Agriculture its People and the Differences
The very first farmer I worked for many years ago introduced me to a local farm machinery agent who had come down the farm drive.
When the agent left my employer told me that he knew this agent well enough to borrow from but not well enough to lend to and I have never forgotten that comment.
Nobody will manage your hard earned money as well as yourself. Former US president Ronald Regan once said that the Government is like a baby's alimentary canal with a happy appetite at one end and no responsibility at the other end. Those words are just as true now as when they were first said.
Everyone in high places talks about democracy and the inequality of income and assets and how much more needs to be done. Winston Churchill said the inherent vice of capitalism is the unequal sharing of the blessings with the inherent blessing of socialism being the equal sharing of the misery. Again, his words are just as true as when first said.
Family farm health care is expensive in the US and many people cannot afford the annual cost and nor can the afford surgery either, but if you think health care around the world is expensive wait until you see what it costs when it is free.
There are many similarities and contrasts when we compare New Zealand with US farming, or for that matter China as well.
During my travels through rural America I like to stop to talk to farmers and farming advisors and it is amazing what you pick up that's worth remembering. Many advisors find the older farming generation are often slow to pass on their operations and few let go of them before they are 60 – 65. The same can be said in New Zealand although the pension at 65 helps. The US old age pension is not as good as here because farmers' income and assets are means tested.
A typical US family farm of 142 hectares is the equivalent to the total farm land for a 200 household village in China. The net income generated off farm by the typical US family farm is much more than the net income generated on a farm –and this is exactly the case in China.
The US Government takes the view that their key role is supporting the net farm income for a rural household. For the Chinese Government the key is making sure the national food security is sound – in China the total crop area is more important to them than the wellbeing of their farmers.
The US has strong and widespread agricultural advice helping its farmers – much, much more so than China and more noticeable also than in New Zealand. All US universities invariably have a strong farm extension services department.
Much of the main agricultural data for China, US and NZ is quite different as you would expected for countries with so many differences. China has a population of 1350 million, the US 321 million and NZ 4.6 million yet the share of agriculture in GDP does not reflect this. China's share of agriculture in its GDP is 10 per cent, the US 1.3 per cent and NZ 4 per cent.
About 10 per cent of China's population is in agriculture compared with the US' 2 per cent and NZ's 6.6 per cent. China has 200 million farms, US 2.1 million and NZ 58,000. Interestingly the US has the most land area in farming at 370 million hectares compared with China's 165 million and NZ's 14.1 million. The larger nations produce more corn with China at 36.4 million hectares and close behind is the US at 35.6 million hectares compared with 0.02 million hectares in NZ. Soya bean is a big crop in the US at 30.8 million hectares compared with China's 6.9 million hectares. New Zealand produces no soya beans. Our wheat production is around 50,000 hectares compared with China's 24.3m and the US' 18.2m.
However, we can take the prize honours in average farm size at 250ha compared with China's one hectare and the US' 175ha. Kiwi farmers also lead with an average of $250,000 of farm machinery on a farm compared with China's $15,297 and the US' $166, 617. Perhaps more telling is that NZ farmers receive no annual farm payment from the government yet China gets $163 and US farmers $14,292.
About 20 per cent of Kiwi farmers hold a tertiary degree compared with 25.7 per cent in the US and 0.2 per cent in China.
Some more facts: China has 12 million dairy cattle with an average herd size 6.7 cows, US 9.2 million with 100 cows and NZ 6.3 million and 419 cows. The average net farm profit before tax is $990 in China, $31,172 in US and $75,000 in NZ. China has the better saving record at 20-30 per cent of pre-tax income compared with 0-5 per cent for the US and NZ. China's average debt per farm is zero, US $256,000 and NZ $950,000.
China's 242 million farmers produce a GDP of $11,000 billion, the US'3.2 million farmers $18,000b and NZ's 58,000 farmers $242b.
Fascinatingly, 75 per cent of NZ farmers have internet access, US farmers 69.6 per cent and China farmers 2.2 per cent.
Agriculture in China is far more volatile than the US and within 10 years it is anticipated another 100 million people in China will move from rural to urban areas. However, Both China and the US react to market prices and both have something to teach the other. The US exports enormous quantities of soya beans and pork to China and imports vegetables and fruits from China which doubled between 2000 and 2010.
The Chinese people want to quietly move some of their capital out of China into Canada, Australia, US and New Zealand – this move will be significant in dollar terms and will have all sorts of effects we will not have anticipated and the trend will be endless.
The US dollar takes us up hill and down dale in all sorts of ways. You only need to see the US buying big stakes in the Australian banking industry to see the effect would become very close to home and cosy would be the wrong word.
Following the USA election and Brexit the take home message here is business volatility. Your business revenue statement is always important but your Balance Sheet is even more important – you and I need a minimum of 10% of our gross income as a financial buffer in the present and forward looking business fog.
Pita Alexander is an accountancy and agribusiness director at Alexanders.
9 November 2016