Starting a rural business is an exciting venture but figuring everything out can be overwhelming.
To make things easier we’re launching the investing in agriculture series which will profile ASB rural customers and bring you tips from our rural managers. Today’s post focuses on Matt McCormick, who is not only a vineyard owner but also an ASB Senior Rural Manager.
Wine is one of New Zealand’s top exports – in 2014 the total exports were $1.35b1. So it’s no wonder more and more people – both experienced viticulturists and novices alike – are investing in the industry. The winegrowing industry is in a unique position to attract beginners and a variety of investors as it’s easy to outsource the management of a vineyard. It’s not uncommon for vineyard owners to be passive in the day-to-day dealings while a manager runs the business.
ASB Senior Rural Manager Matt McCormick says, “In my experience the ability to own and run a vineyard in a ‘hands-off’ fashion by out-sourcing the day-to-day management to well-qualified vineyard managers, whilst maintaining good viability, is a major difference in the vineyard industry compared to most other primary industries. Personally, I’ve found it to be an effective structure that suits my situation.”
Like many of our rural managers, Matt is heavily involved in the industry and owns his own rural business. He started in a sheep & beef farming venture before moving into viticulture in 2012. He originally bought a share in a vineyard, as a passive investment but a few years later, he bought out the other owners. While he’s now the sole owner of the vineyard, he is still able to work full-time as he has contracted a management company to take care of the day-to-day operations.
Vineyard managers can take care of everything from managing staff to monitoring pests, right through to loading bills into Xero for authorisation and payment.
Matt’s vineyard is 32ha total, with 26ha planted. On average he produces 14 tonnes/ha/year which he sells to one of New Zealand’s major wineries.
Some vineyards are also wineries but most tend to sell their grapes to wineries. As a grower, you typically have a contract with a winery to sell them grapes from a set number of hectares. The price per tonne is typically set by a district average (established annually) or is a set price for a specified period. There are numerous other variations but these are the major yield and pricing mechanisms.
Our tips for purchasing a vineyard
A new vineyard vs. an existing one
One of the first decisions you’ll need to make when you’re looking for a property is whether you want to purchase an existing vineyard or develop a new one. It’s worth noting that if you’re developing a new vineyard, the plants won’t produce a commercial crop for approximately three years. There are pros and cons for each option so it’s a good idea to talk to your rural manager and your industry contacts.
If you’re not producing your own wine, you’ll need to arrange a contract with a winery for them to purchase your fruit. Most contracts are for around three years but you can negotiate for them to be longer or shorter depending on your needs. Some growers like to split their contracts across multiple wineries to diversify their income streams.
Consider hiring a manager
If you’ve got another job or commitments, or don’t have the knowledge and skills to successfully run a vineyard, you may want to look into hiring a manager. A vineyard manager takes care of all the operations and day-to-day tasks including spraying, pruning, quality control, staff management and even budgeting. Because they manage multiple vineyards (often up to hundreds of hectares), usually under a larger management company, they’re able to keep costs low and charge accordingly. Typically, vineyard managers charge owners on a per-hectare per-year basis.
As with any new venture, it’s really important you do a lot of research before purchasing a vineyard. A good place to start is New Zealand Wine and New Zealand Trade and Enterprise. If you’ve got any contacts in the viticulture industry, or the wider rural industry, then ask them any questions you’ve got as their experiences will provide valuable insight. You can also get in touch with an ASB Rural Manager.
The process of buying a vineyard
Buying a vineyard, or any property, will be different for everyone so it’s best to get in touch with a rural manager early on in the process. As a general guide, we’d recommend following these steps:
- Have an initial conversation with your bank.
- Find a property to purchase.
- Find a vineyard manager.
- Line up a fruit contract.
- Bring the final details to the bank.
FAQs about rural loans from ASB
What’s the loan to value ratio on a vineyard?
In general, the bank lends up to 60% for the purchase, so you’ll need a deposit of at least 40%. It’s important to remember that every situation is different though so you’ll need to speak to a rural manager.
What can you borrow money for?
The bank can lend on everything you need – from land to plants and equipment.
Can someone use existing equity (e.g. from their home) as deposit?
Yes that’s possible, there are many options available when structuring the capital required to purchase a vineyard. Minimum equity amounts will apply, and every situation is different, so get in touch with an ASB Rural Manager to discuss the best approach for you.
What are the main things the bank looks at?
- Equity. You must have at least a 40% deposit or alternative securable assets.
- Fruit contract. You need to have a contract for the sale of the fruit.
- Management of the vineyard. The bank will want to know your plans for the vineyard and if you’ll be managing it yourself or hiring a manager.
Where can I find interest rates?
Find out the latest interest rates by calling your local ASB Rural Banking team on 0800 787 252 or find your local ASB Rural Manager online.
Does the size of the property matter?
We have all types of clients – from huge properties down to small 3ha lifestyle blocks.
If you’re interested in buying a vineyard contact the local ASB Rural Manager in the location you’re looking to buy.
If you want to invest in agriculture but you’re not sure if viticulture is the way to go for you, keep an eye on the blog in the coming weeks as we’ll be sharing stories from other farmers and their ASB rural managers.