Gus's Musings

October 23, 2016

Is owning a farm a job or a career?

“It is too expensive to get into farming” I hear many people say.  This is very true if you see the only way into farming is to own the farmland and then work that farm for effectively a wage, a job.  That means that if the commodity price increases or decreases it is just a wage rise or cut, likewise if the season is good or bad.  The reason I call it a wage even when most farms are owned by small family businesses ( making the workers self employed), is that the real estate value of grazing land (not sure if it is the same in cropping) is based on about a 2% ROI for average farmers.  Using this thinking that is why banks require most farmers to have >70% equity, otherwise you won’t be able to cover interest.  If you have to borrow a lot of the money farming is a very expensive way of buying a job!

“Farming is a good investment” This may seem almost the opposite to above, however as the greatest “return” to the average farmer comes from capital gains (this is only superannuation to career farmers) then this is why it is seen as a good investment, same reason people want to own their own house rather than rent.  According to my understanding of the way Macquarie Bank sell their rural property invest portfolio, they split it up as 2% net lease and 7% capital gain, adding up to a total of 9% ROI.  A very handy return indeed, especially in the low interest market that currently exists.  I reckon most buy farms looking at the long term investment, resigned to the fact that you can only get small returns from farming.

“How do you enter into farming as a career”?  Well the idea here is to take small steps in to farming so that when/if you enter into the farm real estate market you can deliver a much higher return than the average. i.e. make farm land more valuable to you as you have the skills to get a better return.  With farming being like most other skills, what you learn from a higher education course starts your learning only and it is very important you spend your whole life learning, adjusting, changing as required to keep your skills sharp.  This comes easily if you follow your passion and surround yourself with passionate energized people, then farm without compromising your values.

“Where is the opportunity here?”  The opportunity exists for people that have the flexibility and willingness to take on new ideas, change to improve, not because you are forced and importantly view farm with an open mind.  Now this mightn’t sound too difficult, reality is that the reason that only the top 20% of livestock farmers make good returns on their land (>8%) is that it takes a fair bit of guts to be as Kit Pharo calls them “A Herd Quitter”.  A herd quitter is the 1 sheep/cow that is always looking for their own path, very annoying if you are working the mob, they are the only ones thinking, those following the herd are doing, without much thinking.


Heifer on her own



So if you can arm yourself with a support network and be always seeking new options/ways of managing your land and stock, there is no doubt a bright future exists for you in the farming sector (or any other sector for that matter!).

Mum and the kid off


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