With mounting pressures on farmers in the form of regulatory changes, succession planning, and environmental factors, it’s never been more important to help them get their finances in order.
Those who have an insight into what’s about to happen with the agri sector know that we’re now past the ‘tipping point’, in regards to preparing our farming clients for the change that is about to hit with some force.
Until now, it may have been possible to ignore these impending changes. However we’re entering a critical phase in the agriculture industry where it’s vital that farmers have a longer term view of sustainability—not only of the environment, but of the mind and of their finances.
In New Zealand, there is an estimated 35,000 farms, making up the backbone of our economy. And it’s not just about the effect that this has on our farmers directly, but on the 80,000 small businesses in New Zealand’s agri sector that are connected to farming businesses.
During the Xero Roadshows in New Plymouth and Palmerston North, Xero and Figured held two agribusiness breakfast events. The events hosted a panel of bankers from ASB, ANZ and BNZ to talk about the mounting pressures on farmers, and how bankers and accountants could work together to help drive change in the industry and make sure farmers are ‘bank ready’.
What is bank-ready?
Where the farmer would previously go to their banker to have a budget created and to get a loan, it’s now important that they take control of their own budgets with the help of their accountants. Bankers are moving away from creating budgets and signalling a need for independence so as to distance the banks from the risk and liability associated. The banker can’t just pull a forecast or cash flow report for their clients anymore—it’s just too risky.
The problem we are faced with is that farmers don’t see the efficacy of doing this, as accountants can be seen as a cost to the business. We want to implement a change where everyone in the farming team—the farmer, banker, accountant and farm consultant—works together towards a common goal of getting a sense of what is available to the farmer.
Farming is a lonely business, and farmers need to be a jack of all trades in some sense; experts in health and safety, understand the challenges of weather, and be able to adapt to changes in pricing. “Alongside the financial and environmental pressures, the rural urban divide isn’t getting any smaller, which is affecting many farmers’ mental health” says Lachie Cotton, ASB. By creating a proactive financial governance structure through working together, we can help the farmer have a long term outlook on the business, and take one thing off their plate.
What are we seeing in the market?
“We’re seeing a lot in the media on the environmental and sustainability piece which is dragging on the client’s mind. The banking side has changed in the last few years from what it used to be. It’s a changing world and it’s messy,” says Marcus McLeod, BNZ. “When grandad says ‘hang in there, she’ll be right’ - it won’t be right. Things have changed.”
“Over the past 12 years capital gains were great, but now it’s gone, and with it the business model that farmers were relying on. We’ve now got to go back to traditional commercial and profitable farming, and work with them to focus on this. The education piece is the biggest challenge. It’s their business not ours—we’ve got to get them engaged.” Marcus believes the big challenge is bringing the next generation through and getting them financially literate.
There has been a lot of volatility in the industry, so it’s important that farmers are able to predict and prepare for situations to come in order to be in control of their financial situation. There is an increase in relationship banking and keeping clients happy by actively educating them to take control of their finances, so bankers need to start having those conversations with their clients.
“Clients now need to have their finger on the pulse—being able to see things coming and having the ability to adapt. Farmers need to be proactive and involve specialists and consultants earlier on, rather than phoning us up on the day something has gone over the limit. But we need to help them get there,” says Lachie Cotton, ASB.
The role of the banker and the accountant
Chris Barron, ANZ, believes that resilience that has been built over the years through capital gains has meant that farmers could withstand the volatility in the market, but with the impending pressures, farmers need to take control of their finances. ““The environmental and sustainability piece worries me. We need to work together as a team with accountants, to facilitate this and create a big robust framework for farmers to create their budgets from. They need to take ownership of it, but we need to be a part of it too” says Chris.
“Our roles are about understanding their business and helping them strengthen their position, reduce their debt, and take advantage of strong interest rates. On top of cash flow and compliance, we look at behavioural scoring and our relationship with them. The relationship piece means we aren’t just viewing one aspect of business to risk grade on—we get a view of their whole operation,” says Lachie Cotton, ASB.
This can all be achieved by providing farmers with the right technology and tools to be connected to their accountants and bankers and leverage the whole team. We see that adoption of technology is improving, and customers are becoming much more self-serving. “The technology piece in younger generations enables them to do budgets faster and quicker, with us and accountants having real-time visibility over the data. For the older generation it’s harder to explain why you should try using the tools,” says Lachie.
The elephant in the room
The age old question on farmer’s minds still stands: ‘If the bank can do my budget for free and on the spot, why should I pay my accountant to do it?’
We need to show clients the long term financial benefits of being on top of their budgets, working with the accountants and taking ownership over their numbers. The conversation isn’t just about a one-off budget—it’s about the effects that this governance structure will have on the financial success of their business.
Bankers need to start these conversations with their clients, so they can drive clients towards engaging with their accountants. This opens up the opportunity for the banker and accountant to work together in supporting their clients, and supporting each other. It’s a win-win for all involved.
As Chris Barron, ANZ, remarked: “It hasn’t been perfect but there’s an opportunity there. We don’t want that tension, we can’t do those budgets anymore, we need your input; so let’s work together”.
If you’re an accountant or banker wanting to get involved with helping us solve this problem, reach out to find out how we can help you and your clients, get started. We'll be hitting up the Xero Roadshows in Timaru, Invercargill and Dunedin soon, check out the dates and locations here.