Farmers warned to get basics right before considering expansion

Dairy farmers are preoccupied with the need to expand but must take a step back, according to a leading consultant.

Addressing the Zoetis Budgeting & Financial Advice Clinic at the National Dairy Show at the weekend, John Broderick of BMJ Consultants stressed the need for farmers to optimise their existing farm operation before expanding.

“We try to slow them down. Expansion is a fool’s errand unless farming basics are put right first,” he said.

Nevertheless, he spelled out promising conditions for farmers ready to expand, envisaging milk prices in the low 30s in terms of cent per litre, and interest rates in the 4%-8% range. But milk producers would have to be ready to face the possibility of riding out two seasons of low prices.

Mistakes to watch out for include not budgeting properly, getting the expansion time scale wrong, overestimating expected performance, and getting cashflow wrong.

“And don’t become a stressed-out farmer,” cautioned Mr Broderick, pointing milk producers to the benefits of using farm relief service milkers, costing as little as €1,500 after tax relief.

Donal Whelton, AIB agri-adviser, told farmers at the clinic that the bank expects high milk prices into the first quarter of 2014 at least, which will help make up for the early weather havoc faced by milk producers in 2013.

The bank lends at a headline interest rate of 5.5% variable (and negotiable), and stress tests loans for rates increasing up to 7.5%, though Whelton predicts steady rates for 12-18 months, at least. He said that where a high single farm payment exists, stress tests are undertaken to gauge the effects of payments reducing due to CAP reform.

He confirmed surveys show nearly half of all farmers intend to invest over the next three years and plan an average spend of about €60,000.