New business structures spark grower interest

Alternative business arrangements show appeal to grain producers


Business Management
UWA senior lecturer Dr Marit Kragt says with the productivity gap widening between large-scale farming businesses and smaller, traditional family farms, growers may benefit from considering a joint venture or collaborative business structure. PHOTO Evan Collis

UWA senior lecturer Dr Marit Kragt says with the productivity gap widening between large-scale farming businesses and smaller, traditional family farms, growers may benefit from considering a joint venture or collaborative business structure. PHOTO Evan Collis

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Survey finds many grain growers would consider setting up joint-venture operations.

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Two surveys investigating grower attitudes to alternative farm business structures show only 3 per cent of Australian broadacre farms involve joint-venture arrangements.

The GRDC-invested surveys were undertaken by Dr Brendan Lynch at the University of Adelaide, in collaboration with The University of Western Australia (UWA) and CSIRO.

The research found that, while only a small group of growers were involved in joint-venture arrangements, 21 per cent of growers surveyed said they would consider adopting such a structure if the conditions were right.

UWA senior lecturer Dr Marit Kragt says the motivation for the surveys was to discover the reasons and the barriers to joint-venture adoption in Australias broadacre agricultural industry.

She says with the productivity gap that is widening between large-scale farming businesses compared with smaller, more traditional family-owned farms, growers had to look at ways to increase longer-term productivity.

This could be as simple as sharing machinery, through to sharing land and even joint business ownership, she says.

A 2011 Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) report titled 'Innovation and Productivity in the Australian Grains Industry' (Nossal & Lim, 2011), identified four key ways growers achieve productivity gains.

These were:

  • Changes in farm production
  • Changes in farm production processes
  • Changes in marketing practices
  • Changes in farm organisational structures.

Dr Kragt says while growers have traditionally looked at the first three strategies to increase their business productivity, the fourth strategy - being a change to their business structure - has proven more difficult.

In the first study, 573 growers were surveyed across Australia.

So far a step too far

Data from the first survey showed that, while some growers were open to the concept of a joint-venture business arrangement, more than 60 per cent of growers would not consider any such arrangement.

Further, when breaking these findings down by region, the results are even more interesting.

The Lower Eyre Peninsula region in South Australia demonstrated the greatest interest in joint-venture structures, with 33 per cent of growers surveyed there saying they would consider a joint-venture arrangement.

In stark contrast, 78 per cent of growers in the Loddon region of Victoria, and the southern region of Western Australia, said they had no interest in a joint-business structure.

Nonetheless, Dr Kragt says that given that only 3 per cent of those surveyed are actually involved in some collaborative arrangement, it was still a surprise to have 21 per cent of those surveyed showing some interest in joint-venture arrangements.

This tells us there are opportunities to further explore the many and varied options that are available in regard to farm business structures and future farm profitability," she says.

Dr Kragt says while there appears to be interest in collaborative arrangements as a future option, there is also confusion as to what this actually means in a practical sense.

This tells us there are opportunities to further explore the many and varied options that are available in regard to farm business structures and future farm profitability - The University of WA senior lecturer Dr Marit Kragt

A follow-up survey, involving 340 growers across the southern and western grain-growing regions of Australia, showed that growers were interested in wide variety of potential joint-venture business models.

Dr Kragt says a joint venture structure does not have to be an 'all or nothing' situation, with significant 'middle ground' in regard to developing a structure that works in each individual situation.

This second study identified one of the key barriers to a joint-venture consideration is the loss of sole decision-making power.

We presented the growers with five different joint-venture scenarios, she says.

Decision-making power

One of the characteristics presented was decision-making power, which ranged from a sole decision-maker to a shared decision structure, through to having limited input into strategic or operational decisions.

We expected that a lot of growers would be averse to the idea of losing decision-making influence, but different groups of growers in our sample gave varied responses to this question, Dr Kragt says.

Some said they would be prepared to give up some level of decision-making power to increase their profits and to have access to newer machinery.

However, large percentages of those in the survey said they wanted to retain sole decision-making power.

This decision-making model would be largely unpalatable and unattractive to other grower partners, but could suit joint ventures with passive third-party investors looking for financial exposure to agriculture without the burden of managing the complexity of a large-scale farming operation.

Some said they would be prepared to give up some level of decision-making power to increase their profits and to have access to newer machinery - UWA senior lecturer Dr Marit Kragt

For those growers who expressed an interest in joint-venture opportunities, the main drivers for this interest were:

  • Reducing on-farm costs
  • Increasing profits
  • Improving efficiencies
  • Advantages related to labour availability
  • Improving utilisation of capital.

Dr Kragt says growers who are interested in joint ventures are more likely to be younger, have a university degree and to agree their business is constrained by a lack of skilled labour.

While interesting, this finding was not necessarily a surprise, she says.

Dr Kragt says the next step in the project is to work towards identifying possible joint-venture opportunities for those growers interested in moving towards a collaborative business structure.

'Farming Together', a federal government initiative resulting from the 'Australia Competitiveness White Paper', provides advice and resources for growers considering collaborations, cooperative structures or joint-venture arrangements.

The program is run under the auspices of Southern Cross University (SCU) and has access to a wide range of specialist advisers who can assist growers begin the journey towards a collaborative business partnership.

SCU director Lorraine Gordon says the program, which has been running since August 2016, has already provided assistance to almost 28,000 growers and growing groups.

She says the program has highlighted the appetite growers have for investigating new and innovative business solutions to increase productivity and profitability.

We have been surprised at the high level of interest in the program, which has highlighted the real thirst growers have for working together collaboratively, either formally or informally, so they have a bigger voice when it comes to on-farm decisions," she says.

The feedback to us is that its much easier to be a resilient business as a collaborative effort rather than as an individual.

GROWER EXPERIENCE: St John Kent, Darling Downs, Queensland

Queensland grower St John Kent is open to considering joint ventures in his business structure. PHOTO GRDC

Queensland grower St John Kent is open to considering joint ventures in his business structure. PHOTO GRDC

A joint-venture farming arrangement does not have to be a formal affair, according to Darling Downs grower St John Kent.

His joint venture business began as a drink with a neighbour, Brett McLaren, and ended with a signed business plan on a tablecloth.

And then I think his wife threw that tablecloth in the bin, he laughs.

With just a small 300-word legal document buried in the back of a cupboard somewhere 'for our wives in case we dont come home one day' the business has evolved from simply sharing machinery, to jointly purchasing large equipment, jointly leasing land and expanding to include employees and contractors.

Both parties have retained their land ownership, and they both individually market the grain produced on the separate properties.

St John says this arrangement eliminates a major source of potential conflict.

However, regardless of the formalities of the arrangement, or lack of them, St Johns business collaboration with his neighbour has proven successful over more than two decades.

St John says both he and his neighbour originally owned smaller farms that would have become unviable in the future, and both had a fairly healthy disdain for a shed full of inefficient gear.

The neighbours began talking and, since that first conversation in 1998, have not looked back.

St John says the original vision was to try to get the right economies of scale to support one good set of equipment, to work as a team and have enough land to attract good contractors.

We try to keep our investment in plant and equipment to a minimum, so we have good gear, but not a lot of it, he says.

We also have retained ownership of our own land, so that allows us to retain a certain amount of control over the end profit result through marketing our own grain.

What makes this business structure work for both parties is trust and communication.

So many business troubles begin because of a lack of communication, St John says.

Brett and I talk all the time and we take a big-picture view, and that big picture always outweighs all the little pictures.

We try to keep our investment in plant and equipment to a minimum, so we have good gear, but not a lot of it - Queensland grower St John Kent

One of the first questions growers will ask the pair is 'Whose paddock do you start in first?'

I always say that the ownership of that first paddock is irrelevant thats where the big-picture attitude comes in but its a real cultural change, St John says.

We start where we need to start, and it makes no difference in the longer term who owns that particular paddock, he says.

He says the banks are also now coming around to the idea of splitting machinery financing arrangements between the two partners.

I always say that the ownership of that first paddock is irrelevant thats where the big-picture attitude comes in but its a real cultural change - Queensland grower St John Kent

The other critical factor in the success of the business is that only one of the partners is the boss.

Brett is the boss. Hes a very good operations manager and you can only have one boss, St John says.

We both have different skill sets and the strength of any partnership is to identify the roles most suited and give each other the space and trust to carry them out.

Letting go of those reigns was not hard for St John, since he had numerous other interests, including industry representative roles, alternative crop trials and a small cattle operation, to keep him busy.

While this arrangement would not work for all growers, these two neighbours seem to have struck a balance with their relationship that has been working profitability and successfully for a long time.

We both have different skill sets and the strength of any partnership is to identify the roles most suited and give each other the space and trust to carry them out - Queensland grower St John Kent

But what about succession if children want to come back into the business?

St John says that is something they have talked about, particularly since children from both sides are now showing varying degrees of interest in the business.

Its all doable and the farm business may continue into the next generation or it may end up being leased and becoming just another family investment, like a block of units in town, he says.

This is something that will be sorted when it becomes as issue.

It may be unorthodox, but this is a joint-venture arrangement that has proven, over many years, that neighbours can work profitably together.

We are much more profitable together than apart, St John says.

GROWER EXPERIENCE: Mick Pole and Jim Wakefield, Walpeup, Victoria

Walpeup grower Mick Pole says having the right support crew is critical when you begin the process of moving into a joint-venture arrangement. PHOTO AgCommunicators

Walpeup grower Mick Pole says having the right support crew is critical when you begin the process of moving into a joint-venture arrangement. PHOTO AgCommunicators

Walpeup grower Mick Pole says while the joint-venture arrangement he now has with his neighbour and mate Jim Wakefield is just three years in, the structure is already proving its worth.

Mick says many years ago he knew a joint-venture arrangement with his growing neighbours would make better business sense. But it took until 2015, and several years of research by Jim, for this idea to come to fruition.

As part of a very small percentage of growers who actually move from these types of ideas to a tangible business arrangement, Mick says the process has been time-consuming, expensive and a huge learning curve.

However, it has all been worth it, with the expanded business now working well for everyone involved.

The arrangement between the Poles and the Wakefields includes an external company that leases the land from each family.

Both families then draw a wage from this company.

We are now accountable to another organisation, not just ourselves, and this makes us much more productive and efficient, Mick says.

The key to starting up any venture of this nature, he says, is having the right support and getting the right advice early on in the process.

The business uses several consultants to ensure the right decisions are made at the right time.

We are now accountable to another organisation, not just ourselves, and this makes us much more productive and efficient - Victorian grower Mick Pole

Mick agrees communication is the cornerstone of any successful joint venture, and the pair now run scheduled meetings with their advisers and employees to ensure everyone is on the same page.

They also have a formalised feedback system in place to make sure the business is constantly being reviewed and improved.

For Mick and Jim, employing the services of an independent chairperson takes all the emotion out of making the high-level business decisions, and allows them to run the farm with a corporate mindset.

Mick admits this type of arrangement is not for everyone, and the pair underwent personality testing to determine their compatibility early in the process.

You do have to have a fairly open and novel way of dealing with issues and problems, and you have to constantly remind yourself you are in a business workplace where you need to treat everyone with respect, which is no different to any other corporate workplace, Mick says.

Strangely, its those little issues that are mis-communicated that will cause the most problems, not the big financial decisions.

But are they more profitable together?

Mick believes they are but says it will take a few more seasons to really realise the value of the partnership, in an economic sense.

You do have to have a fairly open and novel way of dealing with issues and problems, and you have to constantly remind yourself you are in a business workplace where you need to treat everyone with respect, which is no different to any other corporate workplace - Victorian grower Mick Pole

Both growers understand this new structure was not intended as a short-term arrangement and believe the investment in getting everything right will be worth the wait.

The joint business is double the size of what we both owned individually, so the economies of scale are just about right, and together Jim and I can take advantage of new opportunities because we are one business, rather than competitors, Mick says.

Now that the hard work has been done, Jim and I are both working on getting a better worklife balance, which is what this is all about, and thats a good feeling.

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