Careful Planning for Dairy Expansion Emphasised at Teagasc Seminar
A Teagasc seminar 'Financial Planning for Expansion' took place in Mullingar on Tuesday, 10 June, which looked at how focused expanding dairy farmers are planning the financial aspects of expansion.
Reflecting on the previous dairy expansion phase before the introduction of milk quotas in 1984, dairy farmer, former IFA President and Chairman of IFAC, Donie Cashman said that there has to be sound financial reasons for expansion. He said that his take home message is to undertake proper financial planning, pay close attention to management accounts, follow good farm practice and link with your neighbours and with discussion groups to get good advice. He concluded by urging farmers, and their advisers, that shocks to the system should be anticipated and that it is important to protect yourself in your budgets and plans so as to better withstand any shocks that do occur.
Kevin Connolly, Teagasc financial management specialist highlighted the range of Teagasc tools available to help farmers on a daily, weekly, seasonal and annual basis. For example, the ‘My Farm, My Plan’ strategic planning workbook can help farms to develop a simple farm development plan for their farm and can feed into a multi-year financial plan. He called for a change in how financial planning is viewed and to move beyond seeing financial planning as a means to secure finance. He also called for an industry wide initiative to get more farmers to engage in financial planning, especially those who are planning to expand.
Laurence Shalloo, dairy systems economics researcher, Teagasc, said that the dairy expansion train has already left the station as evidenced by the increase in dairy cow and replacement heifer numbers over the last three years. He questioned how many of those farmers increasing dairy stock numbers had completed a business plan before they embarked on this level of expansion. Large numbers of dairy farmers are planning to expand but relatively few have completed detailed business plans. He also highlighted the ‘lag phase’ between the timing of the investment and the return being achieved and urged farmers to prioritise their investments so as to ensure that scarce funds are invested wisely and that cash flow is optimised. When discussing gradual versus rapid expansion, the Teagasc researcher concluded that rapid expansion can generate higher returns and a more positive cash flow quicker but that it does come with more risks attached and that the decision on gradual versus rapid expansion options may very well come down to the person and their attitude towards risk.
The experience and role of the banks in helping farmers to make informed borrowing decisions was also discussed. Sharing their experiences with funding expansion, all three of the major banks represented highlighted the scarcity of really well thought out, financial plans presented to them. They also emphasised the disconnect between preparing such plans to ‘get the funding proposal across the line’ and their use by farmers as a tool to monitor their financial performance in the subsequent years.
This event is the second in a series of Teagasc Dairy Expansion Seminars.