Finding the balance between long and short term

Every business has to find an appropriate balance between long and short term planning and farming is no exception. But, given farmers are very capable of planning and implementing their annual farm strategy, the long term offers the greater challenge. Forward planning involves a high degree of risk assessment, because decisions must take into account several critical factors over which the farmer has little or no control.

 

Four obvious areas are government policy, climate effect, changing consumer attitudes and market access. A business can seek advice on all these from industry bodies, consultants, accountants, economists and lawyers, but in the end the buck stops with the farmer who must assess every factor which affects farm policy and performance without any certainty about the decisions being more right than wrong. The most important decision is whether the present farming activity will still be appropriate for the medium or long term and, if not, how to change it. A second critical factor is succession planning or sale which has the potential to be more problematic, depending on the government’s adoption of the Tax Working Group’s recommendations on a capital gains tax.

 

Government policies have enormous potential to assist or disrupt farming through environmental regulation, as well as tax, employment and consumer legislation, while everybody is well aware of the important role of government in trade negotiation. After more than 20 years of relatively benign and stable government influence from both Labour and National, reflected particularly in improved market access, peaceful employment relations and the exclusion of agriculture from the emissions trading scheme, the current coalition government of Labour, NZ First and the Greens appears to be flexing its muscles.

 

The world has changed in the last 20 years and it is arguable the previous National government didn’t do enough to address some of the key issues, such as climate change, effects of immigration, consumer militancy and the labour relations pendulum swinging too far towards employers. The new government has come to power with a large agenda reflecting the policy wishes of the three partners, but without any clearly thought out plan for bringing them to reality. Hence the number of working parties tasked with coming up with options for the government to consider. The big problem with this is the difficulty of gaining consensus which means it is quite possible, even probable, the government has no hope of achieving many of its objectives by the end of its first term.

 

None of the Tax Working Group recommendations will be implemented this side of the 2020 election, but the government has committed itself to signalling in April which of them will form part of its policy for a second term. A cynic might suggest the more recommendations adopted as policy, the less chance the Coalition will get to implement them.

 

The capital gains tax affecting virtually every asset except for the family home and the immediate area round the home on the family farm has caused the greatest reaction, mostly negative. Those in favour of a CGT point to the existence of such a tax in most other similar jurisdictions, but they fail to mention the proposed level of 33% which is twice as high as several other countries. It would be a surprise if the government were to adopt many of the recommendations, other than applying the CGT to second properties, currently subject to a brightline test.

 

However, for farmers, these proposals are another complication affecting their long term planning, so hopefully the uncertainty will be short-lived. Then they can get on with their main job of running their farm business.

 

Long term farming faces a great deal of ambiguity – growing consumer ambivalence about traditional meat and dairy, the increase in plant or cell based proteins, pressure on agricultural land from urban development and government policy to plant a billion trees and restrict irrigation projects, public attitudes towards agriculture and its effect on the environment, and nervousness about global trading agreements.

 

These uncertainties will take time to play out, but the signals are clear enough. There will be plenty of demand for traditional products for the foreseeable future, but it will be increasingly for quality not quantity; traceability of product back to the farm of origin will be mandatory; compliance with rigorous farm assurance and environmental standards will be essential; competition for productive land will increase with an inevitable impact on land value; and trade will continue, not always with the same markets as before.

 

Applying this sort of scenario, farmers can develop a future farming strategy which can be tested regularly against evolving circumstances. This would then enable the annual business plan to be implemented without having to double guess whether or not the chosen type of farming is the right one. The most critical factor is to have confidence in the long term direction of the business, tested against known facts and credible forecasts.

 

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One Response to “Finding the balance between long and short term”

  1. Rural round-up | Homepaddock Says:

    […] Finding the balance between long and short term – Allan Barber: […]

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