While there are many factors influencing the profitability of all sectors of the farming industry, and many of them beyond the farmers control, the one aspect that can help businesses to succeed in challenging times is technical efficiency.
This was the message from Ian McCluggage, Head of Business, CAFRE when he addressed a recent meeting of the Northern Ireland Grain Trade Association.
Ian pointed out that many sectors of agricultural production were under pressure due to the fall in demand, currency and weather conditions. However, dairy farmers in particular were in uncharted territory with profitability at its lowest since the 1960s, which many farmers are too young to remember.
He added: “There is no system of production which will guarantee profitability – there is as much variation within a system than between systems. Most systems – whether high input or low can be successful if they are done well and are highly efficient – technical efficiency is absolutely key – many farmers got bigger when they really needed to get better.”
Ian paid tribute to the long hours of hard physical work carried out by farmers and stated that often this did not give them time to sit back and look at the bigger picture.
However it is vital that they take a realistic view of the coming winter – cash flow projections will identify when problems will arise and will allow plans to be made. Financial advisers, CAFRE advisers and others, including Rural Support mentors, are all anxious to ensure the enterprise performance and mix best suit the farm, but cannot assist the farmer on the way forward without management and financial plans for the future. With these facts they can help draw up a strategy for the year ahead and the resources needed to make it feasible. Taking on additional debt without these plans only leaves the enterprise with an extra burden that ultimately has to be repaid, and no system for ensuring that the enterprise can carry the debt or that it will generate enough income to repay it.
Ian stated that many farms have too much plant and machinery and too much money going out as HP payments every month. Costs like this must be factored into the financial plan to ensure that they are justified. Selling off machinery or restructuring payments can reduce monthly outgoings.
Communication with banks and suppliers will be essential – they will be helpful and sympathetic if there is a planned and costed approach to the future of the enterprise, but this needs to be done before the enterprise is in “dire straits”.
Ian concluded: “For every farmer a very critical look at their farming system is required, with difficult decisions to be made and, for a few, this may mean a change in their farming operation.”