Monday, April 19, 2010

When Will They Learn?

The KPMGs of this world seem to be in a little world of their own where 'corporate' is good.

This latest gloom mongering bullshit from the upper echelons of Auckland's highest agricultural sky scrapers fails to take into account the plain old common sense which was passed onto Adolf by a grizzled old Farm Management lecturer in 1969. His words still ring in my ears.

"Corporate farms are the current fad. They are being set up all over the world but they will never out perform the ordinary New Zealand family farm. The one unassailable competitive advantage the family farm possesses in attitude. It takes a personal stake in the business to motivate a farmer to get out of bed at 0200 and go to check that his cows are not dying of bloat."

In the forty years since that time, Adolf has seen and dealt with many corporate farms in Australia and New Zealand. They all started off with a hiss and a roar and they ALL failed for the same reason. The people actually doing the work had the attitude of employees, not owners. Oh, the fact that poor management decisions were taken by directors who had their fingers in all sorts of other pies contributed too.

Witness the most dramatic recent case, the Crayfar debacle.

KPMG cite Eastern Europe and Uruguay as examples for corporate excellence.

Well, it's not that long ago that the whole of Eastern Europe was a collective called the Soviet Union, the largest scale corporate farm ever. And if you want to see commentary on Uruguay, just ask HomePaddock why she and her husband sold their shares.


Anonymous said...

....but they will never out perform the ordinary New Zealand family farm.The one unassailable competitive advantage the family farm possesses in attitude. It takes a personal stake in the business to motivate a farmer to get out of bed at 0200 and go to check that his cows are not dying of bloat."

As generalisations go, this one is only true if it is comparing corporates with the very best farming practices. The quotation should be modified to recognise that farmers with "a personal interest in animal welfare" are the ones who get out of bed at 0200 am to check on cows, particularly during calving.
Bear in mind that the Crafers are a family farming business in the first instance. They had a personal financial interest in their empire.

Take capital gain out of the equation and farmimg is a relatively poor career choice.

Most on-farm decisions are governed by which the farmer has more of, time or money. The dairy farmer seldom has either, let alone both. Most expensive, in both time and money terms, is in coping with the results of spending neither at the time when it could have made a difference.

If animal welfare occupies the highest importance in the farming enterprise, all of the other benefits will follow. There is no reason that a corporate could not succeed where that is given prime status.


Anonymous said...


My father was a dairy worker but decided to quit because of the early mornings. That's the problem with being a worker not a owners.

But the Chinese may be able to get around this by importing workers whom may work for, by NZ standards, a very low wage but when it is repatriated back to China represents a small fortune that they'd be unable to earn there and could provide for their families education that they couldn't have to access.

Incentives work in different ways.

gravedodger said...

While there is some truth in your sentiment Adolph I think there is a place for larger corporate type enterprise to succeed. I have known a good number of managers and workers who have a greater respect for the enterprise and achieve far better results than some owner operators. For corporate farming to be successful, mutual respect and trust, a vocation, supervision at all levels and very good management have to be present and suitably rewarded. The last mentioned is often the point of breakdown.
One of the greatest challenges for a corporate set up is a dearth of suitably trained operators at all levels to tick all the boxes. As I see it Crafar just lost control and although he could expand the farm base with continued purchase, staff became his achilles heel and then the downturn took its inevitable toll

Adolf Fiinkensein said...

Hello graved. I had some dealings (very minor) with Mr Crafar and considerable dealings with a number of his people. In my view there was an over simplistic and naive belief that bigger was better 'no matter what' and more to the point, there was absolutely no concept of looking after animals well. He was not, in my opinion, a farmer in the true sense but rather a number cruncher in the worst sense.

Having said that, today I find myself dealing with many young men and women who individually own dairy operations involving up to 2,000 or so cows and these people are running excellent enterprises. However they are still family farms in the true sense, with Mum and Dad having their fingers on the pulse of the daily operation and themselves very much hands on.

jamnliz said...

I think the corporate model would work ok if sharemilkers are employed and a farm consultant or operations manager oversees the sharemilkers.

If you dont have proper oversight under any model then there is opportunity for rorts to occur.

Even owner operators (who have inherited a debt free farm) can get lazy and allow the farm to run down.

On a whole though I would say that most dairy farms tend to work reasonably well. To me Crafar tried to get too big too soon and tried to play God and be everywhere at once. It didn't work.


gravedodger said...

Thanx AF, I accept you obviously know a hell of a lot more than the stoopid repeaters can uncover re Crafar. One thing someone in the MSM could be usefully employed doing some tracking of the careers of the obviously totally inept/incompetent lenders agents who approved the loans that allowed the train wreck to go so far down the track. Their names will be on the loan Documents
Whenever I borrowed from any bank re farming operations Our applications were given a once over including regular farm inspections and budget sessions that were really OTT at the time and we were only borrowing peanuts. Where are the financial wizzards that gave Crafar's trainwreck fuel

Adolf Fiinkensein said...

Jimmie, you have hit the nail on the head. Share milkers ARE family farmers i the real sense.

Anonymous said...

Farm properties cannot be developed using sharemilkers as most of the benefits acrue to the sharemilker, and most of the costs to the developer.
To weather downturns, the owner needs all of the farm income, not half, to meet mortgage obligations to banks. There needs to be flexibility of farming policy as well, and with a 3 year contract in place with a sharemilker, that mostly is not possible.
Family operations tend not to have the owner (parents) regarded as the enemy in the flash house on the hill.


Adolf Fiinkensein said...

kurt, I fear you are talking through a hole in your arse.

"Farm properties cannot be developed using sharemilkers as most of the benefits acrue to the sharemilker, and most of the costs to the developer."

Your mythical 'developer is vastly over indebted if he needs all the revenue to service his debt. (Further, I remind you that ALL the capital gain on the property accrues to the developer.) Where the hell do you think he is going to find the money for the cows and labour which, at the end of the day, produce his revenue?

Anonymous said...

Government Takes Over Milk Production

It has been announced in Canberra that the Government is to take over the production of milk. Mr Rudd is reported to have stated:

Like Education and Health, we have decided to take over the production of milk. There are several reasons for this brave but essential move.

I have been advised by the Minister for water Penny Wong that farmers are wasting too much water growing cow feed. What our innovative Minister for Milk, Mr. Peter Garrett has decided to do is make the Dairy Industry mobile. The cows will be moved to where the grass and water is.

Also the CSIRO is co-operating by developing a new breed of cow which will be crossed with the African wildebeest. The largest mammal migration in the world is that of the Serengeti wildebeest.

The Governments dairy cows will then have the migratory habits in their genes, thus producing great benefits to the nation.

There is lots of feed and water at Lake Eyre at the moment - that will be a good place to move our migratory herds to. Thought and innovation - that is all it takes, I am a pragmatic hands on operator. I know how to get things done.

2 years Later:

Registered Cow Milker: (To his Foreman): Where’s the cows ?

Foreman: Hasn’t the cowboy gone to round them up?

RCM. No, it’s his day off.

Foreman: Well then, I’ll have to ask the Superintendent, but he does not start until 9 am.

At 9.15 am after listening to the Foreman’s complaint about no cowboy available:

Superintendent: Look Foreman, all this takes is a bit of organisation. We’ll have to prepare a new roster that makes provision for the cowboy’s day off.

But we cannot do it now, as the Rostering Division is in Canberra doing a course on the new rostering software. Can’t one of the Cow milkers be delegated to round up the cows?

Foreman: Not really - remember the trouble we had with the Cowboy’s Union when some fool did that about 6 months ago. We had to settle the strike with a penalty payment to the cowboys, as their professional dignity had been affronted.

Not only that the Cow Milkers Union lodged an objection to this extra duty with the Milk Court of Appeal. It’s still in court, as they try to settle the issue.

It looks as though it may end up in the State Milk or even the Federal Milk court with a split decision being decided by the Minister to settle the matter.

Superintendent: Well then, for now, let the calves out, they can have the milk, until we get an official cowboy.

Thank God that job’s done; let’s go and have some rum and milk with our coffee.

At Coffee Time: Foreman: What about Woolworths and Coles, they will belly ache about not receiving their milk delivery ?

Superintendent: I’ll refer their complaints to the Commissioner of Complaints. He mentioned last week that on a regular basis, they are importing a few thousand tonnes of tinned and condensed milk from Switzerland to tide us over in these emergencies.

If the volcanoes in Iceland settle down we should have most of the first lot by the end of next month.

Foreman: All’s well that ends well.

(C) Ronald Kitching.

jamnliz said...

Farm properties cannot be developed using sharemilkers as most of the benefits acrue to the sharemilker, and most of the costs to the developer.

I beg to differ......under sharemilking agreements sharemilkers are to devote part of their time to developing the farm. Obviously the owner should provide the materials etc. but it can happen. Plus also capital improvements and production improvements both contribute to the capital value of the farm....both of which benefit the farm owner.
If the farm owner wants a greater share of the income they just need to employ Lower Order Sharemilkers - that way they don't worry about labour or basic machinery but receive 75-80% of the income.

Pretty simple really.


Anonymous said...

Adolf, the farm developer needs to pay all the normal outgoings of the owner's share of the farm operation plus the additional cost of capital fertilizer, drainage, pasture improvement, contouring (beyond the maintenance requirements of the sharemilking half of the agreement).

The cost of borrowing all the value of cows,farm machinery, and labour still leaves the profit margin due in the "sharemilker's half share" after normal costs, which the owner can put towards a more securely based development plan.

The owner is responsible for half the cost of replacement grazing (and no revenue there).

The owner is legally bound not to direct the sharemilker, or his staff, when to fence, for example. The sharemilker will want to use his staff for these tasks, which will inevitably be slower, at a time of his chosing, and to a lesser level of competence than by contractors that the owner might necessarily otherwise employ.

The owner has better control of the whole operation if he has all of the cash flow generated by the farm.

Of course the capital gain in the property will accrue to the owner eventually, but not while the development is being done, when cash flow is the lifeblood of the whole operation.

Did you really misunderstand what was meant in my earlier comment?


Adolf Fiinkensein said...

Kurt, I didn't misunderestimate a thing you said.

Jimmie has got it right. If your farmer/developer cannot develop and prosper with 50% of the milk calf and cull revenue on today's payout then he is imprudent and, in fact, reckless. When the pay out drops to $4.50 then he is insolvent and will be sold up.

As he should be. He is nothing more than a rural land speculator of there there are more than a few around at the moment. Fortunately, a rigid adherence to capital gains regulations by IRD will see them killed off pretty quick.

Sally said...

No mention from the gloom mongerers that the situation farmers and small to medium sized businesses face is primarily due to Central government and Local Government sucking the life blood out them.

The productive sector is held to ransom funding their rorts.

homepaddock said...

People are the key regardless of the size of the enterprise, but those with a personal investment will usually care more and work better than those who are just doing a job.