The Business of Dairy
The Business of Dairy podcast will look at aspects of management of dairy businesses from both within the farm gate and outside the farm gate, speaking to farmers and service providers with skills, information and knowledge of value to you and your business. We will bring to you monthly discussions on topics that will grow your knowledge and understanding of management areas that will drive strong farm business performance into the future. This series is brought to you by the NSW DPI Dairy Business Advisory Unit with funding and support from the Hunter Local Land Services.
The Business of Dairy
Decision Making and Risk Management with a Family Board
The use of a structured approach within a NSW dairying business to assist with decision making and risk management, is discussed this month with Kay Smith from Bulahdelah. The Smiths have been operating a family dairy business for over 40 years and 5 years ago, faced with a number of challenges, were weighing up their future options. One of these involved a significant change to the business requiring a lot of capital investment and risk. Kay introduces us to the business and steps us through their reason for creating their advisory group, how they set it up and how it assisted them in getting to where they are today. We would like to thank the NSW Farm Business Resilience Program for their support in the production of this episode. This program encourages best practice knowledge sharing to highlight the social and economic benefits with forward planning and investment.
Links to useful resources related to this podcast:
GRDC publication “Farm Decision Making”
This podcast is an initiative of the NSW DPI Dairy Business Advisory Unit
It is brought to you in partnership the Hunter Local Land Services
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Transcript here
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The information discussed in this podcast are for informative and educational purposes only and do not constitute advice.
The Business of Dairy
Episode #37 Transcript – “Decision Making and Risk Management With a Family Board”
Sheena Carter: Welcome to the Business of Dairy podcast. I'm your host, Sheena Carter. This month's topic is centred around the use of a structured approach within a family business to assist in decision making. This structure is the use of formalised meetings which can take the form of an advisory board, or in the case of the family business we are focusing on in this podcast, the use of a steering group.
The Smiths from Bulahdelah in New South Wales have been operating a family dairy business for over 40 years and five years ago were weighing up their future options. One of these involved a significant change to the business requiring a lot of capital investment. Kay Smith and I discuss how their advisory group was formed, how it assisted in risk management and decision making and how it shaped the farm they operate today.
We would like to thank the NSW Farm Business Resilience Program for their support in the production of this episode. Their program encourages best practice knowledge sharing to highlight the social and economic benefits with forward planning and investment.
Well, welcome to the Business of Dairy podcast, Kay. It's great to have you as a guest and you will be known to quite a few of our Australian and New South Wales listeners. But can you just describe your farm to our listeners and where it is and the type of system you operate?
Kay Smith: Certainly, Sheena, and hello to everyone. Our farm has been owned by the family since the 1960s. The previous generation to us purchased the farm – about 800 hectares – three kilometres from Bulahdelah on the mid-north coast in New South Wales. I guess one of our farm's main features is that we have about 3.2 kilometres of Myall River frontage, which feeds the Myall Lakes, which is an extremely sensitive environmental area. Up till 2019, we operated a ten-a-side herringbone and a small beef operation. And that supported my father and mother, my husband John and I, and our kids.
Sheena Carter: So about five years ago, I think it was, you found or the business found itself at a bit of a crossroads. You weren't quite sure where to take the business at that point. Can you talk us through that?
Kay Smith: Certainly. So I always worked off-farm. John and Dad did all the milking. Dad suddenly passed away back in 1998, so after that, John and staff did all the milking, all the farm work. John milked basically every milking and made every decision for the farm. But suddenly, John had to have rather critical surgery and lost a kidney and was told he would never be able to do the physical work again that he had been doing. So obviously, change had to happen. We didn't know what that change would look like. It literally hit us overnight. We hadn't really considered the future of the farm because John was still fit and healthy and going well. So it just happened that at the same time we had booked to go to a robotic conference in Tasmania and we still went to that and that really caught our attention. John was very much a dairy farmer and not a beef farmer. And we could see that robots would allow John to remain active in the dairy industry, making lots of decisions for the farm still, and yet not requiring the physical labour that the herringbone did. So it caught our attention, but we knew nothing about them. We had no experience with them. So it's all very well to have it catch your attention, but you think, how the heck do we go forward?
Sheena Carter: Yeah, and a very different system to what you had in place or have in place still.
Kay Smith: Absolutely, absolutely. Very different, very different way of thinking. And we didn't even know whether we would replace our existing dairy with one, whether we would add a secondary to the farm. And at that stage, none of our kids, and we've got five of them, but none of them were home. They were all away following their own careers. So we were looking to make a decision for John and I, rather than for the next generation, at that stage.
Sheena Carter: Okay. So you've come to a bit of a crossroads all of a sudden, unexpectedly. How did you go about, you know, overcoming the, I guess, obstacles or the challenges that were put in front of you? How did you move yourselves forward from this situation?
Kay Smith: Yes, well, one of our sons, the eternal optimist, said he thought a robotic dairy would be really good for us to fill in our retirement. And he also suggested, along with one of his brothers, that maybe we should form some kind of group to help us make those decisions at a very difficult time and to just study the viability of the suggestion or the viability of retirement or the viability of converting the farm to beef. You know, it wasn't a definite decision at that stage that it was going to be robots. It was just one of the considerations.
So the boys decided, or suggested, we form a group, and so we thought about who we would have in the group. At that stage, and it still remains, that the farm is a company with shareholders and those shareholders are all in our generation. And there were four of us. So we decided the four shareholders should be part of the group, obviously. We decided that our two youngest sons should be part of the group because they had extensive training in agriculture and a reasonable amount of experience for two young guys. And then we decided that we should have a couple of external people, because I keep saying when families sit around a table to make decisions and you say, well, by next week will you have done this? And you say, yes. Next week comes and you haven't done it and you say, oh, you all know I've been busy, and you excuse each other.
So we really look for those outside people to almost make us accountable to actually carrying out what we said we were going to do. And so we thought about lots of people. We ruled out personal friends because we thought that could get tricky. We ruled out people that we thought would just agree with us. We were looking for people with rather strong character in their own right, as well as having the experience and knowledge that we would respect. And there are quite a few people that fell into that category.
But we narrowed it down and we approached Wayne Clarke, a robotic dairy farmer from Casino, North Coast, New South Wales. Wayne and his brother had been operating a robotic dairy very successfully for a number of years and Wayne also is very science-based and very considered with what he thinks and says. So, not only did his knowledge and experience appeal to us but his character also appealed to us. And then a fairly obvious choice for us was Kerry Kempton, who at the time worked for the Department of Primary Industries, based at Tocal. She knew our farm. She had lots of experience in benchmarking. She knew financial analysis. So she was very much our data guru. So we invited those two people to join the group. Luckily, they both accepted and we formed the group.
Sheena Carter: Excellent. So I guess, look, there's lots to pull apart in all of that. I think probably one of the first points to make is, you are probably very much in the minority in terms of family businesses forming such a group. There's a GRDC, Grains and Research Development Corporation, publication from 2015, which is called Farm Decision Making. And in that book, admittedly it's nine years ago, but they indicated that less than 1% of Australian family farms use regular formal meetings. Hopefully, that has shifted somewhat in the interim, but it's still not going to be the majority of family businesses that have such a formal structure for accountability.
Sheena Carter: And I guess that's what you were doing. You were creating a group. You were calling it a steering group, advisory group, where you were able to get the key people you wanted in the room at the right time. And I guess often we see on farms, a lot of farms will have consultants or advisors, but they tend to come in and meet with perhaps one person, whether it's the main manager or operator within the business, and they have a one-on-one discussion, not a rigorous discussion that you have tried to facilitate through the formation of your group. So I think another key point is with these groups, there's no one-size-fits-all for family steering groups, meeting groups. It's really what works for you and who works for you. As you've articulated, they have the characteristics that you're looking for, to keep you accountable and provide you with the knowledge perhaps that you might not have within the business. I guess your purpose of the group, it wasn't so much for those operational decisions really, it’s key strategic decisions that needed to be made at that time.
Kay Smith: Yes. And it was formed for that specific purpose. And even when it was formed, we knew it had an end date. That group had an end date. And we made that very clear to everybody. Here's our purpose, and when we've gone through this process, this group will end. It's not to say we wouldn't form another one or the same one again, but at the time, yes, it was crucial to the progress of the farm. But I will say, Sheena, the first obstacle that you have to overcome when you form such a group is that the main people in the farm, and in our case that was John – I knew nothing – John had to be prepared to share data, to be questioned, to be challenged, and that's an obstacle in itself and if you're not prepared to go to the table knowing that's what's going to happen then I'd say don't go to the table.
Sheena Carter: No, it's not going to work. You're really opening yourself up, aren't you?
Kay Smith: Yes.
Sheena Carter: A, to be critiqued on some of your knowledge and experience but also sharing quite personal information about the business with external parties.
Kay Smith: Yes. I remember one instance, I mean we had to put cash flow projections, you know, all sorts of financial data on the table, and I remember one of the steering group, the external steering group members, saying to us, it's too ambitious. You know, your idea of when this is going to be paid for, not right. It's not going to happen. And that takes a lot of courage on both sides, I'll call it, I mean we felt like we were a united team, but it was different eyes looking at it and they had to be prepared to speak up and we had to be prepared to take it.
Sheena Carter: Yes. Well, that's a good point. I mean, it is challenging each other, isn't it?
Kay Smith: Yes.
Sheena Carter: Yeah. So what were the key focuses of the meetings? How regularly did you meet and what sort of expectations did you have?
Kay Smith: We actually only met three times. We met at the very beginning back in, I think, 2018. Most of us at the table, a couple on Zoom, and it was very formal. I chaired the meeting. My brother, whose name is also John, offered to take minutes and he knew nothing about farming either. It's sometimes good to have people that know nothing about farming at the table because they can still be useful. So John offered to take the minutes and the other people all had the experience and knowledge. So away we went with a set agenda. We had a management report from John Smith. We had herd recording data. We had financial papers. They were all distributed beforehand by email so that when we held our meeting, everybody knew what was going on. So then, my brother John said, well, I will send out an email every Monday to all of the group and I'll let you know what's happened in that week. And I was sitting there thinking, oh my goodness, something has to happen every week. But he did do that. And that was really the driving force, those weekly emails that said, oh well, you know, we've met with this person or we've made this decision or whatever it might be. And the group were amazing at responding to those emails. So away we went every week with an email backwards and forwards so everybody knew the progress and it worked. And then we had a second meeting about, I don't know, six months, nine months later – it was probably six months – and I remember starting that meeting by saying, if it hadn't been for the steering group this project would have already been put in the too hard basket, because it was overwhelming, and without their support, to say, oh that's great, you know, or that's not so good, give up on him. It would just be too much for me.
Sheena Carter: Yeah, you're effectively leaving it to chance, aren't you? And without that accountability and that drive, it can just be a thought and a conversation and nothing actually happens.
Kay Smith: That's right. Nothing goes anywhere. And some people can lead on their own and make all those decisions, I'm not saying everybody's as useless as I am, but it was the group effort that kept us going and felt that we were making balanced decisions rather than going off on a whim without being challenged on it.
Sheena Carter: Yeah, because we were looking at some significant decisions here. As you mentioned earlier, we're either looking at a very large capital investment, and we haven't actually dug into that in detail yet, or you said earlier, the potential of you and John retiring. And then at the same time, you're quite a large family and how all that dynamic plays out and expectations of other family members around the business. So there's some very weighty decisions to be made in there.
Kay Smith: Absolutely. And the farm had been a very sentimental part of the eight children, five of ours and three of my brother's, a very sentimental part of their growing up. So to them it was home. So, you know, you had that to weigh up as well.
Sheena Carter: Yeah, it's the quandary of Australian family businesses, isn't it?
Kay Smith: Yes.
Sheena Carter: They're family and they're a business and they're very intertwined.
Kay Smith: Yes.
Sheena Carter: Yeah. So, okay, we've got these decisions. So can you just explain, we've said, you know, there's a large capital decision to be considered. You've said you were talking about doing robots, but it was slightly more than just robots. Tell us about the siting and the other things that came with the robots.
Kay Smith: Yes, it was. because and luckily just before we had our first steering group meeting, but after we had formed the group and before we met for the first time, you actually rang me, Sheena, when I was on holidays and got me at a weak moment and said this course was being held down at Camden and would John and I go down? And I said yes, and thinking I don't even know what I'm going to, but off we went.
Sheena Carter: I clearly didn't explain it very well, Kay.
Kay Smith: Well, I was on holidays. I was in laid-back mode. But we went to a course called Business Governance and Investors in Dairy Farming Workshop.
And that was just an amazing course. And we learned, and I'm an ex-maths teacher, so I should have known, but we learned how to formally compare ideas in terms of finance, lifestyle, all sorts of things, but in a formal process by applying a spreadsheet and away you go. So we came home from that meeting armed with that knowledge and all those tips that came with it out of that course. So yes, we could go to that first meeting and put our options on the table, of robots versus retirement versus something else, and we could do the financial analysis of each of those options fairly easily. And certainly the option of a robotic dairy came out as our preferred option when all of those were weighed up.
Then, yes, we had to make the decision, do we replace the old dairy, do we add a new dairy? But we needed, in order to repay the capital investment, and we were talking about $1.5 million. In order to repay that, we needed growth in the herd and greater milk production. So to replace one dairy with another wasn't going to give us enough financial gain. So then we had to site the new dairy and we chose a site and that was wonderful, but there was no water or no power.
So then power became a nightmare in terms of bureaucratic rot. And so we opted to go off-grid, knowing nothing about off-grid energy. But luckily, I had a mate who I play ukulele with, and he knew lots about it. He came on board. And that's what the steering group did. If we needed expertise in a particular area, they were happy for somebody to almost consult to the steering group. Our accountant would consult to the steering group. But in this case, the solar guy came along with some ideas. It was very appealing. It was talking about a three-year payback, and that's not for everybody either, but because we didn't have power to the site, the cost of bringing traditional power to the site was going to be very hefty, and so that offset some of the cost of putting solar there. If you already had traditional power to your site, I don't think we would have gone down the off-grid line because we wouldn't have considered the extra capital expense at the time to be a wise decision.
Sheena Carter: Yes.
Kay Smith: So we went three-stand robot, totally off-grid, pasture-based system with voluntary traffic of cows.
Sheena Carter: Wow, very different to the ten-a-side herringbone on the other side of the farm.
Kay Smith: Very different. But interestingly, very complementary of each other. So if you have a cow with a bad udder that the herringbone can handle because the staff can handle that udder, the robot would not necessarily successfully milk that cow. bSo we can shift cows. This morning we've got 20 cows coming from the other dairy down to this dairy. So we can shift cows around all the time.
Sheena Carter: Fantastic. It is a unique system in a lot of ways. You've got both a conventional dairy, a robotic dairy, solar powered, which I'm sure there was a degree of apprehension when you first started the dairy up, cross fingers.
Kay Smith: Yes, yes, there was. We had a person from some electricity company come along to have a look at the dairy two weeks before we opened and he said, you know, this power won't work. I said, oh, won't it? He said, no, no, no, you can't do this. I said, well, in about two weeks we'll find out. And we didn't know whether it would work or not even at that point. But it does. It works beautifully.
Sheena Carter: Wonderful. Look, I think you've achieved a lot with the group. I guess it enabled you to create alignment within the family about your direction, where you were going to go. You were quite cognisant of the risks and opportunities that your decision was going to create. What were some of the other benefits that you found in having this group, this formal group, as part of your decision-making process?
Kay Smith: Definitely motivation. They provided the motivation to keep going and to call it quits on some items that we dreamt about, but the group decided weren't really practical at the time. So they gave us that motivation to make decisions. They also forced the progress of those decisions because there was another email going out next Monday.
Sheena Carter: Yes.
Kay Smith: So you had to be on top of it all of the time. I remember Wayne Clarke saying to me when we started, you know, you'll make hundreds of decisions that you know nothing about. And I said, oh, Wayne, that won't happen to me. Well, of course, he was right and I was wrong. I had to make decisions all the time. So I would refer to various members of the group. Then it would go out in the email. The group as a whole would reply and the decision could be made. So that was the main benefit, the motivation and the progress. The challenge, the greatest challenge was having the required energy to keep up.
Sheena Carter: Right, yes.
Kay Smith: You know, I mean, we've still got to remember that John wasn't well at the time. I was running around feeding calves. I was doing all sorts of things as the gopher on the farm. And this project took lots of energy as well as time. Being accountable to others, once again, forced that energy along. So yeah, I guess they were the challenges.
I’ve got to go back a little bit, Sheena, and say it was a huge step for us because before this project, even though the farm wasn't making very much money at all, it was comfortably keeping us and we were debt free. We were, you know, in a fairly comfortable position. And at our age, and I think, well, you know, I probably was 65 at the time and John a bit older, and at our age to take on debt and go out of that comfortable position, that was a big decision.
Sheena Carter: Yes, absolutely. Absolutely. And one that you clearly took and ran with, which is probably not, you know, is it fair to say you might have been perceived to have quite a low-risk appetite, but in fact I think you've got a reasonably high-risk appetite, but measured because you've collected all the information that you needed to be comfortable with the decision. So there might have been some risk there, but the risk has been quantified and you've landed in a position where you're comfortable with that.
Kay Smith: And I think we were prepared to take that risk once again because of the group. Because we knew that every decision that had been made, every bit of data that had been put on the table had been analysed by all of us. So we felt okay about it. It wasn't just us.
Sheena Carter: Yes. I think it's very powerful that you've been able to, you know, you've been able to collate, create information to help inform and guide decisions and had consensus amongst the group that, sort of, takes you the next step forward on the journey.
Kay Smith: Yes, definitely. It was a very powerful group.
Sheena Carter: Yeah, it's wonderful. So where did it all land? How did the group shape the farm that you're operating today?
Kay Smith: So, the dairy started operating in January 2020, the robotic off-grid pasture-based dairy. It's very successful. It's very different. And that is a challenge in itself, especially for John, who likes to watch every cow get milked, well, the robots go 24 hours a day, so he can't do that. And we're still growing numbers because the site that the dairy was put on had not previously been a dairy platform. So there was lots of work to bring the pasture up to the required point. And I think we needed something like 15 kilometres of fencing to make laneways and paddocks and all of those things. But it started operating back in 2020, and as I've said before, the group played this vital role because every thought, plan, projection was examined by all and feedback sometimes altered decisions. I think without the group, and I often wonder this, what would have happened? And I think it would have been far more difficult to maintain confidence in the decisions and the momentum. The mental support was absolutely invaluable and it was also interesting that during the process, of course, we approached banks and the fact that we had a steering group impressed the banks no end, and added to the strength of our application. For the same reason, that they knew it wasn't just us with this airy-fairy idea. It was well analysed.
Sheena Carter: That leads, sort of, back to the previous couple of podcasts on banking and finance. And obviously one of the things that banks are looking at is your skills as an owner, manager, operator, and how well you knew your business. So you, with the steering group and all that analysis and information you've got, you clearly knew very well your business and, you know, challenges, opportunities, measured risks, all those sorts of things.
Kay Smith: Absolutely. And I would have said, Sheena, before we started, that our family is very fortunate in that, even within the family, we've got lots of skills and lots of experience, but it wasn't formalised. The steering group made it formal, made us do the documentation, and all of that the bank could see.
Sheena Carter: Yes, as we've said before, you know, nothing has really been left to chance. For sure there's going to be odd things that pop up but nothing's really been left to chance in setting the direction of where you have now landed.
Kay Smith: No. I mean, I guess one of the greatest threats all the time was milk price. You know, you can do your projections but as John always says, well, I can project the cows are going to produce any number of litres because it depends on the weather and the season. So all of those projections that you're depending on to make the money to repay the loan can suddenly go out the window if the season goes against you or if the milk price drops away.
Sheena Carter: Yep. And there's, you know, they happen. Volatility in any form of agriculture is a given, it's being able to manage it, isn't it?
Kay Smith: Yes.
Sheena Carter: Okay, so Kay, it's been a very insightful and fantastic discussion about your family's journey and decision-making and the involvement of others in that, which has been, obviously, a good experience from your perspective. Any other things you'd like to discuss or address or some key points you'd like to leave with other farmers that might be thinking about having a formalised structure in terms of a formalised regular group to meet and help with their decision making?
Kay Smith: Yes. I would say that you must be prepared to consider the pros and the cons of anything you take on. So I go back to saying, you've got to carefully examine your own acceptance of involving others. If you're not prepared to accept it, don't do it. It will only lead to frustration on all fronts. Don't find yes people and don't find personal friends. Find those strong characters that are considerate with skills that you need.
And I'll just give you two quick examples. I was extremely annoyed and frustrated at one stage with one of the companies that was supplying some of the equipment. So at midnight one night, I sat down and wrote a fairly terse letter to that company. And I thought, I might just send this to Wayne Clarke and let him run his eyes over it, because he'd also dealt with that company, before I send it off. And I sent it off at midnight to Wayne. He sent back at 5am and he said, that's a great letter, Kay, but don't send it yet as you must maintain a good working relationship with them to optimise the efficiency of your installation. Now, thanks to Wayne, that letter is still filed on my computer and has never been sent. Now, one day I might send it, but at the time, there was Wayne able to pull me back and say, no, get over that. It's not right now.
Sheena Carter: Yes.
Kay Smith: And that was so important. That's just a very small example of the sorts of things he did. And then one on Kerry, was that we'd held our second steering group meeting and it was obvious that the pace was picking up and we were likely to sign a contract for the robots. I got a call from Kerry. Hello, Kay, I'll be passing through Bulahdelah shortly and thought I would call in and have a cup of tea. Now, I know now that Kerry did not come just to have a cup of tea. She came to speak honestly, directly and privately to us about some concerns she had about our state of health, knowing the toll that such a project could take on us. And once again, that was invaluable. Kerry played the devil's advocate and said, are you sure you are physically and mentally up to this and all it's going to lead to?
Sheena Carter: Yes.
Kay Smith: And so I really admired that side of it. And it's sometimes much harder for family to say that to you than it is for an external person to say it. But it worked. And those two examples stay with me. So I think the success of any group is finding the right people but not yes people.
Sheena Carter: Excellent. I think that is a very good note to end on. And I suspect Kerry wasn't just passing through Bulahdelah.
Kay Smith: She certainly wasn't. And she knew I didn't drink tea.
Sheena Carter: But I think that example also highlights that decisions in business don't always just come down to numbers and spreadsheets. There's always the people. The people factor is the biggest factor.
Kay Smith: That's right. And since then, Sheena, some people would know that one of our sons has returned to the farm and is now managing the farm. And so John and I have stepped back. We're still very involved, we're in the process of succession and we have completed the management side of that, and now we have to tackle the next part of it in terms of ownership. But yes, the management succession has happened.
Sheena Carter: Yeah, that's wonderful to hear. That's a whole other topic. Maybe we can do another podcast, Kay.
Kay Smith: That's a much harder one.
Sheena Carter: Yes, it is a much harder one. But from what I know of you as a family and your approach to both family and business, I'm sure it'll have some bumps and curveballs, but I'm sure it will be done well and fairly and with a good outcome, whatever that may be.
Kay Smith: Yes, I hope so.
Sheena Carter: Well, thanks, Kay, very much for your time. It has been an absolute delight to have you as my guest on the podcast today.
Kay Smith: Thank you, Sheena.
Sheena Carter: Just a quick final note, Kay mentioned a Dairy Australia workshop they attended called Business Governance and Investors in Dairy Farming. If this is of interest to you, please reach out to Dairy Australia. The show notes also contain a link to the GRDC publication titled Farm Decision Making. And there is a link to the New South Wales Farm Business Resilience Program, which is supported by the Australian Government's Future Drought Fund. The Farm Business Resilience Program's website is well worth checking out. It highlights resources, workshops and farmer case studies to help you prepare and manage risk, adapt to a changing climate and improve business resilience.
That's all for today's episode of The Business of Dairy. We hope you enjoyed diving into the fascinating world of dairy farming and industry insights. As we continue to expand and evolve, we greatly appreciate your support. Our show is thriving, attracting new listeners each week. But we believe there's always room to grow and we need your help to make it happen. If you've found value in our discussions, we kindly ask you to take a moment to rate and leave a comment about the podcast on your preferred platform. Your feedback not only lets us know what you enjoy, but also helps boost our visibility to others who might benefit from our content. Remember, your ratings, comments and shares are vital in spreading the word about The Business of Dairy. Together, we can ensure that more people have access to the valuable insights and knowledge shared on our podcast. I sincerely thank you for being part of our community, and we look forward to bringing you more engaging episodes in the future with the continued funding and support of the Hunter Local Land Services. Until next time, stay curious and keep milking those opportunities.