A Farming budget - work of fiction
October 23rd 2006 04:27
Anyone who owns a small business will know that, to a large degree, budgets are a work of fiction. If they have any dealings with banks or loan institutes they are supposed to produce these with a conviction of a saint and the paperwork to “prove” it. But deep down they know it is all a farce or at least a fantasy. My knowledge of this process is connected with farming, but I am sure others have similar experiences in their businesses. We have a theory – add 10% of last year’s budget to the costs and take off 10% of the income. Even that is still guess work.
So why is this budget such a work of fiction?
Well firstly, all farmers depend on the weather. The success of the crops and pastures depend on the adequate rainfall falling at the right times, sunshine, no frosts and no plagues. In other words – Nature. Most farmers have a love/hate relationship with nature. It can be a kind, caring and helpful entity when it wants to be but can suddenly turn on a bloke and be extremely fickle. The old saying “You can’t live with her, you can’t live without her” applies here. A bad frost could more than halve your crop profits. Flood and fire are minor but devastating possibilities for which only limited insurance can be claimed. And we all know what drought can do – except that it is a long drawn out process for which most farmers have strategies to cope, but for which there is no monetary insurance possible (imagine the bill this year if there was!).
If nature were the only variable, farmers could cope, they have for years. But then it gets interesting and political in a broad sense. Export prices are affected by the Australian Dollar. When the dollar is up, as it has been for the last few years with a booming economy, exporters are more resistant to buying. This is why most farmers opt for large groups to act for them – such as a single desk in wheat sales, for one strong voice can usually get a better deal than ten small voices. (No all farmers would agree with this – especially at the moment.) Cost of grain depends on the markets which may be affected by the weather in other parts of the world, price subsidies in places like USA, whether our expot countries are at war or in the midst of political or economic unrest and other matters. Farmers are often very politically aware and watch the news constantly.
Wool prices also depend on the policies of the buyers and even the current fashions sometimes affects the selling price of wool. Things like a mild winter in China can affect the price of wool in Australia. Each year the farmer gives research and marketing groups 1-2% of the price of the wool clip in a hope that they will keep seeking markets.
Australian farmers have a myriad of rules and criteria to work to, to ensure their product is clean, green, meet religious needs and are exactly what is required. It is never “bung it on a boat and forget about it”. And, of course these all cost money – both to meet the criteria and severe penalties or loss of sales if you don’t. This also applies increasingly to local markets - especially as the big companies such as Coles and Woolworths dictate the size, quality and price - like it or lump it.
Interest rates affect a large majority of farmers. Most farmers have had to expand to remain viable and have therefore borrowed. While in a normal year most have budgeted to be able to at least pay the interest rates, whatever happens in that year it has to be paid - and if they go up they affect farmers in the same way as people with a mortage.
The price of fuel affects everyone in business but it can certainly affects the costs of sowing and harvesting crops, producing feed and fodder for animals and all transport costs – in fact everything that the farmer and his family do. And just when you think you are going well, there are some major machinery repairs or some piece of equipment needs urgent replacement. And that can blow any budget sky high.
There is also a myriad of middle men that need to be paid. If you employ workers or contractors they need a fair pay, of course. Then there are the stock agents and wool brokers who have their percentage of the profits and transport guys taking the sheep and wool to market, various consultants, mechanics, accountants etc, etc, etc. Don’t ever imagine that what you pay for a kilo of chops in the shop is what the farmer gets!
My father-in-law told my husband on receiving a wool cheque in the mail many years ago - “You should have gone to the races – at least you would know how much you lost in a single day.” He also said “Why gamble when you can farm!” In spite of all this, my husband has farmed for nearly forty years and we have managed to educate two kids (who know better than to farm). Which either proves that he is mad or that "money isn't everything. But it helps!"
* Due to the interest shown in my last post regarding the Australian drought and how that has affected our enterprise, I have endulge myself to inform you a little more of the decisions farmer's have to make, and what makes the farming business so challenging. Again, I am aware that all businesses face their own challenges - but can only write from my experience.
So why is this budget such a work of fiction?
If nature were the only variable, farmers could cope, they have for years. But then it gets interesting and political in a broad sense. Export prices are affected by the Australian Dollar. When the dollar is up, as it has been for the last few years with a booming economy, exporters are more resistant to buying. This is why most farmers opt for large groups to act for them – such as a single desk in wheat sales, for one strong voice can usually get a better deal than ten small voices. (No all farmers would agree with this – especially at the moment.) Cost of grain depends on the markets which may be affected by the weather in other parts of the world, price subsidies in places like USA, whether our expot countries are at war or in the midst of political or economic unrest and other matters. Farmers are often very politically aware and watch the news constantly.
Australian farmers have a myriad of rules and criteria to work to, to ensure their product is clean, green, meet religious needs and are exactly what is required. It is never “bung it on a boat and forget about it”. And, of course these all cost money – both to meet the criteria and severe penalties or loss of sales if you don’t. This also applies increasingly to local markets - especially as the big companies such as Coles and Woolworths dictate the size, quality and price - like it or lump it.
Interest rates affect a large majority of farmers. Most farmers have had to expand to remain viable and have therefore borrowed. While in a normal year most have budgeted to be able to at least pay the interest rates, whatever happens in that year it has to be paid - and if they go up they affect farmers in the same way as people with a mortage.
The price of fuel affects everyone in business but it can certainly affects the costs of sowing and harvesting crops, producing feed and fodder for animals and all transport costs – in fact everything that the farmer and his family do. And just when you think you are going well, there are some major machinery repairs or some piece of equipment needs urgent replacement. And that can blow any budget sky high.
There is also a myriad of middle men that need to be paid. If you employ workers or contractors they need a fair pay, of course. Then there are the stock agents and wool brokers who have their percentage of the profits and transport guys taking the sheep and wool to market, various consultants, mechanics, accountants etc, etc, etc. Don’t ever imagine that what you pay for a kilo of chops in the shop is what the farmer gets!
My father-in-law told my husband on receiving a wool cheque in the mail many years ago - “You should have gone to the races – at least you would know how much you lost in a single day.” He also said “Why gamble when you can farm!” In spite of all this, my husband has farmed for nearly forty years and we have managed to educate two kids (who know better than to farm). Which either proves that he is mad or that "money isn't everything. But it helps!"
* Due to the interest shown in my last post regarding the Australian drought and how that has affected our enterprise, I have endulge myself to inform you a little more of the decisions farmer's have to make, and what makes the farming business so challenging. Again, I am aware that all businesses face their own challenges - but can only write from my experience.
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