Entrepreneurship in New Zealand Farming

Establishment capital
Liabilities
Gross annual income and its importance
Farm/enterprise drawings
Off-farm employment and income
Outgoings and improvements
Inputs

Enterprise finances

Establishment capital

The amount of establishment capital required commonly was very small or was built up incrementally from farm or enterprise income. Nevertheless a quarter of the businesses were started with over $20,000. For the majority of the entrepreneurs the farm was their sole source of capital. Some (8) used banks and commercial institutions and five raised their capital solely from a family source. A further 20 respondents raised capital from a mix of sources including banks, business colleagues, commercial institutions and farm family sources. Nine respondents reported that they did not raise capital specifically, that capital was ‘built up slowly out of own finances’. In other enterprises a capital investment was not required at all. In general, the entrepreneurs faced few problems raising capital, sometimes as a result of the strong financial position of the farm, which can play a pivotal role in facilitating the enterprise investment. There were reverse examples, however, when the enterprise itself was financially strong but the farm ran at a loss, and banks offered loan facilities. Lack of faith in the financial potential of the enterprise by banks and investors was also cited by some respondents, who reinforced their comments with examples of the current good financial health and continuing expansion of their business!

Liabilities

Some 45% of the respondents reported that their enterprises did not carry financial liabilities, in particular the service enterprises, consulting and advisory services, those built on intellectual property rather than capital investment. Eight of the enterprises shared liabilities with the farm operation. Of those who did note current liabilities, only three reported that the liability was carried directly by the enterprise. Generally the sums were small, being under $10,000, suggesting that these were generally low-risk ventures.

Gross annual income and its importance

Half of the businesses had a gross annual income of less than $50,000. There were three enterprises with gross annual income over half a million dollars, ten over $100,000. The income from a third of the enterprises was described as either moderately or very important to the farm. For many the income either goes back into the development of the enterprise or into household or individual expenditure. For the household, respondents described the enterprise income as very important where it sustained the farm household, to important where it enabled extras like holidays or even the maintenance of school or university fees. The greatest importance of the enterprise income, however, was for the individual, with 72% of the respondents acknowledging this in comparison with 31% who acknowledged its importance to the household.

Farm/enterprise drawings

Nearly two-thirds of the respondents supplied information about their farm drawings, an average of $19,000 annually. Over a third reported the amount of drawings from their on-farm enterprise, averaging $10,300 annually. Forty-seven respondents supplied information regarding their household expenditure. Average annual household expenditure was $18,500, but most farms would have additional expenses appearing in their farm account.

Off-farm employment and income

Over a third of the households had members engaged in off-farm employment. Occupations ranged across white and blue collar jobs for men, and for women the nursing and teaching professions dominated. The women have worked off the farm for longer than the men, with most beginning off-farm work in the 1980s. The average annual off-farm employment income for the twenty persons for whom data was available was $12,580. There was a major difference between the average annual income of men ($6,850) and women ($16,400).

The relatively high level of off-farm employment is surprising given the additional income also being obtained from the on-farm enterprises. These households are therefore involved in a range of activities that provide income from multiple sources, the two activities of off-farm employment and on-farm enterprises are not mutually exclusive. Half the women with an off-farm job reported no change in the quality of their off-farm work since the establishment of their enterprise. Equally, men were divided between improvement and reduction in farm work with their off-farm employment.

Twenty-two per cent of the respondents reported annual income from off-farm investments, not including on-farm enterprises, that ranged from $5,500 to around $70,000. Others did not disclose their investment income but gave details of the type of investments they held, most popular were shares followed by property and trusts. Thirteen households indicated that they were in receipt of income support - national superannuation and/or family support.

Outgoings and improvements

Outgoings such as electricity and telephone costs were often shared between farm and enterprise. This complementarity also applied to improvements to the homestead for the enterprise, where these added capital value to the farm business and the garden and homestead can enhance the farm operation. Enterprises can add value to the existing economy of the farm family by commercialising residual skills. The resulting enterprises can also add value directly to the farm operation. There was no evidence in this study of enterprises that were in any way parasitical, drawing negatively from the farm.

Inputs

For those enterprises that required product input, the majority (11) obtained their inputs locally followed closely by nine who got their inputs from a mix of local, regional and national sources. Four of the enterprises were solely dependent on international inputs, and at least two of these noted the effect of international market price or currency fluctuations, and being held up waiting for imported goods.