Wednesday, July 6, 2022

Resilient farms are more flexible

Debt is not a factor in dairy farm resilience, OneFarm director and Massey University Professor Nicola Shadbolt told farmers at the Central Districts Field Days. It did not make any difference to how farmers responded to good milk prices or adverse events, she said. A research project funded by DairyNZ on the resilience of dairy farm businesses over six years looked at how they performed in a volatile environment with rapid global change, uncertainty over prices and legislation and consumer food safety shocks. Resilience involved the ability to bounce back without breaking, adaptive capacity to learn and change from a major disturbance, or the ability for transformation when pushed past the point of tolerance, Shadbolt said.

The first part of the study examined dairy farms using all systems for three years.

In the nasty milk price-cost of feed squeeze in 2008-09 high-input farms were less resilient and more vulnerable but did best from 2006-08, when prices rose because they leveraged off their debt to get better returns.

The smaller farms performed best in hard times because they had more control and less debt.

None of the farms studied was in the best-performing group for both good and bad times.

The farms that performed best when looked at after six years were those with more cash, lower expenses, higher operating profit and a profit margin of 40%, compared to the least resilient with a margin of 22%.

They also had a high return on assets and equity.

The resilient businesses are those with the ability to be flexible, spend when prices go up and respond and move as the environment changes around them.

The two key measures were milk production per hectare, with the higher yielders more dominant in the resilient group, and efficiency measured as the operating profit margin.

“Debt didn’t come through as a determinant.”

But it was important how farmers managed debt in relation to income and costs.

The best farms linked costs with milk prices and had a high return on assets generating more discretionary money.

Shadbolt’s speech will be available on onefarm.ac.nz.

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