Dairy farmers thinking of expanding have two options: get better or get bigger, according to Derry O’Donovan of the report ‘Opportunities for sustainably competitive Irish Agriculture’.
The report was launched recently, in association with Grant Thornton, and said that while Irish agriculture is at a ‘tipping point’ it must a adopt a ‘smarter’ strategy to ensure the equitable development and longer-term success of the sector.
O’Donovan said that the gap between the top 10% of farmers and the average dairy farmer converts into €400/cow or €25,000 on the average dairy farm in Ireland.
“There is a serious gap there and one has to post the question, why has this gap persisted over many years. Is it due to a technical or husbandry deficit?
“Why are people not achieving even half the level the top 10% are achieving? Is it business/financial skills constraints?”
The expansion options to dairy farmers, he said are to increase efficiency or increase cow numbers.
Increasing efficiency means increasing milk output, milk solids and paring costs to the minimum and that 90% of dairy farmers in Ireland can increase their profitability through increased productivity.
“Why are they not doing it?”
That, he said, is the least-cost route for many farmers.
Expansion in cow numbers, however, he said would be the route for many farmers looking at expanding but it will involve investment in cows, labour and infrastructure.
O’Donovan also that there had been a slight overhyping of the liquid gold revolution of the last few years.
“It’s fine to say there will 300,000 extra cows or thousands of new jobs, but who is going to pay for it? The persons behind the growth is the individual risk taker – the farmer and there has to be an incentive for the farmer to grow their business.”
Dairy Farmers Finances
He also said that Ireland is a wonderful country for making mistakes and into learning from them, but banks must play a role in eliminating this.
He said banks must take the initiative to have a standardized application form that will capture all the information needed. “Banks must carry out realistic evaluation and must also fund cash flow difficulties.”
However, there is gross under estimation of expansion project costs, he said, and the overdraft is the easiest available money.
“But if you rely on that you will run into ‘hard core’ problems as we call them in the bank.”
The investment must add value to the business and buildings and investments should be functional, not palatial, he said.
Price Volatility for Dairy Farmers
Price volatility is a major risk factory, O’Donovan said, and provides opportunities for people in suits. Dairy farmers, though, he said are now particular exposed to price volatility must manage it.
“It has been a permanent feature in the oil industry, in the stock market and commodity market and currencies. It continues to be driven by supply and demand and economics and politics and geopolitical issues, speculation and sentiment.”
Farmers must improve efficiencies and look at fixed price contracts, he said. “This is realistic farm planning.”
He also said that a successful expansion plan must include family buy in; spouse involvement and succession plans.
