The plight of rural contractors - Andrew Olsen

0:00This is a podcast from Rover. Well, rural contractors is an organisation that represents, obviously, rural contractors across New Zealand, but it provides services to farmers, councils and rural communities. Well, with the state of play around the globe at the moment, we thought it'd be a good opportunity to get the CEO on Andrew Olson to talk us through exactly what the people out there in the contracting world are finding at the moment. It's nice to have you on. How are you, Andrew? Good, Dom. Thanks for having us on. That works, yeah. It's a hell of a situation, isn't it? Yes, it's escalated quickly. To put it broadly? Yeah, it has. I don't recall any of the other Middle East conflicts resulting in such a quick movement in pricing at the pumps, but, you know, every day is different, every conflict is different. And, yeah, it's caused some consternation. And when we've got, obviously, contractors going about their business

1:01because we've got sun and grass, but we've also got the added impact of the maize harvest, which is just sort of swung in up in the North Island and other places where maize is growing too. So big machines, big, big prices. So with the geography of the situation, that would basically explain to a large degree why we're seeing what we're seeing that you alluded to. And, yeah, I guess, geographies, everything, and this, you know, when we're looking at commodity such as fuel, etc. Yeah, it is. And it's, I think what we've got here is a little bit of a blueprint that arose out of COVID where we had constraints and tightening of supply lines, services, you know, labour, all of that got affected over a long period of time. But, you know, the immediate impact here is landing, unfortunately,

2:03for a number of our members and large organisations at that around fuel and the cost of that. And we've been actively this week, you know, working with our members on guidance and how they might manage that cost that's landed in their business and what sort of conversations they can have with their customers and what their contracts look like. And, you know, everyone's different, Dom. So I think everyone's going to approach this a little differently with the way that they've managed their customers over time. But all of it is aimed at ensuring that it's a survivable situation for both parties. No triggers get pulled and the people make the best decisions they can based on the evidence that's in front of them. And it won't always be favourable. It might be that they need to just do what's ahead of them and get through to the next customer and so on and so forth. So our guidance is, it's pragmatic, but it's also sort of, you know, you've got to play that game that's in front of you as well. Yeah, which makes perfect sense.

3:04What sort of increases are we seeing at the moment, the diesel, the petrol and obviously then being passed on down the line? Well, a lot. And we're not so much focused on what's happening at the pump while there is an increase. And that's one of the outputs of this fuel oil issue. We've got the cost of the production of the fuel within their costs. We've also got a number of our quite a few, I would imagine, without being exact, have fuel deals. So we see one price and it'll be a similarly increase, but it might be coming off a lower base. Ultimately, the bit we're looking at is, what is that cost going to look like as a percentage of your business and what therefore do you need to do with that cost when you're applying your services? So, you know, for me driving down the street, I'm 20 cents worse off on a 91 basis, but you know, it's not quite the same when you're iron out all the different factors and inputs that sit in particularly larger businesses deals and supply chains.

4:19Yeah, David Birkett, Fed Farmers, Audible Chairs, is at the moment we're busy in the middle of harvest. So we're using combine harvesters and a large machine that we use about a thousand liters of fuel a day. Then there's trucks and tractors on top of that. So if there's an increase in price of let's say a dollar or even 50 cents a liter, that do the math. That's two for whatever grand it is per day extra. That's insane. Yeah, I've had reports that we were at 35,000 a week for one of our bigger, bigger members. It's probably probably not an expression I can use easily on India, but yeah. 35,000. Yeah, and look, any increases in increase, but like I say, there's, it might help Dom to explain to that we've got. There'll be harvest contracts or at least harvest handshakes where a price was fixed six months ago to get it in.

5:19And then this is shifted and now we've got a price or cost rather to get it out. So there's that seasonal nuance in. And then we've also got the quote that was issued two to four weeks ago that's significantly shifted to. Some of them might be enthusiastic conversations and some of them will have contracts that cover, you know, all of these variances as well. But our advocacy to the members is you shouldn't be expected to suck this up. And we've communicated the same to the appropriate levels at federated farmers who will largely be the farmers who will link to our guys. And they all need to work next year and all need to work through all of this sensibly. And, you know, fully aware that common sense doesn't always prevail. We hope that in most cases that we've done what we can to help people have a sensible, hopefully calm conversation about getting on with the most important thing, which is getting the crop out of the ground or the service provider.

6:19Because it's not going to do anyone any good to either not do it or to start moving the pieces around and end up in a race to the bottom. That's just not a smart move for anyone to do that. Certainly isn't. So then effectively the advice is it's also for courses, but let's try and get somewhere in them. Let's try and meet each other halfway if we can. Oh, yeah, absolutely. Like I said, no expectation. Our guys will suck this up and look like we found in COVID, you know, when the price of a capsicum went from $1.99 to $5.50. A lot of that's around transport. So the cost is entering the system somewhere. So farmers and growers and I don't want to speak for them, but let's call them part of the ecosystem. That is going to hit them as well. So not having an expectation that there will be a cost increase is hidden the sand stuff. Understanding that there is going to be a cost increase and it might come at you first and then you pass that on is what we've learnt a lot of in the last five years.

7:24So if you want to hold on to it, hey, by all means, hold your breath and try to hold on. But I think we've kind of turned a page a little bit here on things are elastic and prices may go up once the cost of influence that. And I'm talking here in general, but I would like to hope that we've got the elasticity for that drop when the oil prices come back. And we hopefully reach a normal, which is not a new one, right? And we're not 20% off of where we are just because that's convenient to be there. That's a really good point. That's like that political point where you say, well, you know, governments or whatever they'll enact something due to, you know, a unique circumstance. But that never gets reversed once that circumstance is leveled back out again, right? That's kind of the terrain you're talking about here. Absolutely. Yeah, for sure. And this, you know, the cost of oil at the moment in agriculture extends to what will it look like when we try to get agrochemical into the country because it's already gone up in production wherever it's coming from.

8:29It arrives here with transport and all the other stuff attached to it. And that's going to come back into the system as well. We're not just looking at this season or this service today. This could go on for a little while while the inventories are dealing with the multiples and the ripples that go through that. Yeah, exactly. Yeah, that's right. Well, you know, but again, back to the geography thing and look where we are. We don't have much of a choice in this stuff. No, we don't. And what would you call him today? The Tangerine tyrant, maybe the idea of it's controlling our destiny from a few buttons and some microphones. You know, look, it's a personal view of mine, not a company endorsed view. But, you know, the older folks that are, you know, what's your show? And I'm kind of becoming one of those. Well, we've seen Middle East conflicts for a long time. You know, the US involvements goes back 50 years. Why this one at this time? I don't know. And an America seems to be questioning whether it's the good or the bad in this one, which is healthy.

9:36And I just wonder what sort of pitches someone has a Donald to have made him go out and do what he's doing. You know, this is pretty erratic. It seems very strange when you look at the election chatter around those wars. You look at the fact that there's midterms coming up. And this is the most damaging thing you would have thought from a Republican point of view heading into those midterms. You look at the fact that, you know, the evidence of, despite what Netanyahu has been saying since the early 1990s, the evidence of, you know, a nuclear bomb in the Iranian regime. Yeah, I wonder if this is another, you know, Iraq from 20 years ago scenario. You put all those things together. And I tend to agree. You've got to wonder what is the, who's the puppet master here? What is the string being pulled?

10:36It doesn't really make a lot of sense on the face of it. No, I don't see that. And I'm not trying to link this up to an Epstein matter. I think, you know, there's all kinds of discussions about what parties don't all be into at the past. Leaving all that aside, what encourages me about the duration of this conflict is that we're typically the allied nations might have written over the hill and said, of course, we should do that. They're not springing to action and some are giving him the middle finger and probably not unexpectedly. So, you know, how or in what way he may sue for peace will be sued for peace to get things moving is, I think, probably an imminent discussion given the popularity poll that's at working. And I think you've also got to consider that, you know, at some point the people who sell this commodity are going to want to get rid of the stuff that they've got at the price that they want to add anymore. And oil fell last night. So, you know, and I dare say that that way and tick the pumps back a little.

11:39But, I'm encouraged by the Commerce Commission taking a front for it was, it was phrased strongly. It was suggested that you shouldn't do it. And I think that's the right step for an agency that has that jurisdiction to do. And, you know, I think we just have to hope that this doesn't become a six month thing where we're really exasperate about what to do next. And if it gets away too far, it's going to become, you know, a systemic value for a lot of businesses, not just agriculture. Yeah, look, let's hope for a rapid resolution to do this one. In the meantime, there's work to be done. People's spirits are quite good. We don't have rain. We have blazing sun and green stuff growing everywhere. And I think that's a good thing. And I think there's a maturation. Well, I hope there is that, you know, we've seen enough of all of this together. And, you know, farmers commodities are being good. They're being well paid. I know that our people are being paid by and large. That's been a good thing.

12:47So there's high spirits. And this is an offshore thing. So if it's a short offshore thing, transmission regimes. If it's long, it's a different future that we might be looking at. And there'll be a lot of wrap around to that. And the governments in an election year with its, you know, challenges already. And our dollars in the doldrums. And I just came back from Australia and found I thought I might have been from a third nation when I was trying to spend my dollar. It wasn't going very far. So, you know, there's other challenges at work here, right? Very much so tough to disagree with any of that. Actually, looking for something. But no, I think you're bang on the bang on the money with all of that. So wouldn't it would be your the rural contract doors? I know they're all not the same person. But, you know, in general, what are they telling you at the moment? What's the feedback that you're that you're getting from people? Pretty positive, you know, stepping in and taking that front foot thing to help people out. And look, you would you would think that, you know, when you're in business that you would have your, you know, your numbers.

13:50And you'd be, you know, able to do all the things that are necessary when things change and shift. But not all of our businesses are very large businesses. And it's the same for New Zealand. There's a lot of small to medium enterprise here. So we've got, you know, my dad at the kitchen table trying to fill out an immigration form, do their tax work out what the cost of their production isn't everything else. It's it's a lot. And then you've got to do the work as well if you've got any spare hours. So our helping hand is give them some models to get a sense of what it might look like and be better able to make good decisions. And so that's that's where we're at. You know, no longer is it, you know, thumping, you know, tables and asking the government to step in that doesn't work. I think we just got to be a bit more resilient resourceful. Get things done in our way. Be be really quick at doing that. So the feedback initially is being very positive. And, you know, we'll we'll develop some more tricks. Yeah, I bet. Well, yeah, exactly. But so that's an important point as well. I think you're being on with that one there. It's not relying the government to fix things. I think yeah until it's absolutely did set necessary.

14:59But you've spoken obviously you're speaking from a contractors point of view. Is there any advice you might give to farm? I don't know if you're in the business of dishing out advice or not. But, you know, in terms of the farmer side of things toward the toward the contractor. I have the discussion. If you haven't been approached and you've got some work coming up, pick up the phone, lean on the fence, have a chat, have a cover. It's it's neither of your faults. It's just one of those things that's happened. And I think the important thing here. And I want to emphasize it again. Cost is going to end of the system. So be brave and allow it to because if you don't, when it happens to you, you might, you know, have a sense of that's what that bloke was talking about. And I bypassed him in that work and I feel I feel shit about that. Don't feel shit about it. Feel good about it upfront because there's no getting away from it. Everyone's in this together. Every sector, every person who goes to work is paying more for now. So let's let's try to make sure we haven't even handed approach.

15:59Have the conversation. I think that's pretty sage sort of advice. And yeah, again, great stuff. I appreciate your time, Andrew, because I mean, yeah, that whole thing is to take a step back and go, not your fault, not my fault. However, here's the situation. Let's deal with it. And if anyone can, it's people in the rural New Zealand. And spot on. And this is what we recommend doing when we've got floods and we've got drought and we've got hard times. But go and see someone. Make sure checking that they're all right. So get that around the right way. Don't do nothing about it. Let's get it around the right way. Have the conversation. And look, viewers and people in this position are going to go, Jesus, it's easy for that bloke that runs a trade association to say that right. He doesn't have to go out and do it every day. I've got to go out and do the same thing and encourage people to have those conversations to make their business better or make the choice not to. Perfect. Good man. Appreciate your time. Yeah, lovely to talk with you. Good common sense stuff. Cheers. We'll do it again sooner.

17:03Good on you, mate.