Cash­flow bud­get­ing gives ad­van­tage

Matamata Chronicle - - Rural Delivery -

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.

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