Stratford mayor responds to criticism of running of council-owned farm

The Council-owned farm has been the subject of much debate recently.

Last week the Stratford Press ran an article on the council-owned farm which has received a strong response both online and through letters to the editor (see page 14 of this week's paper).

Mayor Neil Volzke was invited to respond to some of the questions raised, and says he believes the farm is a "good news story".

His response is printed here.

The farm is operated on a 50/50 sharemilker arrangement that has worked well for many years.

Our current sharemilkers are outstanding, they have significantly improved overall performance of the farm achieving high production well above the average production for the Taranaki region.

Notably, this has been done with lower cow numbers and therefore a reduced environmental impact. This is a good news story.

The recent adoption of the farm report provided councillors with a forum to express their views about the farm and during the debate two main issues arose.

The farm report stated the intention to review the financial arrangements next year. This drew criticism from Cr Coplestone who was firmly of the view leasing would be the best option and a change was needed now, but others disagreed. The review will take place next year and will consider a range of options, not just leasing.

To assist with preparing this response, I asked a professional farm consultant to have a quick, basic look at the financial merits of leasing the council farm.

He advised lease income would be $1480 per ha (maximum) in the current market, which based on 132ha effective, means the gross income would be $195,360. Assuming loan principal and interest costs of around $160,000 per annum and farm asset maintenance of around $19,500 we would be left with only $15,860 per annum surplus.

This is considerably less than what the farm currently returns.

While a much more detailed analysis is still required this may help clarify the current position for your readers.

The second issue was that of rates mitigation which is presently set at $50,000 per annum.

This is a direct cash subsidy on the district rates and along with a $36,000 per annum contribution from the farm to cover council overhead costs, today's ratepayers receive a true benefit from the farm of at least $86,000 per annum.

The remainder of farm profit goes towards debt servicing costs and loan repayments.

At present council is able to borrow money from the Local Government Funding Agency at the unbelievably low interest rates of 2.83 per cent. This creates a real opportunity to pay off the loan principal quicker and to lower the long term risks associated with debt. As the costs associated with the loan reduce, more funding will be available to assist with rates mitigation. Again, a good news story.

Having this balance of shared benefit between current and future generations of ratepayers, seems fair for all.

Using loan money in this way is a common practice in Local Government across New Zealand to achieve intergenerational equity.