Dairy Farmers – Plan for the Worst & Hope for the Best
Fonterra’s recent payout cut to $4.50 per kilogram for the current season is another kick in the guts for our nation’s dairy farmers. While the $4.50 is a forecast at this stage, it appears that it is unlikely to increase before the final payout is announced later in the year. Most experts are picking that next season’s dairy payout will not be significantly higher and this will cause further cash flow problems for farmers over the next year or so.
When thinking about the current situation facing dairy farmers, my mind went back to an article that I wrote in May 2003 when farmers faced a similar position. What I wrote then and what still applies today is that farmers must have a plan in place in order to get through the next couple of seasons intact.
Some key messages include the following:
- Make a plan – Go and talk to your accountant, bank manager and farm advisor. If possible get all three together at least once a year. Make up a list of your current problems and weaknesses and discuss these. There are always alternative ways of working these issues out.
- Set some goals – These can be both financial goals and work related goals. For instance, keeping to a set budget or ensuring that you meet your production targets.
- Draw up a budget and cash flow for the upcoming season – Getting some real figures on paper will give you a clearer idea of what will be left at the end of the season (or in many cases what the deficit will be).
- Get realistic about what you will be able to afford this year – The new car or overseas holiday will have to be put back a year or so.
- Get your financial records into your accountant as soon as your tax year is over. With provisional tax payments due, you need to ensure that you are paying the correct amount of provisional tax and not too much. Your money will be much better spent elsewhere in your business.
- Talk to your accountant about other entitlements that might apply such as Working for Families (Family assistance), Community Service Cards etc. It may be better in the next twelve months to receive Working for Families payments weekly or fortnightly rather than receive a square up at the end of the year.
- Discuss the situation with family and friends. Don’t get stressed out by worrying about things on your own.
- Ensure that you and your staff have sufficient time off away from the farm. Remember that there is more to life than your farming business.
Setting yourself a plan and a budget will not boost the dairy payout, but what it will do is help you concentrate on what you can do to ensure that you get through the next couple of seasons relatively unscathed. Budgets do not have to be fancy but can be prepared with pen and paper and will help to identify when a cash flow problem will occur. Unfortunately for a lot of farmers this is going to be sooner or later.
Good communication with your accountant, bank manager and farm advisors is extremely important. A problem shared is not necessarily a problem halved but it will help you get through the tough times ahead. Some tough decisions may have to be made and having a good team around you does help in the decision making process.
Long term we remain confident about the prospects for the agricultural sector. At this stage confidence in dairy is at a low point but as we have seen in the past, dairy commodity prices can move back upwards very quickly. Let’s hope this happens sooner rather than later.