Delving into diversification

Delving into diversification

By ASB General Manager for Rural, Ben Speedy.

Delving into diversification
Delving into diversification
<p>The future of farming is reliant on good people making good decisions - successfully managing risk today to ensure the farm is fit for tomorrow. We know from conversations with our customers those decisions weigh heavily on the minds of farmers.</p> <p>Recent Kantar research conducted by ASB Rural told us 57% of farmers surveyed have succession planning on their minds. We know that for some owners of inter-generational businesses there can be added pressure when it comes to the business succeeding both today and into the future; it’s appeared to work up until this point so there is an expectation that it must continue to be successful. For some beef and sheep farmers, key decisions include where and how to invest in the future of their farm through activities like tree planting while preserving the work previous generations put into developing the land for grazing, for example. Owning and running a business has never been easy, but inter-generational business owners often carry an extra burden with extra considerations, and at ASB Rural we work with our customers to support them as they make these decisions.</p> <p>We are committed to helping food and fibre producers move into stronger financial positions and to enable them to manage their farm succession. One way we can help is working with customers to explore the merits of different ways to maximise the potential in their business. There are many ways to do this, one we are seeing more frequently among our customers is diversification. The same research told us 26% of farmers are looking at diversification into non-farm activities while 21% are considering diversifying into a different farming type, livestock or crops. Diversification, at its core, is building additional revenue streams within your business. It looks different for everyone - something that works for one farm and one family may not be suitable for another because no two farms are the same.</p> <p>Diversification and a steady run of improving returns can provide opportunities for farmers to invest back into the business, including in environmental initiatives. Sustainable farms and orchards continue to be sought after and significant work is being put into achieving more environmentally friendly practices locally.</p> <p>And while diversifying may come with additional cost up front, it can help with enduring business sustainability. Much like private investors move to have a diverse portfolio to help hedge their finances and income streams, farmers can too. In recent years, New Zealand has had a golden run through increased capital gains on residential properties, while dairy prices - and in fact a range of commodity prices - have been up for a good part of the past five years. The sharemarket has gone from strength to strength, too. But what if the good run doesn’t last forever? Diversifying may offer you additional security and options for when it comes time to action your succession plan.</p> <p>Diversifying is not without risk, but we’ve seen how it can really pay off for farmers too. When considering diversification, it’s important to remember there are not only financial gains but options for non-farming successors, too. Conversations with other farmers and trusted advisors about diversified asset portfolios can be helpful to get you thinking beyond the financials. Perhaps diversifying is an opportunity to upskill or lean into new areas of farming, or does the possibility of utilising land in a different way interest you? Is there one area of farming or horticulture that you’ve always been interested in but never quite got around to pursuing? Is this your opportunity?</p> <p>If you’re not already, some key areas you could think about are risk versus return and skillset. Higher returns often come with higher risk. It’s important to remember that what is up at the moment may not stay up, and sometimes ‘slow and steady’ gains can be better in the long term than more volatile options. Everyone has their own risk profile – some people thrive off risk, while others taking on that same risk can’t sleep at night.</p> <p>And finally, do you have a good understanding of the undertaking of the new venture? If not, do you have the capacity and the appetite to learn something new? For example, if you’re carving off some land to plant kiwifruit do you have the funds to buy licences (if needed) and the infrastructure, machinery and know-how to ensure a successful crop year after year?</p> <p>If diversification is something you’re interested in as you prepare for succession, start thinking about the ways you may be able to get your business one step ahead. Don’t rush it, take your time and seek out expert advice because there are lots of opportunities available to us in a country like ours.</p> <p>Remember it’s never too early to start thinking about succession and it is never too late.</p>
<p>You can read more articles on succession planning in the Farm Ownership and Succession 2021 supplements for <a href="https://issuu.com/nzfarmlifemedia/docs/dxp_succession_part1-3_combined?fr=sYzg4YTQyOTI0ODc" target="_blank">NZ Dairy Exporter</a> and <a href="https://issuu.com/nzfarmlifemedia/docs/cw_succession_part1-3_combined?fr=sOGNmMzQyOTI0ODc" target="_blank">CountryWide</a> magazines, where this article was first published.</p>