Contingency of up to 20% advised for expanding farmers

Recently, I had the pleasure of hearing Dr Laurence Shalloo of Teagasc speak at a West Cork event on planning expansion for 2015; the following are some key messages from the event for farmers looking to expand.

To achieve the Food Harvest 2020, Laurence projected that the target increase of 2.5bn litres of milk production was likely to come in part from a 15% increase in milk year per cow as well as an additional 330,000 dairy cows coming on stream over the intervening period.

This increase in milk production is likely to drive an €850m increase in annual sales for Ireland, however, Laurence was keen to advise farmers that expansion should only be undertaken at individual farm level where it is profitable to do so.

Assessing whether it’s worthwhile expanding or not involves an examination at individual farm level of your existing resources, land and grazing platform, stock, labour, housing, milking facilities, existing farm borrowings and potential to access and finance additional funding to meet expansion.

At a national level, the vast majority of profitability on Irish farms is derived from the 18,500 dairy farmers with the Teagasc National Farm Survey showing consistently that beef and tillage farms were only marginally profitable — inevitability land now used for cattle and tillage will be converted for use by expanding dairy farmers.

On the labour capacity on farms, Laurence drew on a previous study on labour requirements for different size dairy operations showing that in smaller herds the labour requirement was upwards of 50 hours per cow per year with larger operations (100 cows plus) using 29 hours of labour per cow per year.

As herd sizes grow, labour efficiency grows, but it’s not as simple as being able to use the same amount of labour when doubling your herd. Handling more cows with less labour means farmers will have to make decisions about what work you will get contractors to assist with or, alternatively, taking on additional labour through either family members or employees.

As well as proper labour management, maximising profitability will come through good breeding, good animal management, good grassland management and good reseeding grass sward.

Laurence pointed out that farmers are well on the way to increase cow numbers to meet the expansion targets. Currently 100,000 extra dairy heifer calves are being born per year compared to 4 years ago. The cost of increasing the national herd by 100,000 heifers per year is €150m for Irish farmers.

On individual farm level, this means that cashflow will be tied up in extra stock, and farmers should factor this in as part of their expansion plans. Laurence suggested farmers should learn lessons from the Greenfiled site in Kilkenny.

Productivity per animal drops as herds increase affected by factors, such as increased walking distance for cows, increase competitive pressures at the feed face for cows, and increase likelihood of disease pressures and outbreaks.

Contingencies funds for overruns on farm development costs of 10% and 12% were provided for in the Greenfield sites of Kilkenny and Shinagh, Bandon, but in hindsight when borrowing for farm expansion it would be better to have a contingency fund of 15%-20% and this level of spare capacity should be approved for finance and in place before expansion is undertaken.

To meet the 2020 targets, those farmers looking to expand should assess what the limiting factor to their own expansion will be — i.e. does the farm have the capacity to produce enough grass for an increased herd size, does the farm have the cashflow to be able to undertake expansion or is access to finance a problem.

In an era of tight capital and cashflow pressure farmers must distinguish between those investments which will deliver profits and those which will deliver comfort. As a suggestion investments should be focused on stock, roadways and water infrastructure in priority to investments in buildings or machinery.

Farmers also need to manage their individual overall investment in order that their borrowings are manageable and development may have to be undertaken in phases. Wrapping all of the above into a farm plan will provide a roadmap for expansion.


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