Wednesday, July 6, 2022

Pointer to whole farm management

New Zealand Farming Systems Uruguay (NZS) grew out of poor results from proprietary grass seed sold to farmers and became a good test case for the concept of whole farm management. LOCAL KNOWLEDGE: Time living in Uruguay made Barry Brill the ideal man to play a leading role in the setting up of New Zealand Farm Systems Uruguay.

It began with the then Wrightson Ltd increasing seed sales in the early 2000s, then hearing stories about how farmers were disappointed with the results of the new pasture, the group’s former chief executive Barry Brook said in the 2012 Sir James Stewart memorial lecture.

Investigations showed that the grasses were not being managed properly, leading to Wrightson’s Uruguay subsidiary Wrightson PAS, setting up a demonstration beef farm to show how to get the best out of the improved proprietary grasses.

From those increases in productivity, the next step was setting up a commercial dairy farm and the strategy developed into the investment which became NZS.

The experience reinforced the importance of marketing the whole system and not simply selling grass seed, Brook said, in his presentation to members of the New Zealand Institute of Primary Industries Management, a group made up of farm consultants, bankers, rural servicing leaders, and farmers.

Stewart had been passionate about whole farm management (WFM), Brook said in the lectures during October at Waikato, Massey and Lincoln Universities, where the late Sir James was Professor of Farm Management and later principal.

Brook said WFM had been an area of comparative advantage for New Zealand, but its focus had reduced in the last decade and needed to be reprioritised.

Having lived briefly in Uruguay in 1999 when Wrightson PAS being was being set up and then as chief executive of Wrightson, then the merged PGG Wrightson, Brook played a leading role in the setting up of NZS. He used the broader story of how it had come about as a case study of the application of WFM.

This had been defined as the organisation of, and decisions about, production from the use of land, labour and capital – a framework for thinking about the whole farm business rather than just its component parts.

“Without it you will only have part of the picture,’’ Brook told his audiences. “You will be relying on assumptions, and you will be taking greater risks.’’

WFM was both a science and an art, and Stewart had excelled at it. He also did a lot of work helping develop farming in Uruguay.

Using NZS as a case study, Brook said there had been challenges, some issues were overlooked during the planning stages, and mistakes were made.

It was a NZ project, with capital raised through an NZX share float to develop Uruguay dairy farms using NZ pasture systems and genetics.

The investment has not been a successful one for the early shareholders (of whom Brook is one).

Remaining investors may lose the opportunity to participate in future upside, he said.

Majority shareholder Olam International bought in at a discounted entry price and now has a takeover offer in the market. Brook said the offer “may prove too tempting’’ for shareholders and he had no doubt the project would be profitable for Olam.

“Agriculture development projects like NZS are long term by their nature and don’t generate the quick returns generally demanded by equity markets. Patient capital is required.’’

Early use of capital was a challenge for NZS. Land prices in Uruguay were rising and it was decided to move the proportion of capital investment from development to land acquisition. This slowed the rate of development, especially irrigation development.

“This strategic move, while locking on better land prices, delayed revenue generation and performance was heavily penalised during the dry summers and localised droughts.”

Pastures were easily established, but pasture retention became an issue during dry periods and grazing management became more difficult for less experienced farm managers.

There was evidence that pasture wasn’t sufficient for good milk production levels, raising the need for concentrates feeding. This is the system that the Olam-run company now operates, increasing production and also costs.

When NZS was set up the North American Holstein genetics dominated Uruguay dairying, but were not bred for all grass farming, being less efficient foragers and less robust than NZ genetics. The plan was breed to NZ dairy bulls, but the initial focus on increasing the herd meant there was little opportunity for culling, Brook said. This had resulted in more calving and retention of poorer producers.

Developing infrastructure was also an issue, as the lack of experience in building cowshed and large scale water reticulation caused delays and higher breakage rates in the early stages. In some cases, irrigation dams took up a larger area than expected, impacting on grazing areas. Electricity supply was deficient in most areas.

The end result of all these factors meant there was a squeeze on the cash resources of the equity funded project – the land portfolio was larger, development and revenue generation were slower and then the global financial crisis happened. Eventually, debt funding was secured to take the project forward.

With the benefit of hindsight, a WFM approach based on a model, irrigated, dairy farm would have been the normal approach, before replication on a large scale, Brook said. There was a need to understand the total system and demonstration and model farms would have tested and evaluated systems and reduced risk.

However, this would have taken some years and the opportunity for the “big’’ project may well have been lost.

There were positives, including the productivity improvement across 35,000ha of farmland, from when the project started. Jobs were created, with 700 Uruguayans working in the business and learning about large scale dairy farming. NZS was earning export income for Uruguay.

The project now had the scale providing options for vertical integration and further expansion.

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