Family farms not down for the count

There are 134,000 farm businesses in Australia, 99 per cent of which are family owned

EVER seen those mobile dog-washing units?

They are some people’s idea of heaven. Satisfied wealthy owners crooning as their Fido gets scrubbed, lathered in shampoo, and vigorously shakes muddy suds all over you. The Fido gets a blow-dry that would outdo your local salon.

There are plenty of dog-lovers in the world, but you can’t employ people to wash dogs. That’s why the mobile dog-wash inventor franchised the idea instead. Now you have the missing part to the formula:

Dog Lover + Freedom (of self-employment) + Ownership + Cashflow = Motivation to wash dirty dogs.

Which brings me to chicken farms.

“There is an aspect to farming that requires dogged irrationality”

You can’t employ people to pick up dead chickens every morning, or shovel 100 tonnes of chicken manure out of a broiler shed when a new batch of chicks comes along.

But you can franchise it, which is what the pioneers of the industry like Inghams and Baiada here in Australia did.

They gave existing farmers who were struggling with cash flow a formula, while still retaining their farms and freedom. It was the freedom to work for themselves, freedom to be outdoors, freedom to kick their boots off wherever they landed at the end of the day. All they needed was to build a shed up the back paddock and wear a peg on their noses.

It was formulaic, even down to the prepared chicken pellets that arrived laden with their own profit before the chicken farmer even started. But the success of the bigger formula ran like this:

Country Lifestyle + Ownership + Cashflow = Motivation to pick up dead chickens.

I am building a case.

The human psyche, we are told, is not rational. This is good, as no one would wash dogs or pick up dead chickens otherwise, but we tell ourselves stories to make us feel better. That’s how we survive ie. "If I spend X time killing myself doing this, then I will get Y time to spend as I like and be happy".

That’s where the family farm will have an edge over the current crop of corporates and industry funds with their narrow, industry performance formulas.

There is an aspect to farming that requires dogged irrationality.

Who would hang by a toehold year after year of droughts, floods and locusts, waiting on the bumper crop that will pay you to go through the same torture again for the next seven years?

Answer? The family farmer.

David Boyd, now retired as managing director of Clyde Agriculture from the Scottish-based Swire Group, recently wrote a paper reflecting on investment in Australian agriculture and noted:

“To the nation’s considerable advantage farming and grazing production of Australia’s major bulk commodities is dominated by family farmers.

"These family farmers bid the price of land to levels where returns on funds invested are very low. In these circumstances it is extremely difficult for conventionally funded, publicly listed companies to compete.”

The United Nations has declared 2014 the International year of Family Farming. There are good reasons. There are social implications worldwide where small family farmers disenfranchised from arable lands act as a great barrier to the climb out of poverty.

Further the move into lower rainfall, marginal areas by those so dispossessed is proving an environmental nightmare.

Reasons are different in the Western scene where one of the key advantages of the family farm is the private internal wealth system that happens. This allows wealth transfers, inter-member family loans and inter-generational transfers of assets. That works well, as does keeping a low profile at the country’s tax offices, it would seem.

But there is a practicality to this family farming business that makes it a stand-out.

Family farmers are hands-on. They live and breathe their land, sometimes for generations. They are serious experts in their own patch and isn’t that a key to a healthy business?

Bigger isn’t always better either.

I wonder lately, at some overseas, superannuation-backed funds that come out and buy an Australian aggregation that has already seen the profit taken by those who accumulated it from ground level.

Yes, it’s an easy buy because the scale is there. But where will the added value be for the investors back home?

The old Stanbroke Pastoral Company, vehicle for AMP’s rural investments in the 1960s and 70s, demonstrated what worked for the big funds before it became fashionable.

It involved old school hard work and vision, like buying well-located lands that needed improving, growing two blades of grass where only one grew before, picking up the farm next door if the price was right, investing in infrastructure upgrades, and accumulating an improving asset.

According to the Australian National Farmers Federation there are 134,000 farm businesses in Australia, 99 per cent of which are family owned. The level at which these farms trade relative to returns is remarkable.

Word is that neighbour-to-neighbour sales are picking up again, after a period of quietness post-GFC. The family farm is not dead yet. The resilience continues to impress. Try bidding at a farm auction against them if you don’t believe me.

Maybe for the western model, a time is coming when the big funds may ‘franchise’ their investments out to the family farmer next door, giving them that sense of ownership and creating synergies that will drive the staying power needed to be successful. That would need some special conductorship to pull off though.

Daniel Pogson is an agricultural writer and commentator. He is senior analyst & fund manager with agricultural consulting group Gresford Lands. Follow on Twitter @dan_pogson

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