Friday, April 12, 2024

Looking beyond the banks to fund change on-farm

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Improving profitability or even just complying with regs can mean big capital outlay.
The returns stack up with composting shelters, but construction costs as high as $2.6 million are likely to be a stumbling block for some.
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By Delwyn Dickey for Our Land and Water

There are some big challenges facing farming at the moment.
Stricter intensive winter grazing regulations came into effect last year, and there are other environmental regulations on the horizon.
More farmers are looking at upgrading systems as well as spreading business risk by diversifying into other ventures like horticulture – but how to foot the bill? 

Composting shelters, for example, are being incorporated into dairy farming systems around New Zealand, with over 30 structures now up and running – eliminating winter cropping, reducing nitrogen leaching, and helping cows produce more milk for longer.
Research through the Rural Professional Fund with Our Land and Water last year showed the structural investments stacked up as being profitable on a Waikato Māori-owned case study farm, with a return of about 7%. 

But construction costs range from $1.6 million to $2.6m and are likely to be a stumbling block for some. 

If going cap-in-hand for a loan to the bank isn’t successful, how do farmers raise the capital needed to make changes with environmental benefits? 

This is the challenge behind research currently underway, also with funding from Our Land and Water. 

Carla Muller, principal consultant with Perrin AgConsultants, and Dr Parehau Richards, senior consultant with accounting and management consultants Glen Hawkins and Associates (GHA), have been running workshops with various groups to find how they are raising finances – mostly away from the usual lending institutions. 

The hope is the results will help point farmers, and others on the land, in the right direction to raise alternative finances for change, while also giving planners with regional councils and central government a better understanding of how the ability to raise finances may help or hinder the implementation of regulations. 

“If the farm change is as profitable or more profitable, the banks are likely to give you funding,” Muller says.
“But that may be harder for landowners who can’t access traditional finance, particularly for Māori land with owners who typically can’t access bank funding.” 

When it comes to partial land use change into the likes of horticulture or forestry, there may also be a period of several years with no income until trees mature or start bearing commercial quantities of fruit. Should the new venture also bring in less revenue than the previous land use, this will also make it harder for financial institutions to get enthusiastic about lending. 

And if farmers are planning on retiring land completely and turning it back into the conservation estate, that’s a tough ask. 

The project has uncovered some interesting financing models, which the team is now evaluating. These include crowd-funding groups such as Project Crimson, which give small grants to landowners as well as larger projects.
Forming collectives and pooling capital for projects is another option. 

Then there’s blended finance with government and industry partnerships, or government and impact investment partnerships. 

But looking outside of banks for funding can also have its pitfalls.
“One of the barriers to accessing non-bank finance is you lose control of your land when you bring in an equity partner, as they will want a bit of control – a bit of say –  as well,” says Muller. “We need to look at a safe way to do that for farmers, as well as investors, which might open up that space a bit more.” 

The novel financing project, which got underway last October, wraps up mid-year with results, including financing from a whenua Māori landowner perspective, being released toward the end of the year. 

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