NAB SPONSORED CONTENT: Responding to the seismic shift in Agriculture

With bigger farms and more sophisticated owners to contend with, service providers need to prepare for a new and challenging landscape.

NAB Business View

The Agricultural Census data for 2006 to 2011, released by the Australian Bureau of Statistics in late 2011 – the most recently available release – confirmed what many sector participants were already aware of: the structure of Australian farming has shifted seismically over recent years.

The data reveals that the long-term trend of smaller farmers leaving the land has continued, with a decline of 54 per cent in the sub $500,000 income bracket. Conversely, the corporate bracket has stepped up – farms with incomes greater than $2 million have grown by 44 per cent.

This polarisation and concentration is part of the normal cycle of rural adjustment as farms grow to manage declining terms of trade. But it’s also a consequence of circumstances specific to rural Australia in the pre- and early GFC period. “Many farmers retired or sold up when farm values hit peak process in 2007,” comments Neil Clark, Principal of Neil Clark Business Intelligence.

Clark says many of the farms over $2 million in size are family businesses that have grown through both traditional means – such as buying and leasing additional land, and more innovative techniques.

“We’ve seen farmers increase their scale without requiring additional labour. Typically grain growers have used mechanisation and minimum tillage to achieve this. They’re adopting other technologies including GPS, autosteer and wireless to manage bigger areas,” notes Clarke. “What we’re actually seeing is the evolution of the family farm.”

Dealing with the new breed of farmer

This evolution has changed the farmer as much as the farm. “The farm managers are younger, even better educated and technology savvy,” explains Clark. “They’re also using the internet to research prices and farm inputs, and they’re well aware of global prices.”

Dealing with a new type of farmer poses some challenges for service providers – from fertiliser through to financial services companies. According to the Census data, the 2,601 farmers in the corporate bracket represent 39 per cent of total agricultural income, which suggests they represent a similar percentage of farm inputs. “That means if service providers want to maintain and increase market share, they need to pay close attention to managing relationships with these farmers,” says Clark.

That starts with being aware of just how much has changed in both the paddock and the back office. “Farmers are adopting new agricultural technology, so service providers need to be up to date in their understanding of this technology,” Clark emphasises.

Flexibility and accommodation

Service providers also need to be flexible enough to respond to changes in the Value of Agricultural Commodities Produced (VACP). Notes Clark: “There’s a very close relationship between VACP and expenditure on farm inputs. Growth in VACP between 2006 and 2011 reflects the need to change product offerings and measure market share.”

It’s also critical to understand the next significant change for this constituency will be in the office. “There are fewer gains to be had out of the paddock now – the real gains will all happen through things like more sophistication in managing benchmarks, efficient cost management and better marketing,” comments Clark.

This is already happening. And with more farmers employing private agricultural consultants to help use the supply chain to get the best possible prices, service providers need to be prepared for a new approach to buying. “Buying habits are changing, and service providers need to understand how farmers want to buy as much as what they want to buy,” says Clark. “They also need to know that many farmers are quite prepared and able to use technology to research and help drive down their costs.”

Neil’s top four questions for service providers

– Do you have the appropriate number of relationship managers?

– Are your relationship managers focused to the right elements of the relationship?

– Are they in appropriate locations?

– Does their knowledge match or surpass that of your customers?

This article was first published in NAB Business View.

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