Agricultural Issues Around The World
There is value in stopping for a moment and thinking about the many problems agriculture faces around the world.
While on one hand they may seem far away from New Zealand the reality is these market disruptions often work their way to our neighbourhood.
Take, for example that about one-third of the world's population still relies on agriculture for a living. The differences, though, are enormous with the United States maize (corn) grower producing crops that are five times per hectare more productive than in Africa.
Worth thinking about is that water security for many countries is becoming more and more of an issue for governments – 54 per cent of India faces continually high to extremely high water stress.
In many ways big corporations control much of the world's foods. Six big companies control 75 per cent of the world's pesticides market. Factory farms now account for 72 per cent of poultry production, 45 per cent of egg production and 55 per cent of pork production.
Again, four companies control more than 75 per cent of the global grain trade. Genetically engineered crops were introduced in 1996 and it is increasingly starting to look that if the world wants to increase its food production by about 60 per cent by 2050 that these genetically engineered crops will become more important. Europe is presently rethinking parts of its resistance to GM foods.
We can be sure that once this becomes mainstream the large companies will make their presence felt.
About 70 per cent of the world's agricultural land is devoted to raising animals. The major threats to agricultural production worldwide would appear to be population Increase, climate change and water stress.
One person out of every nine people in the world today has to live on less than $1 per day and what is the major cause of hunger – poverty.
How many different weed species around the world have developed resistance to common herbicides? The answer is apparently 249 different types of weeds..
We are going to read more about farmland grabbing. This is sometimes called land banking and is when people from other countries buy farm land. Australia and Canada are both concerned about this issue and I would imagine we will be next in line.
Closer to home we have our own issues. A licence to farm in New Zealand may not be as far away as we might think. Health and safety authorities, the banks and conservation entities would almost certainly approve as it would take some pressure off them and they would want to play a part in drafting up the key issues in their eyes regarding your licence application.
Tourism is now looking like our key export industry. Maybe over the next 20 years it will be in the interests of New Zealand people for the Government to make payments to our farmers in return for farm land along key highways and scenic roads to keep the tourists happy. Many farmers in Europe and the United Kingdom feel they are caretakers to some degree and have been banking these payments for years. We wouldn't call them subsidy payments – a better description would be 'For Looking Pretty Payments'.
Looking ahead, a milksolids quota, which Europe has only just come out of, would certainly not appeal to our dairy farmers, but increasingly many of these decisions are made outside the farm gate.
With deposit rates at 2-3 per cent depending upon the term, you cannot make money lending it to your bank. All of the good savers are being slaughtered. Of course, it is fair comment that the bank lending rates are equally low but low interest rates over time will create as many problems as they will solve. Your bank manager is basically selling you money when you want to borrow and their bonuses are based to a major degree on how much they can lend. For every imprudent borrower there is an imprudent lender.
Except for the odd good farming year, a sound cash flow and considerable job satisfaction, farming has been a balance sheet game. That is, farming couples are in a sound financial position in terms of income and capital only at the point they retire from farming and even then often only if they sell to a third party.
Your rural bank manager will have three definitions for your personality and farm budgeting ability – optimistic, pessimistic and realistic. He or she will have long found that the pessimistic clients make as many mistakes as the optimistic ones but the optimistic ones tend to recover from a down cycle much more quickly. Bankers prefer farming clients who tend to be proactive even if they are sometimes proactively wrong.
Make sure there is an allowance for unforeseen circumstances in your farm budget in both the working and capital expense sections. Things beyond your control have a habit of coming out of the woodwork and how much of an allowance do you have? Probably 2 per cent of the total cost estimated in both sections.
Your unrealistic expectations are a pain for everyone that has to deal with you. People in this group also tend to be well known in the community so keep yourself out of this group. Never forget that you are better to be approximately correct rather than precisely wrong.
The world at the moment is disgruntled about domestic politics and foreign affairs. The media around the world is full of it this anti-establishment sentiment, focussing on Mr Trump, Mr Putin and growing populism, and the media of course prefer plenty of doom and gloom.
Agriculture is caught up in all of this and if you run the phrase "worldwide financial + production problems in agriculture" on a search button you will get 44,600,000 hits – interesting times.
At this point many dairy farming couples look as though they may have significant losses being carried forward for income tax purposes by May 31 2017. In cash and debt terms this will be a major pain but when the tide turns on their profitability the same couple may not have to pay much in the way of income taxes for some years. Losses convert to tax savings when profitability returns to normal, but keep minimising those losses though.
Pita Alexander is an accountancy and agribusiness director at Alexanders.