth in land values, and we are also seeing a new wave of sharemilkers stepping into full farm ownership, which is great for the industry. Add in a strong season and good returns, and those are positive signs of a healthy primary sector.
The benefits are not limited to individual farms. The momentum is flowing through to service towns and the wider industries that support agriculture. New Zealand’s $80 billion export engine is helping revitalise regional economies that have been sluggish in recent years.
It was highlighted at Fieldays that the highest unemployment rate is in Auckland and the lowest is in Southland. That is a clear example of an export-led recovery. We are earning the cash before we spend it, which is a big shift from an economy that has too often relied on selling houses to each other. While New Zealand’s overall productivity record may not be strong, the story is different in rural regions.
We know New Zealand’s productivity record is not flash overall. But that is not the case on farms in Southland and other rural regions. Here, business owners are leading the recovery through exports, bringing in hard foreign currency and building real value in the regions.
Despite the positive outlook, strong governance and financial discipline is vital. We often say farmers are good in a drought and poor in a flush. Microeconomic discipline means keeping a close eye on costs and continuing to challenge service providers, whether that relates to interest rates, fertiliser pricing, or other key inputs. It also means making careful decisions about capital expenditure and expansion. Using strong seasons to build long-term resilience is critical. That includes developing legacy and succession plans while conditions are favourable.
The same frugal habits that help farmers survive difficult seasons should remain in place even during profitable periods. Do not let costs creep. Manage payroll and people well. Shop your interest rates when rolling debt. Maximise profits while you can, because the next tight season is never far away.
Overall, farmers appear to be taking a measured approach. There is always a temptation to splash out on assets and land when payouts are strong, and liquidity is high. Even with a $2 billion Fonterra payout compounding already solid returns, the industry is not seeing widespread reckless behaviour.
Demand for rural real estate has increased and there is currently a shortage of properties for sale. However, farmers are increasingly seeking professional advice, using hedging tools, benchmarking performance, and making careful investment decisions.
Ultimately, having options is a good problem to have. We would rather see sustained advantage built through smart investment in productive assets. That might mean investing in equipment or farm improvements rather than lifestyle purchases. That does not have to mean a flash new boat; the average pleasure craft clocks about four hours a year. A tractor, on the other hand, tends to earn its keep.
Findex NZ Limited trading as Findex.
The views and opinions expressed in this blog are those of the author/s and do not necessarily reflect the thought or position of Findex.
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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.
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