Low use but potential for high gain from farm consultants

11 August 2014

Low use but potential for high gain from farm consultants, research shows

Although professional help with farm management is very important to many farmers, most do not employ a consultant, even though an analysis of profit data shows that farmers who do receive $4 return for every dollar spent.

This is just one conclusion from the first instalment of what will be a series of results stemming from research conducted by Lincoln University’s Senior Lecturer in Farm Management Research, Dr Kevin Old, and Research Fellow, Dr Peter Nuthall.

Last year more than 2000 farmers were mailed a questionnaire which sought opinions and preferences with regard to farm succession and governance. A response rate of 36% was achieved. The researchers noted, with this response rate being greater than the norm, that it was clear that farmers were interested in the topics covered.

With the decisions made by farmers having a significant impact on New Zealand’s economic wellbeing, it is important to know how farming decisions are made; particularly when it comes to ascertaining how farm management skills could be improved.

Governance
From the results it was found that, while all farms have a manager, some 29% were sole traders responsible for making the decisions themselves. Nearly 2% were paid managers and a further 6%, while also paid, had some investment interest in the farm. Similarly, 1.7% were share milkers. For the remaining balance the ‘farmer’ was usually a business partnership which took responsibility for the majority of the business decisions.

Only a small proportion of farms reported having a ‘farm specific’ board of directors (4%) or a formal advisory committee (5.3%). While these are overall figures, it was found that larger farms tended to be more highly represented in this regard.

Consultants
Most farmers have the potential to access farm consultants, but the results found that only a small number actually utilised such services on a regular basis. The average use across all farmers was 21 hours per annum; however, over half the farmers surveyed use less than 10 hours per annum, which indicates infrequent or irregular use.

At the upper end of farm consultant use, just 4% used more than 70 hours per annum; equating to nearly six hours per month, which probably represents one appointment per month.

Young farmers (those under 35 years) tend to use consultants more (an average of 42 hours per annum) compared to relatively older farmers. For instance, for those over 55 years of age, the figure is 21 hours per annum. However, these are averages, and many farmers will not employ consultants at all.

The researchers also found that some farmers use ‘company representatives’ to help with decision making, with the average being 14 hours per annum. The category with the highest average for usage, however, was ‘trusted persons’ at 51 hours per annum. These people could be anyone from a respected colleague to a family member.

Expenditure on consultants
A pertinent measure of whether farmers feel the need to hire a professional consultant is in how much they are willing to pay for these services.

It was found that farmers with a net farm investment of less than $5 million paid $1,330 per annum on average. In contrast, farmers with a net investment of more than $25 million spent $17,700 per annum on average.

When all farm sizes were averaged out, it was found that dairy and crop farmers spent the most on consultants: $4,240 and $5,800 per annum respectively. This is perhaps unsurprising as crop farms have important decisions to make each year regarding selecting crop mix.

Trust in consultants
Perhaps a lack of trust is one reason for the relatively low use of consultants? For instance, 56% of the farmers rated their trust in consultants at 1 or 2 on a 5 point scale (with 1 being good and 5 poor). The remaining 44% were ambivalent or worse when it came to trust in consultants. In fact, the average score overall was 2.42, which strongly suggests an overall ambivalence.

Strategic decision-making
On a scale of 1 to 5 (with 1 being high use and 5 no use), the farmers were asked to rate a range of options regarding the kind of assistance used relative to the type of decision-making required.

The results found that, when it comes to strategic decision-making, most farmers (75%) appear to make their own decisions after first conferring with family or colleagues (a 1 or 2 rating). Regarding the use of professional farm advisors, 37% gave a rating of 1 or 2.

Of course, adding together 75% and 37% equals more than 100%. However, this is due to combining both the 1 and 2 ratings. When it came to making strategic decisions without any conferring, 58% gave a 1 or 2 rating. As such, it would appear that strategic decisions are largely made by the farmers themselves even if some ‘trusted person’ discussions occur first.

For tactical or short term decisions the figures are similar when adding up the 1 and 2 ratings on the five point scale. Sixty eight percent gave a rating of 1 or 2 for making the decisions themselves after conferring with family or colleagues, while 45% gave a 1 or 2 rating for using consultants, and 48% gave a 1 or 2 rating on making all decisions without any discussions.

Interestingly, then, when compared with strategic decisions, conferring drops and consultant use increases, but only marginally.

Of note
Clearly professional help is very important to some farmers, although most do not employ a consultant. They rely on their own experience and observations, and on discussions with family and ‘trusted persons’.

It does appear that risk factors are seen by farmers as problematic. When asked whether they wanted help in controlling risk, the average score, again on a five point scale, was 2.6. Expressed differently, 52% noted they needed help.

As previously stated, with profit data analysis showing that farmers who employed a consultant received $4 for every dollar spent, the question is raised as to why more farmers don’t utilise these services. It is perhaps worth noting that this dollar figure is an average, meaning some farmers would receive more while others less. Also, the analysis does not consider a farmer’s inherent skill or objectives. Some, for instance, may be content with their current situation.

Overall, the researchers concluded that any initiatives concerned with improving farmers’ managerial ability should focus on the farmers themselves in light of the fact that they tend to make most of their decisions without professional assistance.

ENDS

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