19th August 2003
Brian McAlpine reports from the UK
UK Summary
Gday all, I have finished the UK leg of my tour which has been very fruitful in the information I have gained and people I've met. It has been hard work being late for most meetings after getting lost or getting stuck in the traffic. We found a gadget in our car that told us if we were about to get stuck in a traffic jam - very handy! Also what is it with Australian farmers, we have just had the hottest day in English history. The heat here is stifling with most buildings not air-conditioned and built to stop air from coming in. There is no doubt the green house effect is alive and well.
Have got some great information from UK agriculture as they have endured a considerable drop in profitability in the last five years so farmers have had to start working together in many different ways to stay in business. Also it has driven some exciting joint ventures that has enabled some business's to take advantage of many opportunities that has become available.
My topic is looking at ways farmers can work together to assist their business to have a better bottom-line. This has led me to look at machinery rings, discussion groups, business social groups, corporate farming, buying groups, lobby groups, Government and private advisory bodies and many different forms of what the English call joint ventures. This is a very loose term for any process where two or more parties work together in a business venture. This part has been the most exciting, as this is the area I can see the most gain in profitability can occur.
FARMER LOBBY GROUPS
The NFU has just gone through a major shake-up that should result in a more efficient, effective and useful organisation. They have moved much of their operation out of London, which will significantly cut costs, reduced staff numbers and restructured the group removing large and cumbersome committees. They have also changed the election process, which brings a degree more democracy. All this has occurred due to a falling membership, members not wanting to pay full premium and rising costs. Speaking to people it has been long overdue with the NFUs insurance being a large reason for people maintaining their membership. For the reform to get through the ruling council wasn't culled and still stays at an amazing body of 88 that meets 4 times a year. This shows that they still have a long way to go to reach the level of our groups.
My conclusion from my discussions is that all farmers should put money towards a body annually and if they feel that they are not being represented well then jump up and say so. It is important to pay yearly to give yourself credibility when you wish to have a say and also to contribute to the work that is being done anyway. On the other side the lobby groups must always keep the membership cost down to an affordable amount and continually strive to cut overheads and unnecessary costs. Unions by their nature will ebb and flow in their importance but for a farmer it is necessary to have a voice.
DISCUSSION GROUPS
Have come across what are called Discussion Groups throughout the United Kingdom. It involves between 10 - 25 farmers getting together in a pretty informal fashion to exchange ideas and critically appraise each other's businesses. This is done usually with the help of a facilitator who comes from some form of government or industry backing. The discussion group concept is a formal way of letting farmers have a chat and discuss relevant issues which leads to a wide variation of how DG run and what they do. Normally the group will have one or two keen members to drive it, have a catchy name, and will meet monthly with some every second month.
DG's mainly will involve a farm visit, which the members will attend and ask a lot of questions with the farmer explaining why they do things the way they do. This then will spark debate and if the farmer is willing to show his problems then solutions that other farmers have found can be shared. This is where the facilitator becomes important in helping the conversation flow, and also briefs the farmer and finds out how far they wish to open up.
The most important point about discussion groups is that it mainly involves farmers talking in a circle and not being addressed by so called specialists. This environment allows farmers to be a lot more open to learning and will develop with the group. Key people on relevant topics that need specialist knowledge will be asked to attend but only contribute when needed and definitely no salesmen are invited to attend. Benchmarking is used amongst the farmers and this again can vary in complexity. It doesn't need to be too complex with very simple formulas used for some groups where others will use a very open book disclosure that will result in accurate profit indicators. The group's dynamics is very important with the group functioning best when a level of trust is reached amongst the members. This can change each time a new member comes in or if the group is too large.
Once a group has a level of maturity it provides more than helping their business, it can be used as a buying group, social group, traveling group, machinery ring and an equity group for investments.
The benefits are enormous if a group of like-minded farmers with similar sized enterprises got together and could let the group produce what it is capable of.
MACHINERY RINGS
Members of machinery rings include farmers, hire companies, contractors, self employed labour and other business's offering or demanding services broadly related to agriculture. By having an extensive database of services and machinery available a machinery ring can provide all contracting services, machinery and equipment hire, rural labour requirements and machinery sales amongst members. Some also do a small amount of bulk buying. A ring also has direct debit facilities so any work done is guaranteed of payment.
The advantage to all the members is less paper work, a local network dealing with people you know, more efficient use of men and machinery and an opportunity to lower costs on the input side.
The advantage to the farmer is it can reduce the investment in labour and machinery, easier to find labour, machinery and services at the right price and at the right time. Also gives an opportunity to utilise machinery and labour to its full by contracting to other farmers.
For the suppliers of the ring prompt secure payment is attractive, increases customer base and is a great avenue to be able to earn extra income.
So how it works, a farmer needs a paddock mowed he rings the ring. They through their computer find the closest farmer who is willing to use his mower for contract work to do the job. The contracting farmer bills the ring who in turn direct debits the farmers account.
Rings have large membership generally between 200 to 600 members. They are cooperatives with farmer boards. On application a share is purchased that is non returnable plus an annual membership fee. Any work that is processed a 2% levy is charged. Machinery rings don't have assets just administration costs.
A big problems for machinery rings is once a contact has been set up the people involved wont use the machinery ring again and go direct to save the levy charge.
ROUND TABLE
A way that farmers can work together which will benefit their business is mixing with other businessmen outside agriculture. I met a farmer who is a member of a Round Table, which is an organisation that encourages young businessmen to get together. The basic idea is they meet weekly, organise fun activities, social events and do fundraising. The real benefit is setting up a network and having a formal structure to be able to discuss business and learn from other people. Business principles are the same whatever the business, and there is always plenty to learn.
The round table has a maximum age with formal group structure of chairman etc. It has a national network and also international groups in various countries.
The advantage to the farmer is it exposes them to new ideas and opportunities that are outside the agriculture community. Also showing many problems that aren't unique to farming.
BUYING GROUP
I spoke to the CEO of an extremely successful buying group, Woldmarsh. Some 40 years ago a group of farmers discovered they were spending far too much time searching for goods and services necessary for there farming operations (sound familiar). Also because each farmer was purchasing small quantities there were no discounts being applied and there was also a lot of fat in the supply of these goods and services. Because of this they decided to establish a purchasing co-operative, recruit a buying specialist to consolidate the individuals purchasing needs, to source widespread goods and services, negotiate substantial discounts for bulk purchases, simplify invoicing and to allow the farmer member to focus on farming activities. Today the Woldmarsh Producers Ltd remains privately owned by its farmer members, employs a specialist buying team and has an annual turnover of over 37M pound. It continues to grow showing it is still providing benefits to its 580 members.
To become a member you join one of the 19 regional groups, you pay a one off subscription charge and thereafter pay a sliding charge based upon their purchasing. This is capped to encourage the very large producers or corporate farms. Each regional group meets bi-annually to elect a director to represent the group on the Company's board. The regional group is also used for networking, the exchange of ideas and a forum to maintain a local focus for the individual members. Interestingly these groups are also used to manage the groups risk of bad debts. Normally a buying group would need to have a reserve account to offset the chance of bad debt but each regional group is obliged to cover a certain % of the debt. This has worked well as farmers wont let their peers down and will normally settle their Woldmarsh account first. The down side to this idea is large corporations aren't so welcome as regional groups aren't so keen to cover the risk. Other measures like basic finance checks and direct debiting means bad debts aren't a problem.
Apart from the obvious advantage of bulk buying power it is the saving of time that is the real winner. An example is Woldmarsh handles mobile phone accounts as they realize the farmer hates sitting on a phone being put on hold for 20 minutes. It is a pain to them and not a good return for their time invested but it is a valuable service to their members. Other ways Woldmarsh saves time is:
- Simplified administration.
- One telephone call for all your requirements knowing they will be the best deals in the district.
- Avoids wasting time talking to supplier representatives.
- Information and education on products come from one source.
Woldmarsh doesn't have any assets other than administration building so still relies on merchants to deliver the product so farmers can nominate who they wish to deal with. Although they have indicated they would like to reduce this to selected outlets in the future. They accept 3-4% delivery charge. These merchants invoice Woldmarsh who then collect all invoices and put them on one account.
Woldmarsh do extensive surveys and along with historical data enable them to not have hold stock but be confident in brokering deals. Their skill is their database.
We spoke about the internet for the future but due to lack of farm broadband access, and the sheer fact that is easier to ring from the header and order all your requirements in one phonecall means that this will never replace Woldmarsh's current system.
An interesting comment was the CEO felt there is more opportunity to make money on the input side rather than output as there is always a larger variation in the price of a drum of chemical than a tonne of wheat. Also merchants may struggle to make much money from selling chemicals but it is not because they are selling it too cheaply but rather have too many unnecessary overheads.
COST PRICE IS KING.
GOVERNMENT AND PRIVATE AGENCIES
Outside assistance can be very important in helping farmers working together. A very good example is the Scottish Agricultural Organisation Society (SAOS). A Scottish government initiative in the 1920's saw the establishment of SAOS, which has a purpose to strengthen the profitability, competitiveness and sustainability of Scotland's farming and related rural industries, through the development of co-operation and joint activity. Because of this initiative there is a larger percentage of coops in Scotland than England. SAOS delivers its purpose in the following ways:
- By delivering advice and solutions.
- By promoting and representing co-operation and co-op businesses.
- By providing services tailored to member businesses.
- By providing services for farmer directors and assisting in their education.
SAOS income is 50% government, 40% consultancy and 10% membership. They have consultants on the ground and work in with Colleges, Gov departments, NFU, SFF and obviously farmers and farm businesses.
Some comments:
- Farmers will co-operate when things get tough.
- Service to directors include overseas visits, run training courses and bring in expertise.
- SAOS is lobbying to change archaic co-operation laws.
- Resources restrict education on co-ops and directors.
- Strength of co-op is to have a singular, unified purpose.
Private agents are becoming very popular in assisting farmers to work together in joint ventures. They will be involved in the planning, implementing and monitoring of joint initiatives. The advantage in paying a consultant is they provide experienced impartial and expert advice, which is important in making arrangements fair for all involved and leaving no room for dispute in the future. The downside is they can be another cost in the system.
JOINT VENTURES
A joint venture is the term used in the UK when two or more farmers work together to reduce costs and improve profitability. This can be done by:
- Release of capital.
- Access to modern technology, new markets, and greater purchasing powers.
- Improved efficiencies.
- Better utilisation of skills and capital.
- Lowering risk.
- Avenue for growth.
A good example of a joint venture is three farmers, 600 acres, 400 acres and 1000 acres sold all their equipment, formed a company, which employed a manager and purchased large equipment to operate the 2000 acres. The new company only handles labour and machinery with property and inputs still owned by the farmer. Now this company in three years has grown considerably taking on new land and also has allowed two of the farmers to pursue other businesses.
A simple example is a group of farmers supplying peas to Birdseye formed a company to purchase the harvester which is very expensive. Benefits have been consistent supply and quality to Birdseye giving better returns to each farmer.
Each joint venture is different with no rule book but there is one common thread of success for the more complex ones - MUST BE LIKE-MINDED FARMERS.
No level of documentation can cover for basic trust and it's the relationship between the parties which is the secret of success with the more complicated joint ventures.
A successful joint venture is very synergistic getting added benefits that are above the basic reasons for joining. Example of this is if two farmers lease a property then often there is no need to purchase extra equipment as if any piece of machinery is sitting idle it can be used on the lease block. Therefore the farmers can get income off the lease whilst not increasing their capital.
A farmer can be involved in many different joint ventures which all lead to a more profitable business.Return to Top
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