Charting a course through recession and beyond

Volatile prices, rising costs, market uncertainties … the economic landscape for a farming incorporation is never without its trials, but economic downturn is setting an even tougher challenge for Ātihau-Whanganui Incorporation.

The Board and executive team have been working to analyse and plan for the likely conditions the Incorporation will face in the next five years.

“Economic conditions are not great and certainly not likely to improve markedly between now and 2026,” Board chair Dr Tiwha Puketapu says.

Ātihau is seeing factors such as inflation, higher interest rates and supply chain disruptions driving up the cost of seed, fertilisers and machinery, and fluctuating prices for sheep and milk.

“Higher expenses, lower income and lack of certainty impacts how you manage cashflows to protect the bottom line,” Tiwha says.

“Lamb is getting a hiding. What we used to be able to get yesterday is not what we’re getting today. If you’re selling at a lower price, your income levels are affected. If, at the same time, your costs are increasing, then the margins between your income and expenditure leave less room for other things like dividends or distributions to the Trust.

“This recessionary period will demand careful planning and resilience. We’re being proactive and building strategies to weather the storm.”

Adding to uncertainty are the results of October's general election. Tiwha says planning has included having “a line of sight” no matter which coalition becomes the next government.

In the meantime, Ātihau is paying close attention to all business activity.

“We have reviewed a lot of our business activity in terms of its value and relevance going forward. In the current environment, there’s an obvious need to ensure we’re engaged in activities that are cost effective and providing the expected returns.

“There are hard decisions to be made when we want not only to survive economic downturn but to emerge stronger on the other side –to prosper and thrive and do really well. One strategy is to embrace these challenges as opportunities for growth and improvement.

“Our first priority over the next two-to-three financial years is about looking after the land and hunkering down to ensure we’re here tomorrow. The second is to look beyond that when appropriate, do our homework, and explore and consider whether new options are connected and relevant to the business of the Incorporation.”

The Board has decided not to make a contribution to Te Āti Hau Trust this year.

“The Trust finances are very healthy at the moment. There are sufficient funds for the 2023-2024 financial year, so a distribution to the Trust is not needed. That frees up funds to do the other things we need to do, such as pay a dividend and pay down debt.”

Chief executive Andrew Beijeman says depressed pricing for sheep meat and milk will have a significant impact on revenue. As an example, last year’s $134 per lamb will translate to an expected $114 per lamb this year. With 70,000 lambs to be sold, the loss in revenue could be $1.4m. The forecast ewe price for this year is $86, compared to last year’s $112.

“We process 14,000 ewes. If we’re down $26 per animal plus being down in lamb, that is $1.8m in revenue just gone.”

Andrew says the big push in the year ahead will be to control costs.

“The Incorporation is not wasting the opportunity to have a good hard look at itself. Tough times make you focus on making sure every dollar’s working.

“We’ll tighten the belt and focus on lifting the performance of what we’ve got. We have good scanning results, which hopefully will result in more lambs. There’s good feed available now, so there’ll be more weaning sales if good weather continues. We might push more cattle to finishing rather than lambs.

“We expect to see milk price improve next year but we’re not expecting any return to normality until 2025-2026. We may need to downscale some activities, but we’re lucky we’ve got large stocks of carbon banked which we can release to continue investing and grow revenue. Growing the amount of revenue from carbon by planting more trees is likely to be how we’ll fund some of our Ahuwhenua development.”