Thursday, July 7, 2022

Learning from the pizza business

Dairy farmers can learn a lesson from pizza makers, according to Victorian farm adviser John Mulvany from ONFARM Consulting.

“Why own the shop when your business is making pizza?” he asked the Australian Dairy Conference in Warragul.

He backed this up by introducing three farming couples who he said acted more like pizza makers, although they were at different stages along the dairy farmer life curve.

The youngest couple, Michael and Brianna Armstrong, who share farm at Korumburra South in Gippsland, had a A$40,000 overdraft when they married in 2007. They had maxed out their credit cards, running up a A$600 bill they had to pay out of a A$1000 wedding gift from Brianna’s parents, leaving them A$400 to live on for the rest of the week.

Michael worked for a farmer, then his parents in Tasmania, before coming to Gippsland in 2002. He found work on a farm and started a dairy course, ending up as manager of a 1000-cow farm. In 2005 the couple worked on a farm supplying 80 cows and all plant and taking a one-third share of milk income. The next year they moved up to a 50:50 equity arrangement, with both partners owning 250 cows and young stock. The Armstrongs supplied all labour, plant and equipment.

By the 2009/10 season they were milking 510 cows on 160ha and achieving a total combined business return on assets (ROA) of 8.4% and a sharefarming ROA of 20.2%.

They now have net assets of A$970,000 with 63% equity. Their A$1.54 million of assets include a seaside house which was bought with 5% equity and shows a rental return of 7.5%. Their liabilities are A$570,000 compared with a net worth of A$165,000 in 2005.

They are refinancing to allow greater borrowing, with a plan to buy three more houses in similar developments over the next three months. They’re also negotiating an equity share in the farm, and are using separate banks for their housing and farming interests.

Warren and Kerrie Redmond, who farm near Inverloch, came into the dairy industry with no assets in 1989. Warren had previously worked as a diesel mechanic and they’d run an unsuccessful fish and chip shop for 10 months. They took a one-third share in 167 cows, then a one-third share in a larger herd of 180 cows, providing a motorbike and tractor.

They then took a 50:50 share in an underdeveloped farm milking 160 cows, with them providing all the mobile plant and equipment. They leased this farm after seven years and bought 300 cows of their own.

This was followed by leasing another property 16km from Inverloch. The owner later bought two more farms and offered the Redmonds the leases. They now lease almost 1000ha worth A$14m with a milking platform of 486ha, running 900 cows using a conservative stocking rate and simple production system.

They also run 400 beef cattle.

Their net assets include three houses in Inverloch which are giving a return of 5-6%. With other investments including shares worth A$3.34m at the end of 2011, that gave a 65% equity and a 22% ROA. They’ve gained A$145,000/year in each of their 23 years in dairying and now enjoy regular annual holidays as well as planning to step back from the business in 10 years time.

Warren said his attitude had altered over the years to the point where he now regarded the property owner’s asset as his own, leading him to paint their house and lay new carpet under an arrangement whereby the couple pay for any items under A$10,000, but over this amount the owner pays. He works 20 hours/week and hasn’t milked a cow for the last three years.

“But I’m on call a lot,” he said. “We did want to be farm owners but our situation is different.”
If he had any cashflow problems he would sell some beef cattle.

Ian and Alice Holloway have taken leasing to a new level as they recently built a new 50-bail dairy on leased land. Ian was a fitter and turner who later worked on his parent’s farm and sharemilked 280 cows while Alice had a career as a tax consultant.

In 2006 they leased the farm next door as the owner wanted to leave dairying. While they had 70 milkers and the same number of young stock they bought a further 200 milkers and 110 young stock from the owners. Drought conditions meant tough times with large quantities of hay having to be bought in.

From milking 400 cows in 2007 they lifted numbers to 440 in 2009 but after the milk price dropped they reduced stock numbers and looked carefully at all inputs. They are now back at 495 cows with Alice imposing a limit of 500.

In 2010 they were meeting resistance from workers to the outdated dairy and vat, so after a 10-year lease was negotiated with the owners they built a new one, which they will sell when they leave the property. They also built a new house on a piece of land they could afford to buy out of cashflow.

Their net assets 18 months ago were A$3.39m with A$397,000 of liabilities, giving A$2.99m net with 88% equity. Their average ROA since they started leasing was 29% with a peak of 41% in 2010/11.

“After leasing land I really question why you would want to own a farm,” Ian said. “It’s putting a noose around your neck for a long time.”

 

Warren and Kerrie Redmond – no milking but “on call a lot”.

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