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Five Big Questions Chris SounnessDPI Farm Services Victoria
Thanks to Graeme Anderson, Danielle Park, Lucy Stott and Carl Sudholz
Thought exercise
Woke up Jan 1 2000Head thumping (Millennium party) no memory of last 10 years – However everyone has travelled back in time.Noone has knowledge of commodity prices, land prices etc. lotto numbersBUT, Back pocket has every bit of climate info that anyone could want until 31 December 2009
How many farmers would make changes?
ChangeI have been presenting climate risk information to farmers for a number of years as part of the DPI climate extension programQuestions this work has raised includes• what are the key pieces of information that is going to
allow the farmer to run a more profitable business• In the scheme things how important is the climate
information• Particularly in the context that that broadacre farmers
are constantly changing to stay in the game
Types of Changes•Incremental change – Encouraging the farmer to keep on doing what they do but do it better. Nearly all research is focussed on this. •Strong service sector supporting it•We also nearly always frame our discussion about farmers in this context. Ie how can farmers keep on doing what they do.•Transformational change is far harder to do – is often thought of as failure by the person undertaking it and has far less support at the proactive end of the spectrum. Once people are forced to do it there is a fair bit of support.
The farmers challenge – export priced produced
base year: 1977-78 = 100
20
40
60
80
100
120
140
160
180
1977-78 1981-82 1985-86 1989-90 1993-94 1997-98 2001-02 2005-06
index
farmers' terms of trade
productivity growth
Farm establishments by $ scaleVictoria 2006
Establishments
0
10
20
30
40
50
60
<$100k $100k-$200k $200k-$400k $400k+
EVAO Categories
%
Establishments
Farm establishments, area and value by $ scaleVictoria 2006
0
10
20
30
40
50
60
<$100k $100k-$200k $200k-$400k $400k+
EVAO Categories
%
Establishments Area Value
Family income broadacre farms from farm and non-farm sources$25k-$100k EVAO: 1990-2007
Source: ABARE
0
50000
100000
150000
200000
250000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2006
Farm
Fam
ily In
com
e ($
)
Farm Cash Income Total Non Farm Income
٥ Unlikely to be generating sufficient income to invest, build risk reserves or support family without off-farm income.
٥ Family income sustained by off-farm income.
Family income broadacre farms from farm and non-farm sources$100k-$200k EVAO: 1990-2007
Source: ABARE
0
50000
100000
150000
200000
250000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Far
m F
amily
Inco
me
($)
Farm Cash Income Total Non Farm Income
`
٥ Farm income makes a significant contribution to family income.
٥ Non-farm income is a significant secondary income source.
Family income broadacre farms from farm and non-farm sources$200k-$400k EVAO: 1990-2007
Source: ABARE
0
50000
100000
150000
200000
250000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Fa
rm F
am
ily In
co
me
($
)
Farm Cash Income Total Non Farm Income
٥ In ‘normal’ seasons these farms have generated a healthy farm family income with only limited supplementation from off-farm sources.
٥ The current run of dry seasons has cut severely into this income.
Family income broadacre farms from farm and non-farm sources$400k+ EVAO: 1990-2007
Source: ABARE
0
50000
100000
150000
200000
250000
300000
350000
400000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Farm
Fam
ily In
com
e ($
)
Farm Cash Income Total Non Farm Income
٥ Generate a volatile, but sustained high cash surplus.
٥ Impact of dry seasons is there, but less severe than in other segments.
٥ Suggests there is the capacity of many of these businesses to adapt to changing climate.
٥ Income is variable, but capacity exists to build resilience to cope with income variation.
Farming for some is very profitable with acceptable risk levels
Return versus Risk
All Ordinaries
Ag Property
Ave Farm
Top Farm
Food & household
Industrials
Cash
Bonds
Listed Property
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%
Standard Deviation of Returns
Com
pund
Ann
ual G
row
th R
ate
Thinking about change
Change options can be • Easy• Difficult• Outright wicked
When is the right time to tackle change question
The Golden Year““I will make those changes when I will make those changes when
we get a good year.”we get a good year.”
When was the last one – that last golden year?Was it you that experienced it?Was it really that golden?What major decisions did you make?
The Bad YearWhen the pressure is on, big decisions get madeNot really the best environment for these decisions• Stress• Pressure• Tight timeframes• Lack of information
Are these the best decisions in retrospect?
The 5 Big Questions 1. Are you enjoying what you are doing?
3. Can you sustain the effort?
5. Is your family supporting what you are doing?
7. Are you living a lifestyle that you are happy with?
9. Have you enough to retire on?
.
Doing something differently•If it is no longer fun then how long can you continue?•Masochistic tendencies•Or do something differently•The options have always been the same when involved in farming •There are five options
• each one is an excellent choice• at least one will be right for you• Each option has easy options, more difficult and bloody tough
•But which ones are right for a particular business?•As appetite for risk is such an individual choice.
5 Big Options• Improve profitability • Change the business structure• Change enterprise• Change the capital base• Exit
All are excellent and viable options, but everyone’s situation is different.
1. Improve profitability
• Refine the management system/s• lower cost structures/increasing production• Adopt and adapt new technology
2. Change the business structure
• Set up family trust• Buy out family partner• Create company
3. Change enterprise• Either change enterprise mix ie increase livestock
decrease cropping• Start new enterprise to compliment existing
enterprise ie feedlot• Exit current enterprise and start new business
based on current land
4. Change the capital base
• By more land in a current climatic region• Buy land in a new climatic region• Move to a new climatic region• Sell/lease a parcel of land to free labour• Off-farm income through labour
5. Exit• But maintain the land (Lease)• Leave the industry
Another thought exercise!
•Why is the majority of our resources encouraging farmers to tackle incremental change•Are we sending many down a dead end path and worsening the situation by encouraging bravado•While climate information is never going to be a main driver of change we need to keep the context as it may be often blamed.•If context being successful broadacre farming is all about increase scale (buying out neighbours - keeping ahead of terms of trade) what is the role of the adaptation RDE community• A larger percentage of farmers are going to need assistance in identifying which incremental and or transformational options to explore and allowing them to do it on their terms.
