Irrigation a lifesaver for troubled farm

JON MORGAN

A failed $17 million dairy conversion in Central Hawke's Bay is making a comeback.

Under new ownership, the land is getting massive doses of fertiliser and is luxuriating in the element it has missed the most for the past three years - water.

The conversion of 508 hectares of rolling countryside from sheep and beef to dairying in 2008 ran into trouble soon after it was completed.

Financial stresses on the National Bank brought on by the global credit crunch and a long spell of dry weather have been blamed.

But the new owner says the conversion should never have gone ahead without the ability to irrigate.

"I was amazed no-one came to see me before they got under way - not the owners, not the bank, no- one," Paul Franklin says.

He converted an adjoining farm to dairy in 1995 and soon after secured water rights from the nearby Waipawa River.

But the owners of the new conversion, local farmer Tony Weber, a Manawatu dairy farm manager, David Mildon, and Reporoa dairy farmer Terry Taylor, knew they could not irrigate. The regional council's allocation of river water rights was fully subscribed and there was a moratorium on new bores.

Mr Weber was sure enough rain would fall. In 2008, in an interview with The Dominion Post, he described the farm as being in a good rainfall area - a shallow valley that captures passing showers and a soil type that encourages pasture to spring back to life.

Annual rainfall was 1150 millimetres, but in the previous year's drought that had fallen 25 per cent. However, Mr Weber was confident that with the addition of maize and grass silage from a 290ha support farm he owned, milk production would not suffer in dry years.

But the new venture was quickly hit by a series of misfortunes.

The conversion was completed successfully, but then the drought returned, expenses climbed and added to the owners' debts and the global credit crunch forced their bank, National, to tighten its loan portfolio.

Mr Weber and Mr Taylor say they are restrained from comment by a settlement agreement. National Bank was asked if it should have done more research before approving a loan for the conversion, but has declined to answer, saying it is prevented by legal obligations to client confidentiality.

Mr Mildon, who had a minority shareholding, says that towards the end of the first year, the bank gave them 18 months to straighten their finances and when that couldn't be achieved told them they had to sell up.

He says he is not critical of the bank. "They were professional and fair in their dealings with me. But you would have thought they would have had a formula to pick up the flaws in a deal like this.

"But, ultimately, it was our decision to go ahead. We must carry the can for that."

The crucial factor was the lack of water, underscored when the partners struck prolonged summer-autumn dry spells every year.

"I heard later that people in the district were saying, 'Why are they converting that farm, it doesn't grow any grass'," Mr Mildon says. "It should never have been converted. This land is way too marginal. The cost of converting outweighs what it can produce.

"I know that now. I had to learn the hard way."

He blames himself for not finding out more before taking on the farm.

He says he allowed his emotions to get the better of him when he jumped at Mr Weber's offer to invest in a new conversion.

"I had been managing a farm for a syndicate of investors and desperately wanted to go somewhere I could have a personal stake. It was never my intention to be filthy rich; it was just the pleasure of milking cows and feeling self-fulfilled."

WHEN the bank gave them its ultimatum in the second year, Mr Mildon's partners turned the running of the farm over to him.

The lease of Mr Weber's support farm ceased, brought-in supplementary feed was restricted, fertiliser was kept to a minimum, he had to make room for young stock that had previously been sent away for grazing and had to sell cows to keep within his budget.

Milk production fell from 310,00 kilograms of milksolids from 1100 cows to 270,000kg from 1000 cows over two years.

He spent the 18 months before the sale working 12 to 14-hour days, not able to get back to the house before 10am for his one meal of the day before heading out again.

Now those days are behind him. He has been kept on by Mr Franklin as farm manager but says he has lost everything.

He is left with an unsecured debt, the details of which he doesn't want made public, and is still talking to the bank about it. "I am having to start again, and I'm grateful to Paul for taking me on."

Mr Franklin says it is not charity. "I knew he was a hard worker, I saw how he'd done under adverse conditions - farming with no money and no grass - and I thought he'd done well. And he's a nice guy, too."

Nobody is revealing details of their personal losses, but one figure that appears to be common knowledge and is not disputed is $17 million for the total cost of the conversion, which included the land, regrassing, fences, races and a $1.6m state-of-the-art milking shed and feed pad, an overrun on the $13m first budgeted.

Land registry details of the sale to Mr Franklin show he paid $7m for the farm three years later. On top of that, he also bought all the stock and plant.

Asked if he got a bargain, Mr Franklin replies: "I couldn't say, but from the comments I've had it's clear others think it was a bargain. Time will tell."

He says he would not have bought it if he did not already have available water.

However, to make the new farm productive he has had to spend more than $1m, on more cows, supplementary feed, to extend an irrigator through the fence from his farm and on a superphosphate- urea fertiliser mix at the high rate of one tonne to the hectare.

Two big centre pivot irrigators are also on order that will take the total irrigated land on the new farm to 100ha.

He has also had to pay for extra Fonterra shares to match the increased milk production he expects to get this year. He is targeting 380,000kg of milksolids from 1200 cows, rising to 400,000kg next year.

"Production isn't everything," he says. "I've got a low-cost system, with water efficiencies and minimal supplements. A high- input system will do very well in a high-payout year but a low-cost system will make money every year."

He was a sheep and beef farmer struggling to make headway in the mid-90s when his bank manager suggested a dairy conversion. He built a milking shed and converted half the 320ha farm at first.

However, he found it difficult to keep to his budget and realised irrigation was needed. "That was the best decision I ever made."

The Waipawa River was close to fully allocated but he put up a case to the regional council to be allowed to take water whenever the river was running at a level much higher than the approved minimum flow. It was accepted and he says that in the 13 years since he has averaged just seven days a year when he has not been able to take water.

More recently, he has changed the irrigation to more efficient centre pivots, which has freed up water for the new farm.

After the recent dries he is also seriously considering investing in the extra security of on-farm water storage to catch the run-off from winter and spring rains.

With a third farm at Eketahuna bought in 2007, he now has 3000 cows which in the year just ended produced more than 900,000kg of milksolids, for which Fonterra will pay $8 a kg.

He is much more wealthy than if he had stayed with sheep and beef, though he misses the work. "I'd be happy being a sheep farmer, but I just couldn't make as much money out of it."

Mr Mildon says he is relieved to be out of the "hell" of the past two years and says Mr Franklin is his ideal farm owner. "He's got the water, he got the knowledge and he's a bloody hard worker. He's got what I need.

"I'm glad to still be here. I'd love to see it come through all the turmoil of the past few years as a thriving dairy farm."

jon.morgan@dompost.co.nz

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