Plan & invest to grow

Rural financial sustainability: Plan & invest in order to grow

Rural financial sustainability: Plan & invest in order to grow
<p><b>New research undertaken by ASB reveals that more than 40% of New Zealand farmers are investing in growing their business; however there are a few issues to consider when it comes to the financial sustainability of your farming operation, including compliance costs and succession planning. ASB’s General Manager of Rural Banking, Ben Speedy, spoke to REX Today’s Dominic George about the importance of planning and investing in order to grow your rural business.&nbsp;</b></p> <p><b>Listen to the full interview below:</b></p>
<p>“Recent research showed us that 44% of farmers are investing in their businesses, either directly within their business or looking to expand, and that was up quite considerably from the previous year. We see typical commodity cycles when we look at what may be behind this. Obviously, we're getting quite high prices at the moment, we're approximately 12 to 18% up year on year. The long-term outlook for commodities continues to be strong due to the increasing concerns around food supply.”</p> <p>Generally, as commodity prices go up, people tend to invest in their businesses, whether that’s around debt repayment or balance sheet optimisation, as well as planning for broader expansion of those businesses. Speedy notes, “in recent times, there's probably been more diversification rather than expansion. But we're starting to see farm values increase and demand increase for those properties, which is really exciting.”</p> <p>Balancing increasing debt repayments with investing in other things is something which many farmers face, and that’s where ASB’s rural team lend their expertise, “ultimately, we're looking at what's going to help generate the best revenues for their business. In some instances, that is debt repayment and other instances that's expansion. But through that research, we saw that 55% food and fibre producers around New Zealand, were accelerating their debt repayment. And we're seeing that. We will go close to having record lending in terms of ASB Rural this year. Still, our total rural book has held relatively flat, particularly through the repayments that are happening in the dairy industry.”&nbsp;</p> <p>Speedy praises the strengthening of balance sheets too, “that's really good to see for a couple of reasons. One is that it provides farmers with the opportunity to be able to expand further or do something different. But secondly, it helps build that resilience with regards to interest rates. We have seen interest rates increase sharply recently and expect shorter term interest rates to increase a little bit more. Albeit we probably feel that longer term interest rates are probably near the peak of where they'll get to.”</p> <p>Succession planning goes hand in hand with diversification, particularly as farm values continue to increase due to demand. ASB’s survey found that 29% of food and fibre producers are considering downsizing or selling, something Speedy believes will provide more opportunities for the expansion of farms, allowing new family members to step into farming businesses.</p>