Compliance carries a considerable investment in time, resourcing and ongoing cost, writes Mark Hiddleston.
From now on, the environment has to sit at the front of a business model — it can't be growth first, environment second.
With new rules on the way aimed at reducing the impact of farming on waterways, a farm environmental plan has become as important as a LIM report when buying or selling a farm.
Already, environmental compliance is a major box to be ticked for farm buyers and lenders.
In this market, farms that haven't done a substantial amount of work around future water allocations, nutrient discharge allowances and how they will impact on land use intensity can expect to not realise their full value.
The reason is that compliance carries a considerable investment in time, resourcing and ongoing cost.
Some farmers are more advanced than others, but if the people I've spoken to in the Waikato this week are anything to go by, the message is now well accepted that new rules are coming, they will be a permanent part of farming, and they are essential to the long-term viability of the sector.
For those with the right mindset, the new rules will be an opportunity to create the sort of farming businesses that are increasingly attractive to producers who are facing heightened customer expectations over quality, purity and traceability.
They will also be creating the sort of businesses that New Zealand agriculture should aspire to lead the world in — efficient, sustainable and high tech. A great example is John Hayward and Susan O'Regan (see story below) who have embraced the new normal and have taken a lead with ongoing investment and creative solutions.
As a financier, we're paying a lot of attention to compliance, and how the requirement for an environmental plan will become part of the lending process. From now on, the environment has to sit at the front of a business model — it can't be growth first, environment second.
We've been doing a lot of work around understanding the farming sector's transition to more sustainable farming practices.
While some farms have been slower to act than others, our farmer-customer survey showed strong awareness of the need to invest in environmental compliance. More than 90 per cent of respondents were very aware and were doing something about it, but they were looking for help with the "how?"
There was uncertainty around what technological or precision-farming investments they should make to not only make them compliant, but to help them make better decisions with the environment at the heart of their farming model.
Respondents also understood there is a cost to this transition. Over the past five years the average-spend on environmental enhancements was $16,000 (possibly higher in parts of the South Island). Around 70 per cent had invested in fencing waterways, 52 per cent in riparian planting, 52 per cent changes to fertiliser management, 38 per cent into irrigation practices and 35 per cent in changes to water use.
Almost 60 per cent said they would absorb the cost into total farm expenditure; 45 per cent said costs would reduce overall farm productivity; 23 per cent would reduce spending in other areas and 15 per cent said they would require extra borrowing to cover the cost.
While respondents estimated costs would be $10,000-$20,000 a year, I think it will be a bit more than that. When fencing and planting is done they have to think about more investment in technology.
There are plenty of examples of customers using technology to record data on the farm which is helping them manage their environmental footprint. For example, water sensors tell farmers exactly how much water is being used, and where, via an app on their phone, individual online stock profiles give farmers access to animal health and productivity records on the spot and nutrient budgets use software to track all the nutrients going on to a farm and where they are going.
At ANZ, we're seeing farmers of all types and all generations getting on board with environmental compliance as it becomes a fundamental part of the business.
All farmers I know consider themselves custodians of the land and want to leave their farms in a better state for the following farming generations. Our role at ANZ is to support our customers, which we are already doing through specific environmental loans to aid with technology advances and farm systems.
The requirement now is for farmers to exercise environmental creativity and formalise their environmental impact. That's got to be good in terms of meeting consumer expectations and improving waterways. When it comes to selling their business the more they have done to meet signalled or implemented rules, the better off they, and future generations, will be.
● Mark Hiddleston is ANZ Bank NZ's Managing Director Commercial & Agri.