Farmers looking for a better deal from their bank need to be showing up with a clear budget and strategy, and demonstrating how they perform against that, ASB’s rural general manager says.
Speaking on the Federated Farmers Podcast, ASB’s Aidan Gent said there are actions many farmers could take today to strengthen their position with the bank.
“The first step is to have a really good conversation with your banker to understand how they view your farm business.
“The worst thing you can be doing is having your head in the grass, afraid to have that conversation.”
The next step is to identify risks in your business – such as exposure to interest rate movements or commodity prices – and explain how you would plan to mitigate them, he says.
This could include cost control in the near term; and balance sheet strength, hedging policies or diversification of revenue streams in the medium term.
“It’s showing us how you’re thinking about the medium-term viability of your business and how you might start to manage a bit of that risk.”
Articulating where you want to take your business, and presenting clear budgets and financial projections, are also key, Gent says.
“What’s your strategy for your business? Do you want to buy your neighbour’s farm in five years’ time, or a bach at Whangamata, or bring your kids through the farm and, therefore, potentially bringing a 50/50 sharemilker on?
“What does that strategy and budget look like? What are the parts you’re not happy with and what you might you adjust? We want to know that stuff.”
He suggests farmers spend time with their accountant, farm advisor and other trusted advisors to figure out the business’s direction, and then clearly communicate it to the bank.
“Because if we can understand where you’re trying to take your business, it makes it a lot easier for us to support you.
“It’s not a case that you’re then held strictly to what’s written a piece of paper; it’s just about helping articulate to us what the road looks like for you.”
Gent says the banks also want to see how a farmer behaves – or will behave – when a downturn hits, because that’s a huge indicator to a business’s longer-term success.
“Anyone can make money when returns are high and interest rates are low, but in an environment like now, especially in the red meat sector, how do you think about adapting your decisions on-farm?
“A lot of farmers do this by gut – it just happens. Fonterra drops its payout and so you just don’t order the next month’s palm kernel. But how do you articulate that and spend time thinking about what you’d do if the payout dropped to $6.50 or $7?”
All of those steps ultimately help the bank to see your farm business as less risky and, therefore, offer a cheaper interest rate, Gent says.
He says, once farmers have had those initial conversations with the bank, it’s crucial to then follow through on your plans over the next few years.
“There’s not much point in Beauden Barrett having the best bronco in All Blacks training if he then goes out on Saturday and gets chased down by a front rower. You have to put in that performance on the field.
“So, when you’re thinking about the next two to three years, it’s your chance to start demonstrating the things you want to be proud of. The banks will look at how you’ve performed.”
Although spending time budgeting, strategising, and analysing your business might well get you a better deal with the bank, it also just makes good financial sense, Gent says.
“Yes, you might get an improved risk score from the bank, and therefore a cheaper interest rate, but at its very simplest what we want our customers to be doing is making more money, strengthening their balance sheets, and then continuing to do awesome things for food and fibre.
“So, doing these things because you get a better interest rate certainly needs to be a consideration, but the far greater impact is actually on you and your family’s wealth and future prosperity.”
Listen to Aidan talk more on this topic, plus share his thoughts on a rural banking inquiry, in episode five of the Federated Farmers Podcast – fedfarm.org.nz/podcast
Federated Farmers, New Zealand’s leading independent rural advocacy organisation, has established a news and insights partnership with AgriHQ, the country’s leading rural publisher, to give the farmers of New Zealand a more informed, united and stronger voice. Feds news and commentary appears each week in its own section of the Farmers Weekly print edition and online.
