In 1996 Chris and Hanne Hardy were keen to get into a farming business. After getting a degree in agricultural economics Chris had worked for Wrightsons for two years, then had come back to the home farm at Makaretu, in the eastern foothills of the Ruahines, to get some farming experience. Hanne had studied psychology and sociology and worked in HR.

The couple had little cash and banks simply didn’t want to know them, says Chris.

“Leasing was only option if we wanted to be farming on our own account. We were lucky enough to find the couple of blocks that we could lease,” he says.

“To finance stock my mother acted as guarantor for a loan from a lawyer, and so we managed to borrow $100,000 to buy our first 2000 breeding ewes and 40 cheap weaner cattle.”

Their first lease was a 270 ha neighbouring property that Chris managed in his spare time. Hard work saw them able to pay back the loan, and in 1998 they leased another 190ha property at Takapau, about 20 minutes away, which allowed them to get into finishing cattle and wintering lambs.

“With the block at Takapau we struggled to find enough seasonal money to run it and none of the banks were prepared to lend us any, but Wrightson Finance came up with an overdraft facility,” says Chris.

“Later on we used StockCo, a cattle finance company, for some bulls, which was a big help.”

Their finance manager at Wrightsons, Derek Le Quesne was also able to help them when that company was taken over by Rabobank. The good relationship that the Hardys had built with Le Quesne stood them in good stead, and is typical of the Hardy’s positive approach to relationships with lessors, staff and stake holders.

In 2001 Chris and Hanne took a risk and leased a 170ha block of hill country at Ongaonga “blind” – they were not able to go onto the property and assess it because of legal problems – but Chris’s gut feeling was that it would turn out fine, and it did. They had also leased an additional 35 ha block that they used as a “sort of feed pad” which allowed them to winter more cattle. It was a three-year lease and they have since bought the block.

By 2004 they had around 720ha of leased land and were running up to 9000 stock units. Then a bit of serendipity and some careful planning saw them create an opportunity that was to put their business on a much sounder footing. The block of land between Chris’s parents’ farm and their first lease block came up for sale. Attempting to secure it made a lot of sense in that there would be three contiguous blocks of land that would make a sizeable farm unit.

Derek and Chris worked hard to stitch together a deal that would meet the business need to expand, would suit the extended family, and satisfy the bank. The overseas based owner of the Takapau block – actually Chris’s uncle – agreed to sell Takapua and buy the next door block. Chris and Hanne were able to borrow to buy 250ha from his parents block and lease the rest.

The deal required some fancy footwork, but it has worked. Now the Hardys farm a total of 1950ha and run between 23000 and 25000 stock units. They employ four full time staff and several part-timers. Hanne now takes care of the book keeping and looks after staff – that is her specialty after all – while Chris does the planning and farm management.

Chris has developed systems that enable him to farm successfully on a variety of farm types, from flat productive land to extensive hill country, running many classes of stock including breeding ewes, finishing lambs and bulls, and deer. The diversity is a strategy to spread risk, and it is supported by his cropping programme that provides winter fodder.

Chis says that they have not done anything special, but his peers think otherwise. Derek Le Quesne persuaded him and Hanne to enter the Hawkes Bay Farmer of the Year competition at the end of the 04/05 season because he believed what they were doing was innovative and they way they were doing it was exceptional. The judges agreed, and in May this year the Hardys were given the top Award.

Bob Cottrell, who was on the judging panel for the Award, says that the things that stood out as being exceptional were:
• the innovation in terms of leasing
• the growth of the business from a small operation of about 2000 stock units in the late 1990s to 10 times that figure through leasing and some land acquisition, which done more rapidly than most individuals could achieve.
• The profit of over $500 EFS in the economic environment of the time, and also in view of the ratio of breeding stock to finishing stock that they ran, breeding being generally less profitable than finishing or trading in stock, but more sustainable.

There were also other less tangible factors, says Bob.
“The passion they brought to farming as a couple was something that we were impressed by. They put high value on their people and regard their staff as their greatest asset, and their staff also rated them very highly,” he says.

“People were attracted to their philosophy of looking after the land and building relationships and doing things that wouldn't necessarily be done by other tenants. Chris has a really good practical feel for what's going on his property without needing to do a lot of measurement, he knows where everything is at on a day-to-day basis, and he has that sort of instinct and gut feel that allow him to manage the property very well.”

Overall, says Bob, it was the whole package that gained them the Award – how they had acquired stock and land to grow their business, the speed at which it was done, the innovation they used in terms of leasing rather than buying land, and their success in their objective to grow the business profitably and sustainably.

Leasing – Chris’s approach
“If we had had the means of buying land we would have done so because then there is the advantage of any capital gain, but we had no option,” says Chris.

“We could have looked for equity partners but I have always wanted to keep our farming business autonomous rather than being answerable to shareholders and giving dividends to other people.”

“We are lucky in that we have good landlords and we have good relationships with them. I try to treat their properties like my own because I feel accountable for them. They own the land and really they have all the power, and if we don't get access to it we don't have a business.”

“The leases are all standard commercial lease agreements. In the main landlords make the rules, some of the farms we are not allowed to put bulls on, and that's fine with me as long as the rent reflects the conditions.”

“In assessing what I am prepared to pay I have a close look at the farm and estimate what I can do with the, two and cash flow, and then sell the idea to the bank or the lender. I watch the New Zealand dollar and market prices very closely and tried to gauge what things are going to be like for the next few years. It's a balance between what we can afford and what I think the landlord needs out of the property for them to accept our offer.”

“Some people have come unstuck because they have paid too much for their lease and they are making no money, and when you are not making money you can't look after the property. There can also be quite high risks and you always have to factor into your business that something unforeseen could go wrong. Last year we had 20,000 lambs at Christmas and within a short space of time the schedule dropped by about $20 a head. That was a big hit, and that's why we have such a diverse range of products and we have probably more income streams that most farmers.”

For Chris, personal integrity is very important and his word is his bond. He sees it as a privilege to farm someone else’s property, and likes to keep them in good condition, often going out of his way to do things that improve the value and appearance – like keeping thistles under control. He values honesty and straight talking as a means of fixing situations before they become a problem. As a result owners are very happy and the leases are generally renewed.

The Hardy’s plan is to keep growing the business, and they would prefer to buy land but will look at leasing or other propositions as well.

Leasing – the bank’s view
Derek Le Quesne was impressed with the Chris’s determination and ability right from the start, and that swung the balance of the Hardys’ business from marginal to profitable.

“It would be fair to say that we were initially pushing some boundaries with regards to equity and security, but the personal factors were a huge plus,” says Derek.

“There are five basic points that we tick off when considering people for loans: equity, security, cash flow, personal factors, and debt servicing ratio. His strengths were in his personality and ability. His business has grown and he has done such a good job that the leases have been renewed. And as he has grown the business he has been able to get economies of scale”

Derek says that the most satisfying thing for him was working with Chris to put together the proposal for selling the Takapau block and buying the one next to the home farm.

“When the block came up for sale and Chris and I sat down at the office and went through a dozen different scenarios as to how we could grow the business. There were many factors involved – looking after the interests of the land owners, the interests of the parents and what they were wanting to achieve for the family, and so on. The property was critical in that it linked the other two properties and brought Chris up to about 10,000 stock units in his own right."

“At that stage we approached his parents with a view to combining Chris and Hanne’s operation with home farm to get some economies of scale going. That allowed Chris to borrow more, and gave the whole business of more grunt with about 20000 stock units.”

“We put it all together and tried to make sure that everybody would benefit from the deal. The catalyst was the property coming up for sale, but the deal would not have happened if Chris and Hanne had not been performing so well.”

Bank assessment criteria:
The main thing, says Derek, is that the proposition has to make money.

“Many deals we look at just don’t stack up – the price of land and livestock, the cost of borrowing and the running costs make it very difficult to show a surplus. There is no point in doing it all for nothing, taking all the risk while the property owner gets the capital gain and a guaranteed income,” he says.

“If we can work out an achievable budget that produces a surplus and there is a return for risk, that is probably okay, but for somebody starting off when they have to service the debt plus their running and living costs, and they don't have the means of spreading the costs over an existing property, then it makes it very difficult. It is very hard for a young person to compete against established farmers with economies of scale wanting to lease the neighbour's property.”

The timing of stock purchase and of the start of a lease is important, according to Derek.

“With leasing you can make money on capital stock, but buying stock on the 1st June, when leases often start, will probably be very expensive, whereas in February stock prices are generally lower. If the lease starts in February it means the lessee can start making money straight away,” he says.

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