One of the best years in the past 20 - survey

Janette Matheson

11-08-2010 | Lynda Gray

The best and worst of farming fortunes in Otago and Southland are highlighted in an income and expenditure farm survey.

The survey, by Alexandra chartered accountants Ibbotson Cooney, compares 2009 and 2008 income and expenditure and key financial ratios for Merino high country, hill country (excluding Merino), Otago flat, and Southland/West Otago properties.

Across-the-board averages for these four farm classes show that income rose by almost 40% from $58.87/su to $81.97, and farm surplus (before debt servicing) more than doubled from $14.46/su to $31.20/su.

Counteracting these gains was an increase in working expenses from $44.41 to $50.88/su.

The 2009 financial year was one of the best farming years in the past 20, Ibbotson Cooney director Janette Matheson says.

"From a financial perspective it was great and driven mainly by livestock returns, whereas 2008 was one of the worst."

She said the increase in farm working expenses to more than $50/su - the highest yet - was a concern, as was the average taxable income of only $60,000.

"That's not enough to provide for personal requirements and to grow the farm business into the future."

An element of "catch-up" was probably reflected in 2009 expenses, she said. Farmers used the increased income on discretionary expenditure - postponed maintenance items.

The "business result" for the four farm classes is the important bottom-line key performance indicator.

"Ideally it needs to break even or be positive because it shows that going forward you can service debt, meet living expenses and cover capital expenditure," Matheson says.

In the latest survey, Otago hill farmers had the best business result of $3.52su and high country Merino farmers the poorest, making a loss of $4.15/su.

The top 20% of farmers were well-placed for growth, making a business result of $20.78/su, a 6.5% return on assets, and taxable income of $237,000 in 2009.

Typically the top-performing farmers earn more but spend less a stock unit than the average, Matheson says.

"Their debt loading is higher per stock unit, but less as a percentage of gross farm income, and they achieve a farm surplus nearly twice that compared to average performers."

She expects a gloomier financial picture for 2010 due to the effects of drought which will be reflected in next season's cashflows as extra livestock are retained, supplement feed replenished and run-out pastures replaced.

"Putting together budgets for next season will be important because it will give farmers something to plan with and hopefully minimise any forecast losses."

She said the upside of Otago and South Canterbury being declared "adverse event areas" is that farmers may be able to minimise their tax liability. They could transfer taxable income between years by using the Income Equalisation Scheme without the requirement for the deposit to be held for 12 months.

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