Farming Into The Mist

The oldest son in a farming family has returned home from a trip overseas after completing his degree at Lincoln University.

Before coming back to the farm and making a career of farming the son spent a year in Australia, North America and Europe. He wanted to obtain a picture of where farming might be heading during his tenure.

Among his many observations in a report he prepared for his family were the following:

- A formal licence to farm is looking like a certainty for New Zealand within the next 10 - 15 years and the banks may lend at lower interest rates with this certificate.

-  Killing farm animals before they are fully grown is getting some air time in some countries.

- Traceability from the farmer to the eating and buying consumer is already present, but is going to get more complicated and will hopefully bring more value to the farmer.

- Much of the world’s food production ends up being wasted and not eaten – this applies presently to about 25% - 30% of the total world food production – this will have to be improved upon well before 2050.

- If New Zealand's sheep numbers of about 29 million drop too much further it will cause the closing of freezing works. A single works closure would cost about $25 million and possibly more.

- Some inflation is not a bad thing and it is a lot better than deflation.

- Technology - high tech, medium tech and even low tech - is going to decimate the bottom 25 per cent, perhaps even 33 per cent, of employment in many countries. Worldwide unemployment may be more of an issue than having to increase the world's food supply to cope with possibly 9.5 billion people by 2050. It won't be good enough to be average in almost any business in any country.

- Long term interest only bank loans at low interest rates are camouflaging what is really happening in some countries particularly with housing.

- The price of food worldwide will need to rise if food production is going to have to increase by perhaps 60 per cent. Capitalism tends to respond well to this and higher prices will stir higher production. Some people in some countries will not be able to cope with higher food prices. Their Governments will need to subsidise them otherwise there will be chaos in some countries. We saw this in Asia 7-10 years ago.

- We need to forget about US and EU agricultural subsidies and concentrate on our own farming issues. Farm subsidies in the US are about $19 billion and EU $59b. With 320 million people in the US this works out at about $59 per person and with 500 million people in the EU this is about $118. Politically, this is not a big cost. The method of subsidy payment has already altered in the US and EU, but don't rely on a major decrease.

- Within 15 - 20 years the NZ GST rate could look like 20 per cent and our income tax about 18-20 per cent with the first $5000-$10,000 of income exempt from taxation for individuals.

- Fresh water is the new oil and underground irrigation water and other groundwater sooner or later will have an annual charge on it. Fresh water around the world has been under priced since Adam was a cowboy but bringing the price up to market in many countries will create all sorts of problems.

- Insurance will be available for almost anything but affording the premiums will be the problem.

- Along scenic roads NZ farmers will receive payments as caretakers to ensure everything out the bus or car window looks good. Farmers on these roads will become contract grass mowers for their road edges and be paid monthly by the Government. There are no tollgates on our scenic roads but in time there may be tolls for other major routes each bringing in $4 million per year.

- Our biggest business risk is the people arriving from overseas. We are not far away from people and their clothes, baggage and goods being completely decontaminated and sprayed. Eventually we can expect three to four million visitors to come per year.

- With the aid of medical science and people living longer,  the 'oldies' will tend to control politics in this country. People are still not living within their income and, like 30 years ago, the taxpayer will still be the lender of last resort for this group.

- Our sons and daughters now have a 50/50 chance of having more wives or husbands than children. A single income family is almost a museum story.

- Desalination plants are everywhere. They are  becoming more efficient and can almost cope with the world wide urban water requirements but are nowhere near covering agriculture's water requirements which still have first call on about 70 per cent of the world's available water.

- Death, taxes and volatility are now the three certainties in business life with volatility looking to be by far the most important of these on a day by day basis.

- Genetically modified organisms have been around for some time particularly in the US but some people and countries are not happy with the concept. In time the science supporting them will likely prevail.

Dad has read his son's report several times but finds it complicated. Mother finds the anticipated events challenging but in line with seemingly endless changes. His brothers and sisters think farming looks far too hard and none of them want to work as hard as Mum and Dad. After a lot of thought, the son wants to give farming a go as long as Mum and Dad are sensible with the financing. His partner wants to have children and an income of her own. He intends to concentrate on his profitability and balance sheet during the key early years.

With his travelling behind him, he wants a business, not an empire.

Pita Alexander is an accountancy and agribusiness director at Alexanders.