Why the challenges to rural property owners in 2020 could really be blessings in disguise, and how to make the most of them
New Zealand’s strong farming legacy has perhaps lulled rural property owners into a false sense of security, trusting that their land value will continue to rise, banks will be generous with loans, and Fonterra (for dairy farmers) will always be at the gate.
But that reality appears to be shifting now.
New Zealand farmers face a number of challenges in 2020 which individually offer no major threat, but present an intimidating wall of obstacles when combined.
But while these challenges seem to snowball, there is a bright side to be found. As in any industry, obstacles and trials are catalysts for innovation, creativity and change.
So what can you — farmers, rural property owners, and agriculture businessmen — do to turn these challenges into an advantage?
The best advice for both your business and your sanity is to “keep calm and farm on”, and take a long-term perspective to your work. Our Taranaki rural property valuer Rowan Cambie has tips for finding the silver lining to 2020’s challenging developments.
A shedload of challenges
Ask any New Zealand farmer what the challenges of their industry are, and you’ll receive a shopping list of problems:
- Changing finance landscape, and uncertainty from the banks
- Slow rural property sales, and a lack of new entrants into the industry
- Stagnation in farming technology
- Difficulty recruiting quality labour
- Fluctuating exchange rates affecting exports
- Coronavirus and global uncertainty
- Environmental changes, droughts and floods
- Pests and disease
- Lack of support from the general public
- Being demonised by environmentalists and the media
- Regulation pressure, with deadlines to meet
While none of these issues alone are going to break New Zealand agriculture, they chip away piece by piece at the armour of the industry – and the resilience of those who work hard to keep it going. From this long list of challenges, there are a few key issues that cause the most frustration:
Finance
Historically, farmers have been able to use surplus equity to improve their properties, but at the same time, there’s been a slow-down in land value gains — it’s been virtually static for ten years.
In response, banks are looking at which sectors may be better to advance finance, and increasingly finding that agriculture isn’t as attractive as it once was. Banks are currently hesitant to lend to farmers, or enable newcomers to buy into the industry.
Stagnation
As the agriculture industry has been stable for so long, there’s been little need for major innovation, leading to a general stagnation of farming technology, business practices, and rural property sales.
Without big-picture future thinking, farmers have been preoccupied with putting out small fires as they come along, rather than looking to how they can change for the future and increase their land asset value for future sale.
Lack of support
Beyond having fewer proximal neighbours, farmers have been feeling support from all sides ebb away as urbanites, the media, and environmentalists are seemingly turning against farmers en masse.
Even Fonterra, previously an excellent support for dairy farmers, have been preoccupied with non-farmgate issues since the Global Financial Crisis. Like so many in the industry, they’ve been stuck trying to look after themselves and unable to reach out to others.
The silver lining: creativity and innovation
How can these challenges be hiding a blessing, when they’re so pervasive and encompassing?
The silver lining is around the edges: it comes from thinking outside the box.
The benefit to reaching a point of stagnation is that you’re forced to innovate your way back out and find new, better ways of working. Sometimes it takes a breakdown to show you what’s not working any more.
To climb out of this crisis, farmers must find new ways to operate as a business and forge new economic models, to attract employees and appeal to banks for loans. Instead of being melancholy about the way things are, they are forced to find forward-thinking solutions.
“Could they collaborate with other farmers, and create a collective employment agreement to deal with a shortage of workers? Could they petition Fonterra or the Government to subsidise new technology that will enable them to work to the farm’s full potential? They’ve got to think differently, to find the way forward.”
- Rowan Cambie, TelferYoung Taranaki
Farmers aren’t the only ones who need to change, but they can lead the change. The issues facing the rural sector can’t be ignored, and can’t be fixed with a band-aid — deep structural change is required.
Let’s consider some ways this can happen:
New economic model
In order to solve big problems, you have to think big. What if there was a different economic model for the New Zealand farming industry? A debt reduction programme would encourage farmers to make economic surpluses, and pay back the debt against their assets until they are fully owned by the farmer.
When you don’t have to make a profit — as farmers haven’t been forced to — you can let things slide around the edges. Such a change would force farmers to be better business managers, and force innovation on and off the farm, throughout the industry.
This would go some way toward increasing the value of rural properties, and thereby increasing the interest from local buyers. With a change to the economic model of the industry, we could see more vendor financing and investment: if it’s an economically positive prospect, people will be happy to leave their money in it.
Valuation
In the last 20-30 years, we’ve unfortunately noticed New Zealand farmers shifting away from seeking professional advice for their businesses. Relying on land values to keep rising as they’ve always done, farmers felt confident banking on capital appreciation for their wealth.
Now, however, as the market is static with only minimal tremors of movement, a change of tack is needed. Farmers need valuers like all industries do — as an objective, independent advisor to provide timely and valuable advice to assist with economic decision making.
Land valuation is important for understanding your rural property’s equity, in order to leverage it and make better decisions for increasing your farm’s value.
In addition to understanding your property equity and assisting with decision making, a property valuation is increasingly being asked for by banks in order to secure a loan for continuing finance or a new construction project.
TelferYoung provides an informative valuation that will directly aid both the farmer and the bank — we have a responsibility to help both sides make good financial decisions, and we are constantly looking at ways to link economic performance to value for better decision making.
We can recommend strategic areas to spend money on the property, to add long term value: functionality to the farm is what’s important.
Keep calm and farm on
At the end of the day, the piece of advice Rowan repeats most is: “keep calm and farm on”.
What he means by this isn’t to keep your head down and ignore the goings-on of the world: there will always be new crises popping up that will affect the industry, even indirectly.
He means that taking a short-term view of the situation will drive you mad with putting out fires, rather than preparing smartly for the future.
Like any investment, a long-term future view is necessary. Think outside the box, engage with others, and find novel solutions to your problems. An asset valuation is a great place to start in making strategic changes of an informed nature.