Having A Field Day
I love heading along to New Zealand Fieldays, a four-day fest of rural people getting together to mix and mingle amidst the latest in agricultural gear and solutions – and I wasn’t disappointed this year, despite doom and gloom around low dairy payouts , it was as crowded and buzzy as ever.
Spending was however subdued with farmers looking for bargains and solutions that would enable them to operate more profitably rather than big capital expenditure; if they were spending at all
Indeed, it will be a while before we can expect to see dairy farmers forking out on upgrades for vehicles or machinery. Most dairy farm budgets are showing a cash-flow deficit of between $0.5-$1.75/kg MS over the coming 12 months, largely due to milk and dividend income dropping from $5.93/kg MS in 2014/15 to $4.75/kg MS in 2015/16.
Nationally, 35% of farmers are expected to suffer loss of income over the next 12 months. A quick survey of only 14 of my dairy clients sees their income drop in total by over $3 million; an average of $215,000 per family.
And there’ll be knock-on effect of this cash flow squeeze not only to businesses selling new machinery but also those whose livelihoods based around the dairy sector.
However, farmers can only hunker down and cut costs to a certain extent. Some will have large fixed costs which simply cannot be decreased. In these instances, it’s about looking for efficiencies and using technology to find out how to extract more income/profit from the business – less focus on top line and more on bottom line to extract more value from input costs.
We also need to remind ourselves that this is nothing new to farmers – a cash flow squeeze happens every five to seven years from my experience and farmers will come through, potentially with stronger businesses because of it.
One thing farmers do need to get better at is asking for assistance when they need it most – the earlier the better. That is where their support networks of banks, advisers, family and neighbours may need to ‘take the bit between the teeth’ and take action instead of waiting to be asked for help.
As such, I have just completed provisional tax reviews for the coming instalment for all farmers, whether they asked for them or not. This should flow into budgeting for next season as tax planning will be more critical in order to preserve cashflow over the coming winter and spring months. It will certainly be a tougher year cashflow wise.
My clients, if indicative of the other farmers in our region, used the higher profits from prior years to repay debt. For those, this season will simply mean re-borrowing some of those payments while paying closer attention to obtaining real value from input costs.