Agribusiness Perspectives Papers 1999
Paper 23
ISSN 1442-6951
Alternative enterprises on New Zealand farms:
Obstacles, challenges and potential
C. Nicholas Taylor and Heather McCrostie Little*
Taylor Baines and Associates, Rangiora, North Canterbury, New Zealand and
Ruris Consultancy Cust, North Canterbury, New Zealand
* Paper prepared for the 1999 NZARES/AARES Conference Christchurch, New Zealand,
Abstract
Introduction
Methodology
Characteristics of Alternative Farm Enterprises
Enterprises and the farm
The role of women
Family income and sustainable agriculture
Obstacles to Alternative Farm Enterprises
Establishment capital
Skills and training
Enterprise labour
The question of size - how big is enough?
Legal and administrative obstacles
Community resistance
Conclusions: Releasing the Potential of Farm Enterprises
Rural tourism development: promotion and co-ordination.
Other business networks and support
References
Footnotes
Family farming remains the organisational platform for agricultural production in New Zealand. Since the early 1980s, New Zealand farm families have increasingly sought to diversify their sources of income away from the core farm business operation including off-farm employment and on-farm enterprises. Alternative farm enterprises are a response to economic restructuring and reflect an emerging private enterprise culture. These enterprises range across a number of sectors and a characteristic is their niche nature and the ability of the farm entrepreneurs to adapt to market demands and command competitive marketing strategies. The enterprises can be run separately from the farm operation having no connection with or influence on land use. Or, they can be integrated with existing or changed forms of land use. Unlike the farm operation, there is no distinct gender division of roles or decision making, and the enterprises offer distinct entrepreneurial opportunities for women. Obstacles are not so much capital, skills or flair, but lie in legislation and administrative barriers, or 'red tape'. Scale is important and requires decisions about growth and diversification of enterprises in relation to personal and family goals. Enterprise cultures at the farm level require supportive networks, community awareness and pro-active business policies from local and central government.
Keywords : family farm, enterprises, enterprise culture, market niche, business policies
Agricultural economists in New Zealand have documented in detail the economic and agriculture sector reforms that have taken place since the early 1970s ( Gouin et al. 1994:5). New Zealand is now well linked into wide world markets, and many state sector supports have been dismantled. There have been parallel reforms in private sector firms and processing industries. In many ways a private enterprise culture now predominates, based firmly in a modernist paradigm of economic growth and development as the major societal goal.
Nonetheless, family farming with strong agrarian traditions remain the organisational platform for agricultural production. But since the early 1980s, New Zealand farm families have increasingly diversified their sources of income from the core farm business operation ( Benediktsson et al. 1990; Le Heron 1991; Rhodes and Journeaux 1995; Taylor and McCrostie Little 1995). They do so to maintain farm household incomes, provide for retirement, and in many cases to defend farm equity and the possibility of family succession. Today, therefore, farm households are marked by their multiple economic activity, or pluri-activity, primarily in off-farm employment and alternative, on-farm enterprises. Both of these two income earning activities are, like the core activity of farming, dependent on market supply and demand. Off-farm employment is governed by local labour markets and alternative enterprises typically by highly competitive niche markets ( McCrostie Little and Taylor 1997a).
In this paper we examine alternative enterprises on New Zealand farms, especially the obstacles they face and ways by which their potential can be encouraged.
The paper draws from a number of recent studies by the authors and their colleagues, particularly the findings of a study of off-farm employment ( Taylor and McCrostie Little 1995), a study of alternative enterprises on farms ( Taylor et al. 1997) and a study of farm succession ( McCrostie Little and Taylor 1997b) 1 . In each study sixty farmers were interviewed in depth, using structured interviews from a purposive sample, supplemented by literature reviews, community interviews and field observations. The great majority of the interviews were conducted with farm couples. In a few cases single, male farm operators were interviewed. The interviews were designed to be 'conversational' providing the farm women and men to tell their stories about changes affecting the farm, family and their personal lives. After the interviews were analysed participants in each study were provided with a summary of results and invited to take part in feedback meetings and discussion of the results. This feedback step is invaluable for validating findings and developing conclusions, including implications for rural policy. Both technical and summary reports were prepared.
The character of the enterprises. Alternative enterprises on farms cover a wide range of sectors. The survey data and an analysis of enterprises from public literature showed that the following were represented:
- farm tourism
- specialist horticulture/nurseries
- agricultural processing (non traditional and organic)
- food processing
- viticulture and wineries
- agricultural services and consultancy
- general services
- light manufacturing
- handcrafts, including pottery
- artwork
- fashion
Tourism is an important enterprise option. Just under 40% of the respondents had enterprises that were either all or in part based on the tourism industry. But in reality this figure would be much higher, as the purposive sample was designed to obtain a range of enterprise types. Just over half of the tourism enterprises provided accommodation, that ranged from bed and breakfast to fully catered. Some simply offered accommodation, others more active observation and involvement with the farm. The most common attractions on the farms, apart from accommodation and meals, were the homestead gardens, the 'farm yard' and associated activities such as shearing and watching the dogs working, or simply enjoying the ambience of the farm and countryside. Also offered were a variety of activities on and off farms, including fishing, hunting, jet boating, golf, skiing, and handicrafts.
A major finding was that alternative enterprises often run in parallel, sometimes across several sectors, such as garden tours and nursery sales or tea and gift shops, specialist food products and various crafts ( McCrostie Little and Taylor 1997a). The prime motivation for these entrepreneurs was to added value to their enterprise, taking advantage of any market opportunity. They were sensitive to market changes and ready and able to respond to market demands - their responses gave the impression of product flexibility and the keen trader's eye. The enterprises also reflected the spectrum of skills contained within the farm couple.
The major market outlet for just under half of the enterprises was wholesale, followed by 43% favouring retail outlets and just under 20% reliant on mail-order marketing, reflecting the specialist nature of their products. Some enterprises extended across these three market types. The great majority of the enterprises have established a broad market base which is a combination of local, regional, national and international markets. A surprising finding of the study is that half of the enterprises had an international focus. This means that many of these farm-based entrepreneurs have gained international marketing skills, in comparison to their experiences with traditional farm products.
Not only were a number of parallel ventures found on one farm, but each usually followed a process of evolution, sometimes slowly. There were clear synergies between parts of many the businesses, such as garden tours and nursery sales, in other instances they took very different tracks. So the composition of alternative enterprises later in the farm and personal life cycle may be very different to their humble beginnings. This picture of multiple and evolving enterprises reinforces a very strong picture of entrepreneurship on New Zealand farms.
The majority of the enterprises were financially and structurally independent of the farm business, being 'stand alone' business structures. Forty four per cent were integrated with the farm business operation in full or part. Most of those working with an integrated structure described it as an 'accounting mechanism'. Others cited the use of farmland, buildings or equipment, or reported that initially their enterprise had been set up with farm finance. Those who ran an integrated structure noted that separating the activities out, especially if they had more than one enterprise was just too complex from an administrative viewpoint.
The second dimension of integration was the use of farm resources, from land to buildings to equipment, frequently including the use of otherwise under-utilised or redundant resources, such as a shed, tractor or extra bedrooms. The interrelationship of farm and enterprise can confuse the question of the value of farm assets used by the enterprise. With a farm stay the dual use of the farmhouse is inseparable, as it is with those entrepreneurs who work from home in a consulting capacity or use 'space in the kitchen'. They might use the farm computer, but the intellectual property on which the enterprise is based comes from the entrepreneur. Many of the enterprises benefited greatly or would not have existed without the use of farm buildings in particular. Having premises close at hand was also of immense and direct benefit: 'access is immediate - time saved is huge'. For at least half of the entrepreneurs the proportion of the farm assets used by the enterprise were 'significant', 'essential' or 'interdependent'. The use of farm assets can be critical in the competitive advantage held by farm enterprises. Respondents readily acknowledged that in an urban setting they would be facing high building cost and other overheads that would detract from their business edge.
In contrast to the core farming operation, women have high involvement in the alternative enterprises, in many cases as major operator or as joint operator with their male partner. It was evident that women operating enterprises had a high degree of motivation and considerable satisfaction from their work. This motivation and satisfaction was based on their ability to utilise personal creativity and skills, and formal training. It also demonstrated an enjoyment of operating in the business 'world', as distinct from the farm. In effect a number of women were developing careers through their businesses, in a similar way to 'career' women in the off-farm employment study ( Taylor and McCrostie Little 1995).
Fewer than 40% of the women had the major role in the on-farm enterprise, males operated 29% and a further 27% were operated jointly. Women therefore were involved in over two-thirds of the enterprises in the study. Males (26%) provided a secondary support role to many enterprises. Twelve per cent of the enterprises employed labour, however, 26% of the enterprises had nobody supporting the major operator. There was little difference in enterprise decision making - financial, production, and marketing - between males and females. Around a third of the women and a third of the men made decisions. For a further third of all enterprises, decisions were made jointly by men and women. There was no single preferred manner of business operation. Completely different business and decision making methods could be in operation for each of one or more enterprises on a farm. It does appear that women were more likely to have a direct decision making role than a direct (non-partnership) stake in ownership. Overall women have more say in the enterprises than in farm decisions.
The research on pluri-activity in New Zealand farming establishes links between farm viability and farm family income, in the context of sustainable agriculture. The mix of economic activity undertaken by a farm household will depend on the natural, economic and personal resources available to them, external factors such as commodity prices, costs of capital, and the labour market, balanced against personal needs. Development of alternative enterprises on farms will be one component of the resulting mix of economic activity.
There is a strong relationship between farm viability and sustainable agriculture. Whereas farm viability is the immediate, short-term concern of any farmer, sustainable agriculture is a more complex question to be addressed by the wider community. In the face of short-term economic trends, such as the reduction in farm surpluses being experienced by many farmers in the mid- 1990s, farmers have looked to alternative means to maintain their household income, through farm diversification or other employment and enterprises. Alternative sources of farm household income can enhance the goal of sustainable farming systems. Whereas productivity "gains", or even holding productivity in the face of bio-physical factors such as pests or a difficult period climatically, can turn out to be a short-term expediency that results in environmental degradation.
The part that multiple economic activities can play in enhancing farm viability and farm family income (particularly by reducing pressure on farm drawings and assisting with debt repayment) is affected by the position of the farm couple in the farm and family cycle. Young farmers building their ownership and equity are often involved in off-farm employment. Farm development and child rearing, on the other hand, make it difficult to engage in additional economic activities, while creating considerable demands on farm income. The enterprise farmers tended to be well into their life cycles, with well-developed properties. Their financial pressures are related more to children's education and looking towards meeting the costs of retirement and succession. They have time and experience to put into enterprise development.
Given the potential of alternative enterprises to add to farm family income, it is useful to examine the obstacles they face. These lie not so much in capital, skills or flair, but lie in legislation and administration.
The enterprises ranged considerably in size. Half had a gross annual income of less than NZ$50,000. Frequently, however, they evolved from a small beginning and low capital input to a much larger concern, with considerable reinvestment of profits along the way. 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 60 respondents started their enterprises with over NZ$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, but that their 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 too, where the enterprise 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 cited by some respondents, who reinforced their comments with examples of the current good financial health and continuing expansion of their business!
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 NZ$10,000, suggesting that generally these were low-risk ventures.
Two thirds of the entrepreneurs had previous business experience other than farming. The types of business varied considerably with respondents advising how valuable their previous business experience was in the establishment of their new enterprises. A few reported previous experience in the same type of business as their current enterprise. A high two thirds reported a history of entrepreneurship in their families.
Twenty-two respondents had completed specific formal training such as Polytech or Kiwi Host courses, enterprise specific seminars and 'in house' training provided by their industry sector. But 40 per cent of the respondents reported that their training was informal, that they were self- taught. Some had learnt their early skills from family members. They were all aware of the necessity of keeping their skills up-to-date. This is achieved in a number of ways from attending seminars to 'lots of swot'. The value of information is appreciated and respondents noted their ability to be good listeners and to seek information. Deterrents to training were:
- time,
- being rural based, away from places where training is usually available,
- childcare or family demands,
- clashes between training programs and peak farm or enterprise times,
- the unique nature of some enterprises and their skill requirements.
A few sought suitable training outside New Zealand. Only two respondents reported that the costs of training were too high. For the majority the quality of training was good, although a number of comments suggested that training experiences are sometimes less than perfect.
Over half of the enterprises required technical support. This support fell into two categories - mechanical, technical engineering and electrical servicing support, or technical advisory support such as financial, accounting, computer skills, meteorological data, soil analysis, food and nutrition analysis. Technical advisory support was generally obtained through sector authorities or institutions. Generally entrepreneurs were satisfied with the quality of their support. Unsatisfactory support included accountancy, 'very expensive' and advertising agencies 'room for improvement'. Technical support was difficult to obtain for some and they had to research and develop initiatives on their own
Less than half (43%) of the enterprises were full-time, the rest being part time or seasonal with the labour supplied by the principal operator, their spouse or family. Just ten employed full-time waged workers, and a further nine employed part-time workers. Twenty employed seasonal, contract or casual workers. They offer the opportunity of employment to rural women in particular, with more than double the number of women being employed than men. Family members were not greatly involved as waged employees, although children home from university or school holidays regularly became seasonal/casual-waged workers. Thirty enterprises reported unwaged labour contributions from family members, including extended family. However, the greatest unwaged contributions were made by the spouse who is not the major operator. Nor is there a gender division in the tasks. Extra hands pick up the extra jobs.
Twelve respondents reported that they had difficulty finding the skills their enterprise required. Labour management caused problems when busy farm and enterprise times clashed. Casual or seasonal labour sometimes contained an inherent problem - attitudes to work and punctuality. Cost of and the 'hassle' of managing labour were the reasons given by two entrepreneurs for not hiring workers. It would seem that for those enterprises requiring skilled or specialist labour the limited base of the rural labour market does create some problems.
Entrepreneurs can face a major dilemma over the future size of their businesses, especially where they have developed initially as a relatively small business to meet a 'niche' market. Increased growth or the potential for growth, vis-à-vis hiring or increasing employed labour, and the imperative to maintain quality and standards (often through their own 'hands-on' ethos) was an unresolved issue for some. It is at this stage that the farm based entrepreneurs ask themselves the perplexing question, do they want to grow so big, 'is it worth the hassle'?
They often find that they need to balance growth in entrepreneurial activity against personal, family and community needs and roles of the farm family. It is evident that decisions about growth of an alternative enterprise are made on the basis of personal and family concerns, not just business factors such as potential markets. Other factors include effects on life style, privacy, and freedom of movement and loss of personal time.
Both the enterprise and the off-farm employment research confirmed the multiple roles of women on New Zealand farms. In fact for some women five major roles can now be confirmed: farm, household and interpersonal, community, paid employment off farm, and alternative on-farm enterprise. Decisions about enterprise growth are based therefore on their personal needs; the juggling of time and the amount of dislocation family life may suffer.
Stress and its management is a concern and it was important to some that the size of the enterprise remained 'controllable'. Although this consideration can be a passing phase linked to the growth of their experience and building confidence. These personal and family life factors may be highlighted for the farmers because of the home base of the enterprises and their close interrelationships with the farm.
As noted above, employment of labour was seen by many as a 'hassle' to be avoided, as its management requires adjustments by the business, individual and family. But by avoiding the employment of labour they could be limiting the growth potential of their enterprises. As a more attractive alternative, labour might be employed on the farm or in the house to release the time of the farmers for the enterprise. Thus labour can be employed where it is seen to be the least 'hassle' and control of the enterprise remains in the hands of the entrepreneur.
The growth issue was particularly evident for those operating a tourist business, for whom home hospitality and the potential for 'round-the-year guests' raises privacy issues. In terms of the overall rural tourist market, however, the growth potential of tourism enterprises (home hospitality) is not necessarily retarded so long as new players take up tourism enterprises.
Over a quarter of the respondents commented on planning issues. Generally they had negative planning experiences. Others noted the lengths to which they had gone to ensure that they obtained all the relevant, sometimes costly, permits. They reported 'bureaucratic delays' and 'huge red tape'. Road sign policies were the greatest single cause of frustration. Generally the reaction was that if tourism was a national economic necessity there must be greater flexibility in the road sign policies of local government and Transit New Zealand. Respondents on the boundaries of one or more district councils also noted that cross-border confusion arises from uncoordinated or inconsistent policies and attitudes to tourism development.
Farmers generally are well versed with the Resource Management Act (1991) and are aware that it works as much for them as it might against them, as yet another barrier to their enterprise. However there is a perceived 'freedom', amongst some farmers that they are able to develop new enterprises without consents, using farm resources of land, buildings and equipment, especially when enterprises grow from humble beginnings. In this respect an enterprise established in the city might more obviously require resource consents or building permits.
The response of local and regional government to alternative enterprises varies from being positive and 'supportive' to being negative and 'restrictive'. Whereas, alternative enterprises on farms have the potential to:
- enhance farm viability and sustainable agriculture,
- create rural employment, and
- help to enhance the vitality of rural services and communities.
Resource management policies are required that encourage and facilitate rural business and employment while protecting environmental quality. This quality, such as landscape or water quality, is in turn essential for many rural businesses, especially rural tourism, and the 'clean-green' marketing image.
In practical terms, farmers need to be involved in the development of resource policy at the local and regional level, making an input in relation to all types of business development, not just the traditional topics such as agricultural land use or weed and pest management. Rural tourism, for instance, needs to be integrated into policies and plans. District plans, in turn, need to be user friendly, attempting not to give the impression of 'red tape' when in fact many obstacles may not exist.
The health and safety legislation has become a key issue for farm enterprises. Like environmental legislation these regulations work both ways. In the absence of a well-established case law from the new legislation, and with the possibility of amendments to the existing Act, there are uncertainties for farmers. Providing farmers with further education and training about their new responsibilities could reduce these. For example, Federated Farmers provide training. Wherever possible farm sector agencies and groups should be brought early into the drafting of this or any other legislation.
At the time of their establishment a third of the enterprises faced community resistance. Several other respondents reported that their communities were neutral, the 'don't know why you bother' attitude. Some resistance was directed at the individual entrepreneurs. However 25 enterprises were accepted at the time of establishment, indeed many found their communities were 'supportive' suggesting a more positive reaction than mere acceptance. The interesting finding lies with enterprises that initially met with community resistance - here there is a dramatic turn around, with only five respondents reporting current resistance. This change can be explained by the observed success of the enterprises, by the positive profile established by both the enterprise and the entrepreneur, by an increasing knowledge of and familiarity with the enterprise, and by the general trend for farm families to seek additional income.
Farm entrepreneurs have responded strongly to a deregulated and competitive business environment in New Zealand over the past fourteen years, with the range of enterprises on farms bearing testimony to the effect of these policies including changes in transport and communications ( Taylor and McCrostie Little 1997a). Economic restructuring has also impacted on the core business of farming, creating an increasing demand from farm families for off-farm income. At the same time opportunities in the rural labour market are limited, and often diminished. The reduction, amalgamation and centralisation of public funded services have resulted in fewer employment opportunities in many small rural communities, especially in sectors that have been important to them, such as health and education.
So there is considerable potential in facilitating and encouraging alternative enterprises on farms, as an additional dimension to the rural labour market and source of farm family income. There are a number of initiatives for local business and employment from central and local government, as well as from community based organisations such as business and employment resource centres. While many initiatives have a rural focus, there was little evidence of their assistance to individual, farm-based enterprises, because they tend to be directed at small townships and unemployed people. Farmers tend to be seen in a 'traditional' farming sense, not as having major potential for business development, despite the resources and skills that they command. Where local authorities and government agencies and other groups are active in promoting seminars or investigating 'non-traditional' land uses, a restrictive attitude can prevail as to the options available and their potential scale. 'Diversification' is still often interpreted in 1980's terms as farming by another name.
Our research has shown that while there are new ideas and new energy being brought into land use alternatives, there are others that might be regarded as far distanced from farming: ostriches are not the only option! It is not so much the alternative use of the land that becomes the key, but the alternative use of the skills inherent in a farm family, in conjunction with all their other farm resources. Alternative enterprises on farms can be much more than 'clip-ons' to traditional farm production ( McCrostie Little et al.1996). The opportunity exists for orientating business initiatives (market development, networking, training, research and technical assistance) to the farm sector in support of a diversity of alternative enterprises.
Rural tourism is commonly promoted as the alternative to a narrow focus on land use options. Strong growth of international visitor numbers reflects national policies and promotion by the tourism industry and Tourism Board. Government departments promoting rural tourism in particular include the Department of Conservation and the Ministry of Agriculture through the Rural Affairs and Social Science Policy Team.
The growth in tourism has also prompted local and regional government to take an increased role in tourist development in their areas, including rural tourism, although this effort is variable around the country. They recognise the wide ranging benefits that tourism can bring to their communities. The role of territorial authorities can vary, and certainly extends beyond support through planning processes. In addition to support for visitor information centres and some local and regional promotion, local government has been involved in development of supporting infrastructure appropriate to the needs of local tourist markets and activities of operators. Of particular importance activities such as road sealing and maintenance, the provision of public toilets and the maintenance of public spaces, parks and main streets. A number of local authorities, often in association with agencies such as Department of Conservation, have taken a major lead in tourism with such projects as the promotion of tourist trails.
Respondents made a plea for a coordinated rather than a competitive approach to rural tourism. Co-ordination, perhaps over a package of accommodation, meals and activities in a local area, places an emphasis on quality and co-operation rather than local competition. Co-ordination and co-operation at the local level can provide the ability to assess and develop local tourism resources and to present a 'package' to tourists, as well as fitting into national marketing strategies ( Taylor and Warren 1998). Farm tourism entrepreneurs told of 'spin-offs' for their enterprises when there was any tourist publicity or a tourist focus on their local town or district, such as 'main street promotions' or local festivals.
While large business organisations can call on external expertise for guidance and support, many small businesses are unable to afford this assistance. Neither do they carry much weight on their own with local or central government. Although many small businesses are competing with each other, there are still potential benefits from co-operation, for example on market research and development. Respondents made a frequent comment that they believed they were 're-inventing the wheel'. Small businesses need to develop networks with other operators to share and learn from their experiences. One specific area requiring attention is the development of 'standards' for some services and products, as well as achieving a focus on quality. Networks could be a mix of local, regional or national.
There is no clear organisation that might facilitate networking and support amongst farmers with alternative enterprises, although several could have an interest, such as the Rural Education Activity Programs; the Community Advisory Service of Department of Internal Affairs; Te Puni Kokiri; Community Employment Group of the Department of Labour; New Zealand Employment Service, regional tourism offices, and business development boards. MAF could also play a key role in facilitating this type of activity in and between agencies, and spread information about networking opportunities and initiatives through its regional advisers and the Rural Bulletin.
Enterprise cultures at the farm level require supportive networks, awareness and pro-active business policies by local and central government.
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Taylor C. Nicholas and Julie Warren. 1998. Community initiatives for rural tourism development Paper prepared for the Third Biennial New Zealand Tourism and Hospitality Research Conference, Akaroa.
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1 - The research was funded by MAF Policy, Wellington and we acknowledge the importance of this funding and the assistance of Dr Ann Pomeroy and other MAF staff in undertaking the research.
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