Off the Contour #30 – Sustainable Farm Finance – Book Review

Sustainable Farm Finance: A Practical Guide for Broadacre Graziers

~ by John CH Mitchell, Bruce J Chapman & DB Lindenmeyer, CSIRO Publishing, AU, 2020
I received my copy of this 113 page book in November 2022 after I was on a panel with Professor David Lindenmeyer AO (ANU) in August of that year and found that it was soon to be released. Now that I am in the midst of writing the 9•ECONOMY chapter of our book, I set up our vintage banana chair on the perennial grass meadow out the front and went from cover to cover. That in itself says a lot about this book as most books on finance would have most of us asleep in that lounge before very long! I found this book both realistic and sobering and, although its been primarily directed at Australian graziers, I highly recommend anyone involved in agricultural land management.
As I understand it this book was mostly written by north eastern grazier John Mitchell, drawing on 50 years of managing his own family’s sheep and cattle operation and the time he spent at ANU getting his economics degree in the 1970’s. Mr. Mitchell has evidently kept detailed financial, livestock production and photographic records since 1973 and these, together with the practical management experience gained, and comparatively simple financial planning and monitoring calculations he’s used have been shared in the five chapters of this excellent book—plus the comprehensive checklists in the appendix.
My only criticism of this book is that the topic of leasing was not discussed. Though the book did discuss rising farm real estate values, the deep and enduring structural impact of monopsonic power and their collective impacts on terms of trade, it didn’t consider other forms of land access such as leasing. That said the financial analysis tools that were provided in Chapter 3 – ‘Increasing your farm’s productivity’, and Chapter 4 – ‘Financing farm expansion’ could easily be applied to whether leasing or other forms of land access are feasible.
Chapter 1 – Taking stock and making plans – considers a farm plan as having four key components:
  • 1. Business Plan,
  • 2. Environmental Plan,
  • 3. Adverse Event (s) Plan, and
  • 4. Succession Plan—assuming unplanned incapacitation/death; retirement and sale; or transfer of the farm to a family member (s)
Though this chapter we are supplied with an number of templates and examples upon which to base these various components to a farm plan.
Chapter 2 – Success begins with a budget – points towards the development of a comprehensive farm budget and how to stick to it by understanding (at least) three fundamental financial issues and discussions around fiscal discipline and frugality:
  • the rate of return on your capital
  • the size of your debt and its decelerating or accelerating future impact
  • the benefit of savings and off-farm income, especially investment income with passive cash-flow
The budget examples suggest include those for maintenance activities, development activities, debt reduction, household expenditure and environmental remediation/betterment activities. Again templates are referred to throughout these examples, as are discussions around the concept of ‘debt tunnels’, the power of savings, off-farm and passive income.
Chapter 3 – Increasing your farm’s profitability – this chapter considers the challenge of the term’s of trade and puts the case that though these have declined over the last 50 years, (that in the case of the author) productivity improvements have actually compensated for that decline—while also acknowledging the deep and enduring structural impact of monopsonic power. This chapter also has us understand whether comparitive productivity improvements are actually worthwhile using financial analysis tools such as,
  • Cost benefit analyses
  • The law of diminishing marginal returns
  • Time value of money and net present value
  • Terms of trade calculations
Chapter 4 – Financing farm expansion – questions one of the common responses to arresting declining income by applying a number of financial considerations along with quality of life questions including:
  • Is the property worth buying?
  • If borrowing then what about changing interest rates, commodity prices and adverse advents?
  • Can you afford the loan repayments or what if they change?
  • Are you better off considering diversifying your non and off-farming income (e.g. commercial or housing real estate, shares, farm contracting)?
  • What is the optimum size and way of managing and financing your operation; and your optimum level of motivation?
Chapter 5 – Achieving environmental sustainability – thanks also in part to the longitudinal on-farm research of Professor Lindenmayer (and the ANU ‘Sustainable Farms‘ program), this chapter firmly promotes the production and farm value increases associated with riparian restoration, pasture and woodland management, windbreak and biodiversity plantings, and regenerative/holistic grazing practices. In keeping with the theme of the preceding chapters this chapter also has the reader consider the cost-benefit calculations, how much environmental remediation and betterment works should be done each year, and other less romantic practices that mirror the advice I often give, such as liquidating unused machinery and cleaning up the place.
Appendix – includes a wide range of practical and comprehensive checklists which are all Yes/No in their questions which when a particular number of ‘No’ answers are given indicates whether or not an action or activity should go ahead or not.
Appendix 1 – Farm finance checklists – including:
  • Buying your first farm
  • Improving your farm’s profitability
  • Shock-proofing your farm
  • Expanding your farming operations
  • Creating a farm business succession plan
  • Improving your farm’s environmental sustainability
  • Working with government
Appendix 2 – Adverse event plans – including:
  • Bushfire
  • Flood
  • Cyclone
Appendix 3 – Is a new property worth buying?