Palm kernel just one of a number of worries

The bottom line in any farm business is that net profit must be at least 50 per cent higher than personal drawings.

Anything less and we will end up knowing our bank manager’s cellphone number off by heart – a bad sign.

There are other worrying signs. I don’t like the feel of the whole palm-kernel issue. There is a real risk with the amount involved in New Zealand farming, the certification process and, above all, potential impact on border security. It may take several seasons to replace this feed gap with other options such as fodder beet, maize, management and working capital. It is our fault, though, for letting the issue develop. The biggest single risk must be border security because we are so dependent on our exports.

We must be getting close to peak cows and peak immigration. Sheep numbers are still slipping and at some point we will have surplus freezing works. The cost of closing down a major works is about $25-$30 million. There is no question as to who will pay, more when it will happen.

We should also be thinking more about retirement. How much income does a couple need to retire at 65? Probably twice their combined national superannuation before tax – about

$35,000. That’s about $70,000 –

$60,000 after tax – or about $5000 per month. My figure is just a broad guide but the extra $35,000 required would represent a pre-tax return on about $850,000 to $1 million invested.

Here’s more – the annual increases in rates, house insurance and health insurance are almost certain to be higher than the annual inflation rate – our rates bill is a non-repayable upwards-creeping mortgage.

One member of every couple will probably live past 90. Retirement homes cost about $45,000 a year, of which tax-paid national superannuation will cover about $15,000 (33 per cent).

I feel the New Zealand economy is cooling. Synthetic meat and milk will have some commercial effect within 10-15 years or sooner. About one billion people around the world can comfortably afford a top-quality food product and we are good at producing them – on top of that, NZ can presently only feed about 40 million people.

Environmental taxes and water and emission levies look likely to have, if not a significant financial effect upon our farmers, then a very annoying effect and that can only be dollar negative. With 50 per cent of immigrants staying in Auckland, in a few years where Auckland people vote, New Zealand will have to follow.

The minimum cost of wages, ACC and the related costs of employment for two employees will soon be $100,000. With New Zealand’s many small businesses, this will become a real issue.

Have you got enough life assurance to cover basic issues? Not too many of us would honestly need less than $1m just for the basics. Every client I have dealt with who has died early over the past 30 years has been light on life assurance cover. Is your will up to date? It is much more important than digging more farm post holes.

If you like real assets, a residential section in a good area and leased out perhaps to somebody with a horse or horses is worth considering.

Work on your dollar gradually buying less and less – 25 years ago it took two people to carry $25 of groceries and today a five-year-old could do it.

Nail down your water rights and water contracts. Wars over water are coming worldwide. Fresh water is the new oil. Cape Town in South Africa, with a population of four million people, is close to running out of fresh water – Mexico City and California have severe freshwater problems. New Zealand might be exporting big quantities within 10 years.

The era of tree planting on farmland is going to come again – partly because it can, in today’s terms, be worth $35,000-$40,000/ha after expenses in as little as 27 years.

The second reward is the benefit of carbon credits and this combination will lift sheep and beef farming in particular onto a higher financial plane.

Finally, the future will always surprise you, so bank on being surprised.

■ Pita Alexander is an accountancy and agribusiness director at Alexanders.

We must be getting close to peak cows and peak immigration.