The cyclical nature of drought means the question for farmers is not ‘if’, but ‘when’ they will be hit. The thing that is consistent in farming is that you will go through drought — if it doesn’t happen this year, it will happen over the next couple of years.
Good preparation can make the difference between surviving an extended drought period and losing the farm.
On 28 September 2018, the SA Government formally confirmed that 10 to 15 per cent of the State was in drought, with the upper Eyre Peninsula, Murray-Mallee, upper North and pastoral districts the worst affected areas.
Following below or “very much below” average rainfall in most agricultural areas during the grain growing season from April to August, the Department of Primary Industries and Regions South Australia (PIRSA) has predicted a 5.8 million tonne harvest this year — 2 million tonnes less than the 10-year average.
If you are not in drought at the moment, now is the time to put together a drought management strategy.
Work with your financial adviser to make sure you have drought management strategies in place that are robust enough to deal with, not just a single season of drought, but a “worst case scenario” of a few consecutive years without income.
Farmers get really good tax concessions and opportunities to smooth incomes over five years. But this may not be enough to keep you going if you have a few years of zero income and a whole of expenses still going out.
It all goes back to having a very clear idea of the worst case scenario and what you need to have in place to get through it. How much funding do you need to keep buying stock feed and water for that period and where will it come from?
In order to prepare for drought, you should take the following key steps now:
1. Get your back office and administration in order
With new accounting technology, it is much easier to keep your books up to date. With accurate cashflow forecasting, you are in a better position to plan ahead for drought periods.
If you are going to get a loan or some sort of drought assistance, no-one is going to lend you money if you can’t give them a clear picture of where you are financially. The first thing they will say is ‘Show us your books’.
Up to date accounts also save time and cost when your accountant prepares your tax returns because all the required information is at their fingertips.
2. Work smarter
Investigate new technology, new chemicals and cropping methods that help to make your farm more drought tolerant.
There is always a temptation in good years to update to the biggest, shiniest new harvester. But a better investment may be the new technology, satellite intelligence or soil enhancements that help to minimise or avoid the effects of drought.
3. Consider off-farm investments or income sources
Some form of off farm investment or income is a really important back up.
In a good year, along with reinvestment in the farm itself, it would be prudent to consider other investment options such as property or shares – something that will generate income and not be affected by the cyclical nature of farming.
If you are not affected by the current drought, don’t be complacent - act now and “buy umbrellas while the sun shines”.