Small farmers need to expand their focus

Strong prices at the farm gate have been welcomed by Ciara Jackson, Head of Food and Beverage with Grant Thornton.

The agri-food sector is one of the key sectors for Grant Thornton, a leading financial and business adviser which employs 400 in Ireland and 31,000 internationally. The firm offers a full range of services through all stages of the supply chain, from farmers to processors to multinational manufacturers to major supermarkets.

* As the Irish food industry faces up to ambitious Government expansion plans, how does the preparedness of the primary production section on farms compare with the rest of the industry?

>>Food Harvest 2020 contains some challenging targets. The farm base in Ireland is diverse. At the top, you have large farmers who are increasing productivity because they understand the benefit of scale, and are operating a business that can tie in with the plans of the large processors to increase their profits. Anecdotal evidence suggests that only 10% of small farmers prepare business plans. Given that this basic fundamental is not being observed, it would suggest that strategic planning is not high on their priorities and they aren’t as prepared as the larger, more industry focused operator.

* Grant Thornton identifies scale, constant innovation, product development, sound financial planning and productivity as the ingredients to drive profitability and growth? Do these apply equally to farmers?

>>Absolutely. This is one area where there may be great untapped potential for farmers. The key to succeeding is for farmers to treat their farm as a business. Farmers have the opportunity to use these tools to generate growth in their business. Ask yourself — what is it that the most successful farmers do that make them the best at what they do? Understand what they are doing, and see if it could apply to your operation.

* Grant Thornton has welcomed the 11% increase in agricultural output prices from Mar 2011 to Mar 2012. Do you have predictions of future likely price trends?

>>While forecasting is an inexact science one reality for businesses over the last number of years is fluctuation in commodity prices. When you look at our export figure of €9bn in 2011, a big proportion of growth is driven by price rather than volume, and a rising tide lifts all boats. The global population is growing, and new middle classes are growing rapidly in the BRICs. This suggests demand will be sustained, and is likely to grow. This very much depends on the commodity in question — the good news for Ireland is that emerging economies have growing demand for dairy and lean sources of protein.

* You say the harsh reality is that seed, energy and fertiliser costs have grown 7.7%, 7.6% and 3.1% respectively, in some cases almost wiping out price gains for produce. Do you have predictions of future farm input price trends?

>>Input prices by their nature will vary, and one way to counteract any potential input price hike is to look at other options — alternatives to gas and electricity as energy sources. Farmers could consider adapting the LEAN principles (see www.lean.org) to their business as a way of improving farm efficiency. As well as working towards high levels of land utilisation, looking at productivity of feed and feed systems is worth considering, to increase output per animal.

* How can Irish farmers improve scale?

>>Ireland is a small nation on the fringes of Europe, competing on a global playing field. Scale and efficiency are fundamental requirements to succeed in the game. Farmers can learn from productivity techniques that have been successful elsewhere, either in Ireland or internationally, and adapt similar programmes for themselves. Secondly, treat the farm as a business, and manage it accordingly.

* Is the co-operative system the best option for farmers?

>>Bord Bia are strong advocates of the co-op model, and I’m convinced it can work in Ireland. Look at the success of the Fonterra model in New Zealand... working together strategically for mutual benefit makes sense. Farmers can look toward to the possibility of establishing more purchasing groups to get better deals on the likes of seeds or fertilisers. The same principle applies to combined selling power.

* You emphasise the importance of sound financial planning. In this area, will sufficient credit facilities be available to Irish farmers?

>>Access to funding is a real challenge for all businesses. At Grant Thornton, we believe funding is a form of competitive threat. There is a limited amount available. Where a farmer has a smart, strategic, dynamic financial plan in place, it improves their potential to secure funding. Access to credit, or lack of, may be a restriction on the potential of Food Harvest 2020.

* In relation to farm produce prices, you say strong prices at the farm gate are vital to maintain a healthy and demand driven sector. Many farmers believe that retailers and processors will allow them just enough income to survive. What advice to you give to farmers with such beliefs?

>>Farmers may feel that retailers and processors dominate the relationship. It’s important that this is as equal a relationship as possible. One way this can be achieved is by farmers working together to improve negotiating power. Farmers also need to challenge existing farm practices. Ultimately, profit and growth is about selling at as high a price as possible, and operating from a lean, efficient cost base. Where smart productivity initiatives are implemented, there is potential to grow margin, and free up working capital for the business. This will greatly aid their quest to achieve the best prices.