Review of drought preparation and business strategies for the North-West Slopes, 2002-03
Executive summary
Producers of the North-West Slopes undertook a review of their drought preparation and business strategies as at 2003, as the 2002–03 drought has been a period of significant impact across the whole of Eastern Australia. In order to do better than just survive in extended drought periods, graziers in this area came together to evaluate the various ways by which different operators manage — before, during and after the event, and in relation to this particular regional environment.
A number of realities needed confronting:
- Unfamiliar climate patterns were occurring.
- Very few people had enough experience to manage the 2002–03 drought well.
- Past approaches needed review.
- The experiences of this drought needed recording.
- Business planning goals deserved a rework.
By defining what success looks like, Bingara workshop participants were able to benchmark their current strategies against the success parameters for their area. This allowed individuals to rethink their future drought plans and to account for known areas of shortfall, and so to better define their individual strategies. The concept of best management practices is hard to interpret in line with the wide range of producer business goals.
However, the facilitated group-workshopping approach, conducted in the third person, allowed a wider perspective from which to make objective evaluations of the drought’s total impact. The ongoing financial impact was the main concern. However, other contingencies, such as a lack of farm water, the influence of unrelenting work pressures on family relationships, and long-term effects of a deteriorating landscape, can sometimes take an unforeseen toll.
Producers tended to belong to one or more philosophical groups when it came to implementing drought management practices that suited their personal risk profiles. Objectives were to:
- maintain stock numbers at all costs;
- look after the pasture resource by reducing stock numbers;
- increase stock turnover in line with target markets; or
- simply defer making decisions for as long as possible.
A framework for planning and decision making evolved, and was presented at the Barraba forum as a history-based big-picture outline. The overriding emphasis was on motivation to act appropriately, through personal planning and decisions made in advance. Graziers indicated a significant level of drought preparation:
- 50% graziers have a considered drought plan
- 50% conserve fodder on-farm
- 47% do yearly budgets
- 40% use farm management deposits (FMDs)
- 35% invest off-farm
- 35% have a written drought plan.
We don’t know if these figures hold for the rest of the community.
In terms of the many decisions taken during the drought, producers nominated their best decision as ‘destocking to critical dates’, and their worst decision as ‘not acting early enough’.
Significant drought costs and opportunities relating to the North-West Slopes are recorded in this paper. Overall the key messages focused on forward planning — ‘Know what you are going to do and when’ was the key to staying in control.
Overview
In order to assess drought management actions taken in 2002–03, and preparedness for the future, a two-stage review process was undertaken on the North-West Slopes. This involved NSW Agriculture (now NSW DPI) Advisory Officers and the Double B Beef Promotion Association working together to establish a sequence of meetings with local producers to set up a review concept. The idea was to bring people together to reflect on circumstances leading up to the recent drought conditions and how it actually impacted their farm businesses.
- What were the lessons learnt?
- What was the basis for decisions made during this time?
- Which decisions did producers consider valuable, and, upon reflection, what were the decisions taken that turned out to be of lesser value?
- What are the planned steps to recovery?
- What is the process for setting plans and strategies to cope with future droughts and dry spells?
Features of the North-West Slopes
The North-West Slopes area is noted for reasonably regular seasons with some dry spells and droughts, which tend to run for somewhat shorter periods than do those in the western areas of the state.
Droughts tend to occur every 5 years or so (3 months’ duration) with a serious drought every 10 years (5–6 months’ duration). The 2002–03 drought lasted a minimum of 8 months and left most property owners unprepared.
A lingering drought was associated with the southern end of the North-West Slopes, which in some cases stretched to 22 months around Manilla, Gunnedah and in pockets north of Warialda and Delungra.
For a historical record, we present the following climate information:
Drought can commence in any month but is usually associated with low soil moisture conditions; generally the soils are light and dry out quickly. Red-brown earths, the major soil group, hold on average only 200 mm of plant-available water in 2 m.
Pastures across the North-West Slopes are predominantly unimproved, summer-growing, frost-susceptible, native grasses. Cropping, sown temperate grasses with legumes, and native grasses improved by the introduction of a legume, make up approximately 30% of the area.
Lower than average summer–autumn rainfall is going to have a large impact on the amount of grass grown on the slopes because of the predominant pasture species.
With reasonable carrying capacities and a high proportion of 18 to 20 month old cattle turned off between December and March, there is a distinct vulnerability factor if spring rains fail. The predominant enterprises are breeding and finishing. Certain properties also specialise in trading stock, especially where the improved pasture development is high. There is a general practice of lightening off numbers somewhat, before the winter.
Stage 1 - Bingara drought review workshop
24 July 2003 (approx. 3 months post-drought)
The goal of this workshop was to evaluate the drought so far and to agree on messages and tools the group could present to the producers who would be attending the public forum (to be held at a later date), to enable these producers to refine their drought strategies as part of future business planning.
This meeting was a gloves off, boots and all ‘personal impact scenario’. It examined and compared the drought experience of eleven local farm businesses at depth. The participants came prepared with 2002 and 2003 end-of-year financial reports, opening and closing stock numbers by class of predetermined value, opening and closing fodder reserves, and the change in equity positions as a result of the drought. A timeline including the cost and value of key decisions during the drought was presented by each of the eleven farm businesses.
By the end of the day, the participants, assisted by a facilitation process, were able to identify:
- what depicts success;
- three distinct strategies for handling droughts;
- thirteen key lessons learnt;
- how to apply the individual lessons learnt;
- how to share what was learnt with the wider community.
What depicts success?
Success comes with clear goals and planning across all levels. It is also about individuals taking more responsibility for decisions and continually testing their decisions against their plan to achieve. By way of definition, it was agreed that ‘successful drought management’ is about staying in control of the following aspects of the business:
- Financial:
- Limit equity loss.
- Maintain cash flow as much as possible.
- People:
- Stay positive and in control. Be an opportunist.
- Maintain harmonious communications with business and family.
- Ensure networking and educational needs are met.
- Landscape:
- Monitor soil moisture.
- Maintain target ground cover.
- Maintain pasture species for best resilience.
- Production:
- Maintain the strength of the business.
- Make use of off-farm investments, farm management deposits (FMDs), grass in the paddock, or fodder in storage.
Of crucial importance here is to:
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Three distinct strategies for handling droughts
- Feeding stock to maintain numbers
This strategy is based on the premise that stock numbers, particularly of young stock, will be low following the drought, and that it takes time to breed back up again unless herd numbers are maintained.- Usually suits short-term droughts.
- Can be costly in major droughts.
- Requires good drought reserves and strong finances.
- Destocking
This strategy works on the premise that pasture is a limited resource and that drought recovery requires strong basal ground cover to reduce erosion, and that a minimum leaf area comes back quickly. Controlling stocking pressure minimises drought-feeding costs and sees the gradual disposal of stock as the drought progresses.- Lower stress strategy.
- Mostly in a position to restock early.
- Production feeding and sale of market-targeted stock
This strategy depends on speeding up stock turnover and reducing numbers by selling stock in the most appropriate markets.- Often some value adding when producers start early.
- Sometimes an ongoing opportunity is built up.
Individual circumstances
It was noted that drought planning relates to individual circumstances and capabilities. There can be no strict recipes for success. The degree of risk varies with:
- a person’s equity level;
- the degree of pasture and property development;
- the level and type of stocking going into the drought;
- a person’s previous experience and goals for the future.
Most drought decisions are based on the owner’s experience in previous droughts, and this proved to be limiting in 2002–03, a 1 in 100 year occurrence.
This begs a somewhat harder question — which drought do you plan for next:
- the 1 in 10 year drought?
- the 1 in 20 year drought?
- the 1 in 100 year drought?
Or should you have a different strategy for each of these three?
Thirteen key lessons learnt
- Drought occurs when stocking rate exceeds carrying capacity (i.e. drought is not only rainfall-induced).
- Humans control stocking rate.
- Nature controls carrying capacity.
- Success in drought is achieved in the same way as at other times (e.g. using sound business management principles).
- We should start with goals, and write and communicate the plan, including the recovery plan. (Plan now for next time, write the plan down. Have the plan in the folder. Don’t lose the folder.)
- Finetune the plan regularly once it is put into place.
- Move early.
- Remain positive — keep in touch with positive people.
- Set critical dates.
- Beware the emotional load! Share the responsibility with family members. Don’t be afraid to seek help.
- Watch out for unmanageable equity losses.
- Look on mistakes as learning opportunities.
- Preserve the resource base for financial recovery and future generations.
How to apply individual lessons learnt
Have a drought plan.
How to share what was learnt with the wider community
- Hold an open forum (e.g. the Barraba drought buster risk management forum).
- Encourage benchmarking groups.
- Promote wider use of practical drought-forecasting models.
Stage 2 - Barraba drought buster risk management forum
7 October 2003 (a further 2 months on)
This open forum was held in Barraba, because the pasture recovery had been strongest in this area, and Barraba is central to a large portion of the North-West Slopes. Seventy people attended.
Planning for this day by the local steering committee was made easier due to the fact that a large amount of local detail and knowledge had been forthcoming, and been filtered by the Bingara group for its authenticity and relevance. Some participants from the Bingara day were chosen to represent their particular drought strategy to the forum, and a summary of the thirteen lessons learnt was also presented. There was also a keynote speaker challenge, which referenced peoples’ overall attitude to droughts and drought positioning as part of their business management. Concerns for people, primary resources and the landscape were also discussed. The overriding emphasis for the day was on motivation, personal planning and decision making.
Speakers
Speakers focused on different aspects of coping with drought:
- Rabobank representatives gave the bankers’ view of drought and described the effect of the drought on the family and family relationships.
- Don Capel (email: theoaks@bigpond.com) presented the results of the Bingara workshop, held on 24 July 2003 where eleven businesses met to discuss their drought strategies. Essentially these businesses fell into three groups: those who fed for maintenance, those who fed for production, and those who destocked. Not represented at the initial gathering were those who ‘just hoped harder’ and did nothing.
- Local producers Garry McDouall, with a strategy revolving around destocking, and Malcolm Donaldson, whose family fed their stock for production purposes, gave refreshingly honest presentations on the strategies they followed during the recent drought, and the strategies they intend to follow when the next dry time occurs. Mistakes, as well as good decisions, were highlighted.
- Brett Findlay, a member of a benchmarking group east of Narrabri, spoke about the value of such a network during the bad times as well as the good.
- Lester McCormick and Bernie Munro from NSW Agriculture (now NSW DPI) gave informative talks. Lester suggested that soil moisture, as opposed to rainfall, is of great importance when assessing future feed conditions. Bernie concentrated on the simple but often overlooked aspects of making good decisions.
- Sean Martyn from Resource Consulting Services proposed some thought-provoking ideas, which challenged producers to justify often long-held beliefs and habits. One of the propositions he made was that there is no such thing as ‘normal’ or ‘average’, just ‘wet times’ and ‘not so wet’ times, and that the dry times which happen with monotonous regularity shouldn’t be viewed as ‘exceptional’. Therefore we should not be looking forward to getting back to normal, as ‘normal’ does not exist.
What the participants told us
Participants were divided into groups to generate discussion on drought issues and drought impacts. Feedback was provided through a questionnaire which participants completed during their discussion. Forty businesses provided feedback at the Barraba forum.
According to most graziers at the Barraba forum, this drought has been more severe than any previous drought and has resulted in a severe setback for rural businesses. The main concerns were:
- loss of income, including future income
- deterioration of the landscape
- stock survival
- the cost of keeping stock alive
- a lack of water
- the pressures of unrelenting work associated with all droughts.
In terms of preparation for droughts:
- 50% of businesses conserve fodder on-farm
- 50% have a considered plan
- 47% do yearly budgets
- 40% use farm management deposits (FMDs)
- 35% invest off-farm
- 35% have a written plan
- 22% work on 5-year forward projections
- 17% work off-farm.
Circumstances pertaining to the 2002–03 drought on the North-West Slopes
Market/climate/ecology
- Cow prices fell 40% as the drought gripped. Light cows (<160 kg DWt) were unsaleable.
- Agistment was impossible to find.
- Fodder prices increased 100%.
- There was an ‘air of confidence’ that cattle prices would maintain, post-drought.
- Drought affected most of eastern Australia.
- Storms confused the issue.
- Ground cover may have been a signpost — also rainfall pattern.
- Some destocking, but not by the numbers needed, and some use of sacrifice paddocks.
- Severe frosts and cold in July stripped pasture value.
- Extreme heat wind and evaporation in January and February.
- Roughage — a big requirement in this drought.
- February break benefited annuals and sub clover.
- Minimum length of drought was 8 months (previous expectation was around 4 months). Important to note that some areas west of Barraba went for 12 months.
- On some properties, diets changed 3–4 times due to changes in availability of feedstuffs.
- A clean, good quality, water source (in troughs) preserved animal health and paddock grazing options. Also reduced losses from bogging in dams.
- Small lucerne irrigation areas on a few properties were regarded as beneficial.
- June/July calving made stock reductions difficult when the drought hit.
Other points arising from discussion and reflection
- Be wary of superficial assessments of pasture availability in the early drought stage.
- Don’t rely on ‘one off’ rain events to get you out of trouble.
- Understand the ecological implications of your decisions.
- Be aware of social issues arising on farms in drought times due to pressure of work etc.
- March–April is traditionally dry.
- In terms of overstocking effects on country, it was noted that many of the same farms were run down in 1982, 1994 and again in 2002.
- It is OK to exchange capital for cash (i.e. sell cows) and buy back later!
- Relative to other areas of NSW, the northern slopes has some history of early recovery and therefore you can capitalise on that in various ways, for example by taking on agistment for cash flow post-drought, or simply by buying back into the market before the widespread lift in prices takes hold.
Best decisions
The best decisions taken included:
- destocking to critical dates, thus allowing for planned marketing;
- having land in good condition prior to the drought;
- having off-farm investments;
- buying land with irrigation;
- using rotational grazing to make feed budgeting easier (i.e. number of grazing days available at present stocking);
- having secure FMDs;
- deciding not to feed for maintenance;
- having reasonable fodder reserves, and keeping silos full of grain;
- early weaning and sale of older cows;
- developing a landscape vision;
- marrying a school teacher!
Worst decisions
The worst decisions taken included:
- not acting early enough;
- not having a plan to handle long-term droughts;
- feeding non-market-connected stock;
- not taking enough notice of long-range climate forecasts;
- not selling enough stock;
- not carrying enough negotiable stock;
- not enough feed stored on-farm;
- not enough alternative income through investments;
- starting too late — ignoring sell signs January to June;
- not taking a holiday prior to starting the hard slog;
- not reading the indicators early enough;
- too much faith in spring rains;
- purchasing fodder in November (2002) at extreme prices;
- allowing feeding costs to continue for too long;
- not improving the water situation — following drying dams around;
- not feeding lambing ewes sufficiently;
- no drought plan at the start of the drought;
- not enough small paddocks;
- underestimating the effect of calving;
- buying cattle on a false break;
- not purchasing enough young cattle early to take advantage of a good recovery …
Steps to recovery
In setting up for drought recovery, producers on the slopes have taken a number of steps including:
- taking on agistment
- running backgrounding steers on the property
- restocking with trading cattle.
Some have fattened prime stock already — their own or those purchased during the drought. Most have sold empty cows for cash flow.
There is a tendency to remain cautiously understocked to allow the country to recover and to hold present numbers for growing out to put on more weight. There was initially a run on oats cropping for fodder, and replenishing grain supplies. There has been limited resowing of pastures and topdressing native pastures with legumes in them. Some producers have replanted lucerne or put lucerne paddocks back to grasses. Some have made silage and hay to replace reserves, and many are planning to do this.
As well as budgeting fodder replacements, some producers have taken the opportunity to rebudget the business to be sure of cash flow requirements, and to revise production goals, for example:
- from weaners to an older turnoff target;
- to restock with easy-doing low-maintenance cattle;
- simply to maintain the lower number of breeding stock on hand since the drought.
Others have reviewed their total business mix, and decided to use off-farm investments to help catch up on their lower income stream for the next 12 months to 2 years. For many people who run essentially grazing properties on the North-West Slopes, cash cropping is not an option.
Much work is continuing to create more subdivision, so as to improve grazing systems and to improve water reticulation to avoid unnecessary losses in future dry times. There is a trend to limit overhead costs, but not on essential developments. Those producers still with FMDs have used them to assist in restocking. A number have commented on maintaining good relations with their bank advisors and many have reorganised the structure and length of loans.
Many graziers have learnt from the last 2 years of hardship, and will be adopting a new attitude to drought, that is: ‘When you can’t beat it, you have to learn to manage what is most important to you in terms of people, core business, land and livestock resources’. It’s a matter now of keeping on with the good management practices, confirming new goals, learning from mistakes and managing for recovery. However, we sometimes have to change our way of looking at things to make the changes needed for business survival and enterprise growth.
Regarding personal drought recovery on the slopes, the average assessment of the time taken to get back to square one (that is, ‘where I was before the drought’) is in the order of 3 years, all other things being equal — which of course they never are.
Costs
The high costs of drought feeding (in the order of $100 000 for a 300-head breeder herd) or restocking meant that equity losses of up to 10% occurred. There were of course considerable variations on this according to an individual’s herd size, feeding level and percentage of negotiable stock (available for offloading) going into the drought.
Many producers fed their stock at rates less than the nutritional standards stated in textbooks in order to make their outlays go further. Where stocking rate was not adjusted, this had the effect of increasing losses and decreasing subsequent pregnancy rates.
Extended droughts provide even greater challenges for small herds, where the income derived is such that the owners can’t really afford a break in cash flow at all. These producers often worked on the philosophy that they had to feed stock to maintain numbers, in order to return to full production immediately the drought season broke. See Beef gross margins for costs of full handfeeding in 2002–03 for a range of enterprises.
The loss of pasture species, ground cover, litter and subsequent soil erosion through overgrazing can have long-term negative financial ramifications.
The cost of replanting improved pastures following this drought will be in the order of $120–$170/ha, depending on species used. This does not account for the grazing losses while the pasture re-establishes and reaches full production (i.e. 2–3 years). On a typical property of 1600 ha, replanting 70 ha will cost $8400 to $11 900.
Seed oats was particularly scarce for the 2003 season, and seed prices ranged from $800–$1300 per tonne.
Opportunities
Cow prices in late 2001 and in February 2002 were historically high, and provided a window of opportunity for those producers who like to plan 5 years ahead and keep out of synchrony with the American cycle. Irrespective of the approaching drought, the value in opportunistic selling to keep a conservative stocking rate at all times looks even better now in retrospect. Quite plainly a lot of producers held on to older cows, and even replacement heifers, at a time when they should have been selling them.
The prices for young cattle, and especially weaners, held right through to July/August. This gave the production feeding options a chance to work where forward-marketing decisions were made in April–May 2002 (weaning time). Much of this feeding, however, had to be done at home, as many feedlots have restructured their businesses since the time of the last drought, and now have much more rigid supply chains.
Generally, the duration of the drought on the North-West Slopes is significantly shorter than on the Western Plains or the far west areas. This gives rise to two opportunities in extended droughts:
- a longer warning time that a drought is coming, by virtue of following its approach from other areas;
- the opportunity for producers to get back into the market post-drought, while other areas are still drought-affected. This occurred in 2003, with considerable restocking out of southern NSW during the month of June. The option to take on agistment stock also arrived at this time.
Where trading stock make up from 30% to 50% of a property’s stocking rate, it is possible to make much earlier decisions (and, in hindsight, better decisions) during a drought. For example, you can:
- sell stock immediately you make the decision and relieve the grazing pressure on the property;
- time your re-entry to the market to suit your drought recovery;
- adjust to the market price cycle more quickly and so maximise gross margins per hectare or per dse (dry sheep equivalent) over the long term. See Beef gross margins.
Conclusion
There were a number of outcomes from the Barraba forum held in October 2003. There was excellent feedback from participants regarding the format for the day. There was a heavy demand for speaker notes and reference material supplied on the day. The serious networking was time well spent. Core messages from the forum were captured on interview and reported on the ABC’s NSW Country Hour.
There could be some truth in the concept that drought is really a man-made phenomenon — without the interference of humans, it would simply be a ‘dry time’. This was one of the thought-provoking propositions put forward at the Barraba drought buster forum.
The key messages focused on planning. No matter which strategy you intend to pursue, the importance of having a written action plan was stressed a number of times. ‘Know what you are going to do and when’ was acknowledged as the key to staying in control, and staying in control was accepted as leading to less stress for your business, your family and your property.
Another important message to take home for those who were interested in the destocking option was to avoid ‘getting caught’ with stock which cannot be shifted when the feed starts to deteriorate.
Further information
Climate
Contact:
Paul Carberry
Advisory Officer, Climatology
PMB944
Tamworth NSW 2340
email: paul.carberry@dpi.nsw.gov.au
Copies of proceedings
Copies of the proceedings of the ‘Drought buster risk management forum’ and the ‘Bingara workshop’ can be obtained directly from:
Georgina Sinclair
Double B Beef Promotion Association Executive Officer
PO Box 88
Bingara NSW 2404
Tel: (02) 6723 6645
Fax: (02) 6723 6602
email: bbb@northnet.com.au