What is a periodic business model and can it work for UK farmers?
In May I visited the Australian outback in the drought declared region of Queensland. The cattle farmers have now had four failed wet seasons.
Some of them have sold up completely – all their stock and all their land. Others have kept their land and are waiting for the grass to grow again. And some are still managing to farm. How and what have they learnt about how to survive future droughts?
One idea, by Professor John cole of the University of Southern Queensland, is a periodic business model. What is this and can it work for UK farmers?
The following is an article written for the Farmers Guardian and published in part in the September 2nd issue. Below I have published it in full.
The rain in Australia’s central west region of Queensland has been very fickle recently. The area’s been drought declared for four years but when the rain does come it’s pot luck where it lands. You could get an inch at your homestead, where all the farmers I met watered their lawn anyway, but 2-3KM where you want the pasture for your herd you’ll get nothing.
Take the recent rainfall that, typically, fell in the few weeks after I left. One grazier had over half his annual rainfall in that time. Another, 100KM away had about 10 percent of his average.
“It was wonderful,” said Mac McClymont at Dalkeith Station, north west of Longreach.
“It mostly fell at night. It was great to lie in a warm bed listening to the rain on the tin roof.”
What Mac heard was the largest one-day rainfall at his farm for over two years: 32mm fell in one night.
His 30,000 hectare grazing business is running at a loss with just 10 percent of his normal stocking rate currently on his land. The family have been in a dry slump since 2002 and this is the worst they’ve seen it in four generations.
“You do expect some dry times – this has just gone on a little too long. It’s more than we’re used to coping with. It’s not unusual to have one or two dry years in five but to have 12 dry years in 14 is a big ask.”
“The grasses here have been severely degraded by the length of this drought and will take a couple of good years to bulk up again. We probably won’t be looking for more stock until early summer and then only if we get the rain. We would need another couple of inches in the next few weeks to keep the herbage going until early spring, then similar falls through spring and summer.”
The family have had no choice but to survive using off-farm income. Mac does aircraft maintenance, his son Paul fences and does cattle work away from the drought area, and his daughter-in-law Joy runs a successful digital fitness training business.
We discussed Joy’s life, working and schooling 4 children in the outback, 120KM from the nearest town and with two post deliveries a week, as we prepared to record one of her classes.
“You’ve still got to pay the rates, electricity, insurance, fuel, and there’s maintenance and repairs. Even without stock it costs $100,000 (about £50,000) to keep going.”
June’s rain is totally unseasonal. In Longreach, the town hardest hit by the state’s most widespread drought on record, it rains in the summer not the winter. Or at least it’s meant to.
For James Walker the mid-year downpour smashed all totals on record. They’ve had more rainfall this year than in the past three years put together.
“The rain was incredible. We can show the children nature flourishing and blooming and not dying and wilting during the drought.”
His two-year-old son has never seen cattle on their farm. The family made the decision to de-stock at the end of 2012 selling 22,000 sheep and 8,000 beef cattle.
“It’s like facing three years of no food on the shelves if you’ve got a corner shop,” he told me whilst standing in his empty shearing shed.
“I suppose it’s distressing that this infrastructure is going to waste, that the paddocks aren’t being used and I’m not doing the roll I intended when I took up farming.”
“But I’m upbeat. You’ll never find opportunities if you’re distressed and you’re just looking at debt. I’m busier now than I was in the past.”
James has diversified into tourism and is looking at a 30-hectare solar farm. He’s also running his initiative Agrihive, which aims to find solutions to global issues in farming.
After a UK summit in November last year on the dairy crisis a competition was run in relation to a fictional case study. The three winners were given flights to the outback and hosted by James for 10 days.
They were also given a fictional £5m to invest in dairy in the UK or beef in Australia.
Stuart Nicholls, an Agri business consultant from Savills, was surprised that Australian farmers like James decide to sell all their livestock for a period.
“I hadn’t comprehended a farming system that completely destocked, it is a concept that is completely new to the UK. Whilst we do not have the extremes of weather to the extent of the drought in QLD there are situations in the UK where a similar model could be used.”
The idea of a periodic business in agriculture is discussed by Professor John Cole, executive director of Resilient Regions at the University of Southern Queensland.
“There is nothing constant about farming other than the farmer’s aspiration to produce. Markets are not constant, climates are not constant, all the operating conditions of this business are variable but for the farmer.”
His suggestion is to ‘make hay while the sun shines’ and be intensely profitable during that time. He thinks it’s a model that suits intergenerational businesses well.
“Periodic sounds very short term. If fact it’s the opposite. It’s actually saying we need a business that is diverse enough, that might have different types of cash flows, part tourism, part investment, part farming, that gives the family a basis.”
“The model is simply reflecting the nature of cycles. Business is not the same every day of the year, every year of the decade.”
Australia imported the British concept of farming: seven days a week, 365 days a year. However, due to the drought many farmers down under have been forced to acknowledge their industry doesn’t follow that format.
The aim of a periodic business is to optimise productivity in three or four years out of 10 making sure there is a means for rapid retreat in the downtime.
To do this Professor Cole thinks farmers need to change their mind-set, away from what he names ‘cognitive dissidence’.
“It’s like a smoker that knows he’s got to give up. They know what it’s doing but they keep rationalising doing the same thing they’ve always done. It’s a way of dealing with uncomfortable truths. We’ve got to put that to one side.”
When he talks to graziers in western Queensland about resilient business he points out that building relationships beyond the farm is vital, as is being aware of the changing world around you.
“This notion that it’s all mine, that I can only do it by myself, this is one of the other notions we need to knock on the head. You’ve got to share in the up side too.”