Cashflow budgeting gives advantage
Dairy farmers are doing the right thing focusing on debt repayment but need to be careful they don’t overspend on supplementary feed and fertiliser, Dairynz says.
Mark Paine, Dairynz strategy and investment leader for people and business, said the first priority was to get debt under control and the trend this financial year saw farmers again focusing on debt repayment.
‘‘Dairy farmers have gone from spending about $4 per kg/milksolids on debt in 1990, to about $8 in 2000, to $21 in 2010,’’ Mr Paine said.
‘‘But we are seeing what we call ‘ system creep,’ an almost insidious movement towards higher inputs that is not necessarily a planned response.
‘‘In terms of keeping operating costs under control, the areas that really need discipline are supplementary feed and fertiliser costs.’’
Analysis of farm working expenses on dairy farms nationwide shows farmers spend about a third of their gross farm revenue on fertiliser and supplements.
This trend shows only slight variations from year to year, due to weather or other economic factors, Dairynz data shows.
Mr Paine is encouraging dairy farmers to draw up a ‘‘solid economic plan’’ in early March every year.
‘‘We’re about to gear up for the next season and it’s important to lay down a comprehensive plan for next season and stick to it, especially in terms of inputs.
‘‘In the past three years, dairy farmer income has been volatile, with up to 90 per cent driven by the international milk price. In conditions of volatility, maintaining a really tight farm working expense margin gives you the ability to weather the storm,’’ he said.
Dairynz also recommends farmers use cashflow budgeting, which currently only about 10 per cent of farmers use.
By detailing cash received and all cash expenses going out, farmers get a picture of whether their business is sustainable and can forecast any cash surplus or deficit at the end of the season.
People can sign up for Dairynz cashflow budgeting workshops and women on dairy farms have the extra option of signing up for a Dairy Women’s Network ‘‘cashbook to cashflow’’ programme, which Dairynz funds.
‘‘It’s often the women managing the books. It’s about building good discipline around cashflow.’’
In a three-year joint venture between Dairynz, Fonterra and South Waikato District Council, known as Dairy Push, the benefits of cashflow budgeting had been shown, Mr Paine said.
About 60 Dairy Push farmers in South Waikato have been trialling sustainable businessgrowth practices. The farmers work with their farm advisers to increase efficiencies, boost production and reduce onfarm costs.
About 90 per cent of them use cashflow budgeting, Mr Paine said.
‘‘When there was a downturn, they were covered faster than their peers and they maintained that position through time.
‘‘Cashflow budgeting and keeping a tight watch on their costs mean they made about $500 per hectare more than their counterparts.’’
Dairynz also recommends farmers monitor closely exactly what they put on the farm environment down at a paddock scale.
‘‘Work closely with your fertiliser company to make sure you have a good monitoring programme in place including soil testing,’’ Mr Paine said.
Dairynz also urges farmers to work closely with their accountant or farm management consultant to generate reports from Dairynz’s Dairybase programme specific to their individual farm.
Dairybase provides farmers with physical and financial benchmarking data and allows them to exert a lot more control over their business, Paine says.
‘‘Dairybase expands your opportunity to analyse your business. It allows dairy farmers to see how they’re tracking in terms of core items of expenditure and gives them the ability to have a health check in the context of their whole farm system.’’
Dairynz aims to have all dairy farmers involved in Dairybase.
‘‘We seem to be moving into a new phase of farmers coming on board with it now, primarily through working with accountants. It gives a powerful database for industry planning,’’ Mr Paine said.