‘If you’re not farming for profit, we’d like to wish you well with your hobby.’ This was the harsh message delivered by Laurence Shalloo, Dairy Systems Economics Researcher, with Teagasc.
Harsh, but true. Laurence was speaking at the second Teagasc Dairy Expansion Seminar in Mullingar today and was very clear with his message – farmers have to be clinical about the decisions they make and base these decisions around sound financial planning. This includes any notions around expansion.
At the second seminar which looked at expansion in the dairy sector, we heard again that many farmers are planning on expanding their dairy outfit, without the sums adding up or, indeed, without even checking to see what the numbers are.
There is no doubt the appetite is there among Irish farmers to expand – the country has paid €150 million in superlevy bills since milk quota was introduced into Ireland, but dairy expansion is not for everyone. In theory, the removal of milk quotas should be the dream for dairy farmers. Having been shackled by quotas since 1983, few farmers will know production prior to quotas. However, the three banks at the Dairy Expansion Seminar voiced caution when it comes capital investment in expansion.
Investment should be logical and on an incremental basis, we heard and it has to be sustainable and driven by market demand. The farmer, the processor and the banks all have a vested interest in expansion. But each farmer must consider their own situation and expansion should not be based on what your neighbour is doing or what everyone says you should be doing.
Quite simply, expansion should not be considered at farm level unless there is a plan and budget in place, and cash-flow will cover the decision, and the individual farmer will be in a better place after the expansion. Dairy prices are going to be volatile in the coming years and anyone with expansion ambitions will need good buffering in place to weather the ups and downs. Only farmers who currently have a very good handle on their finances should even contemplate expansion over the coming months and years.