Case Study 2. Living on a hill
Jack and Jill Stayer were in their mid-fifties and planned to farm for as long as they were loving it. The family had 20 hectares of wine grapes and a few hectares of table grapes on excellent soils with ample water entitlement and low debt. With their two children established and pursuing careers in Adelaide, the farm and water would eventually be sold to fund Jack and Jill’s retirement. There would be time to relax and be with family and the grandchildren. That had been the plan.
By late 2013, flood, drought and a steady fall in wine grape prices had caused farm income to spiral down, as fixed costs steadily rose. All plantings were productive but their wine grape varieties were no longer in vogue and without a contract. Jack and Jill’s once profitable farm was experiencing its third consecutive loss. Jack had been working off-farm for two years to subsidise the vineyard. Despite off farm income the Stayers were struggling to meet their commitments, including to shire and water rates, and they could not see a way forward. “It’s just not working anymore” our RFC remembers them explaining.
An RFC working with them enabled the Stayers to see the magnitude of their problem. The RFC got to work helping Jack and Jill to understand their financial position by collecting information on their assets, liabilities, commitments, earning capacity of the farm, their personal income and expenses and their trading history. The RFC’s analysis of the past five years’ financial statements demonstrated clearly the drop in farm income and gradual erosion of equity due to successive losses. The RFC then met again with Jack and Jill to present the analysis impartially, non-judgementally and confidentially. Jack and Jill’s equity position of 80 percent was sound, testament to their conservative management practice of tightening their belt and resisting the urge to over-spend and borrow heavily.
Strong equity is an indicator of capacity to borrow and with 80 percent there may be an option for further borrowings or changing direction with the farm without too much difficulty.
Creating a new plan
Now Jack and Jill knew their financial position they were able to choose the option which best fits their goals, and then develop and implement a plan. The RFC was impressed with Jack and Jill’s determination to not just exit farming, and not just stay farming and change nothing. Jack and Jill wanted to change their own circumstances and work out of difficulty rather than waiting for things to improve. The Stayers indicated they want to stay farming.
The RFC assisted by discussing & modelling several options including:
o Concentrate on off farm work (and wait out the commodity price downturn)
o Redevelop half the wine grape plantings to something more profitable (thus spreading risk)
o Redevelop all the wine grapes to something else (a new direction funded with new debt).
On top of these were shorter term options like accessing income support through DHS and negotiating payment arrangements with creditors and statutory bodies. The Stayers and the RFC worked through the options, road-testing each against their longer term goal of remaining farming.
After a series of meetings with the RFC, Jack and Jill were ready to make some big decisions:
- They would remove the wine grapes,
- devote all their energy and time to redeveloping that area to table grapes and
- fund the new infrastructure with cashflow from their existing small patch of table grapes plus new borrowings.
They now had a plan. Jack and Jill with their RFCs help applied for Farm Household Allowance (FHA) and developed a proposal to their bank to borrow for the redevelopment. Both were approved and the Stayers were beginning to feel in control again.
Two steps forward; one step back…..
By November 2016 the first crop of table grapes was growing on the vines when disaster struck! A severe hail storm caused shredded leaves and bruised canes across much of the vineyard, new plantings included. On 11 November 2016 it looked as though there would be no harvest in summer 2017, of new or old grapes. It looked like all would be lost.
Jack and Jill met up with their RFC as soon as they could to get accurate information about their options for disaster assistance. They advised their bank of their situation following the storm and requested an overdraft facility increase to accommodate their needs. This and the Disaster Recovery Grant were approved. In March 2017 when picking commenced crop loss was found to be less severe than first expected so the family cancelled their Farm Household Allowance (to avoid an overpayment).
Since then, the Stayer family’s circumstances have improved markedly.
Today the Stayers look back on their transition period, from 2014 to 2018 with pride. They have achieved a complete turnaround in their fortunes by changing enterprises, returning their farm business to profitability. Jack and Jill find it rewarding to pay their bills as they fall due and not worry about where the next dollar is coming from. They remain strong advocates of the RFCS, and now feel in complete control and self-reliant.