Don’t panic! I’m from a generation that associated “Marx” with the word “Groucho”; cigar, crazed rolling eyes, witty one – liners and all! However, the management of capital in many Australian family farming businesses is no laughing matter. By “capital” I am referring particularly to land and machinery assets and certain fixed improvements such as shearing sheds etc.

The current drought is highlighting some trends that are likely to be with us in the longer term, drought or no drought. The problem for an increasing number of farming families is the large amounts of capital that are required to be invested to run a productive, viable and sustainable farming business. Where will we get the money from to replace, upgrade or expand? What will this mean for our debt levels? Can we service this debt? Does the return we get from the business justify the amount we have tied up in land and machinery?

I firmly believe that family farming has a future in Australia but I also feel that Australian agriculture faces a riskier future; the effect of climate variability, globalised markets, biosecurity threats, input costs etc. meaning that the peaks and troughs are likely to be more extreme. For farm businesses to survive and thrive, they will not only have to be sharper in the management of their enterprises and costs of production but also look at managing capital differently.

The sorts of options I have in mind here are joint ownership of machinery and land, or even non – ownership of machinery and land (ie contracting, leasing etc.), equity investment and the like. These concepts are very different from the way that most family farming businesses operate, preferring to own and control it all. However there are examples of successful family farming businesses who work within such arrangements, to the benefit of all parties. It does require a bit of “letting go” of the accepted wisdom, a large degree of trust between the parties concerned and careful planning to sort out exactly such arrangements would work. As with succession planning, good early communication and good professional advice are keys.

These sorts of options will not be appropriate for everybody. However I believe that they are realistic, even necessary for a significant number of farm businesses. The key thing is that people start talking about current capital management, how it can be improved and whether these options are going to help them run a successful business in a riskier future.

AUTHOR:  Paul Erkelenz, Program Leader- Training and Facilitation Services, Rural Solutions SA

CONTACT: Paul Erkelenz, Rural Solutions SA Clare Office, Telephone 8842 6262.