Veteran Merino farmer Claude Cloete shares some advice on how to navigate major changes in a farming operation with financial prudence, safeguarding the family farm from potential risks.
The Nature of Livestock Farming
Farming with livestock is a slow process that involves investing large amounts of capital. At the same time, most livestock farmers struggle with cash flow. We are capital rich but cash poor!
The benefits of buying an expensive bull or ram will only be seen in three or four years’ time, when its daughters start reproducing, whereas a grain farmer will know within six months whether he made the correct decisions.
The Patience Game
Any farmer only has a career of about 40 years. Changes to farming methods can take up to 10 years to bear fruit. If you are continually changing your methods, you may never actually enjoy the benefits of such “improvements”. If it is not broken, there is no need to fix it.
When you make changes to your farming operation it is important to keep in mind that you have a period of two or three years of taking a few steps backwards before the benefits from the changes kick in and you move forwards again.
What very often happens is that the farmer makes the next change before the benefits from the earlier change kick in because he does not have the patience to wait to see the benefits. He ends up continually making changes, and before long his 40 years are up.
I’m not talking about altering your mating season or tractor brand. These are mere adjustments as opposed to major changes like deciding to farm with a different breed or changing your veld management system.
Also read: Building a multi-breed cattle empire from seven heifers
Financial Discipline is Key
When you decide to make a major change, it is important that you are financially strong enough to see things through for the two or three years before the benefits kick in. This is where financial discipline is important.
Any changes made must be based on financial facts.
If the only thing growing on your farm is your overdraft, then changes must be made. If you want to make changes so that you can afford a nicer car or bakkie, you are in the wrong game. Those fancy things only become available with patience, not by continually changing a winning recipe.
Recognising Problems and Making Decisions
It is important to recognise if there are problems within the business. If changes need to be made, then the sooner the better. Very often a farmer will not make the necessary changes because he is afraid of making a mistake. I have known farmers who never made a mistake, and none of them are still farming. Once again, the business must be strong enough to manage the financial consequences of mistakes. It’s called school fees.
Never make decisions under pressure; these are always bad decisions because they are influenced by panic. The next drought is on the way, so start preparing for it now. In the middle of the drought, you’ll end up making “panic decisions”.
Also read: Legacy, resilience and walking the journey of transformation with farmers
Short-term Benefits, Long-term Consequences
When making certain changes the benefits may be almost immediate in the short term, but there will always be a long-term consequence. A good example is when you start feeding your cows to improve the conception rate. In the short term, conception will definitely improve, but in the long term you end up with cows that have to be fed in order to conceive. Does that make financial sense? No, it does not! Five years down the line, the current level of “extra feed” will not be enough to give good conception. You are now on the treadmill to nowhere.
Play the Cards You’re Dealt
The most important thing a young farmer must do is play the cards he was dealt. If your neighbour has “better cows and heavier weaners” than you do, he was dealt a different hand.
Farming is a 40-year game. It requires great patience and discipline to still be on the farm in 40 years’ time, even more so if you want to leave the next generation more than just a debt hole.
Every farm is different; every person has different needs and circumstances. Did the farmer inherit debt, or did he inherit a trust fund?
Everyone has an opinion on the state of your livestock or the condition of your veld. But when you discuss “tax problems” it is seen as bragging. Ultimately, farming, or wealth creation, is about income tax and managing these payments.
Also read: Linebreeding and inbreeding: What is the difference?
Avoid the Competition Trap
The biggest danger to any business or farm is when the owner turns it into a competition. We are competing with nature, which is hard enough as it is. Nature has a funny way of kicking you in the teeth, usually when you think you have mastered the game. There is no need to make it even more difficult by bringing your ego into the equation. Leave the competition to those who inherited a trust fund.
Current Reality and Future Rewards
When the margins were bigger in the past, farmers could afford to “play”. But the current financial situation that livestock farmers in particular find themselves in is one of low product prices and high input costs. Only the disciplined and patient will be rewarded.
The farmers who are going to come out of this the best are those who have been patient and stuck to low-cost farming with low-cost animals. “Fancy” livestock costs money, whereas functional animals will always pay their way. Of this I have no doubt; I see it every day!
