Dairy expansion money matters: Are you a chicken or a pig?
Dairy farmers need to learn from the mistakes of the Celtic tiger property boom and not leap into post-quota expansion. This is according to John Crawley, financial advisor of the Dublin Docklands Development Authority, lecturer at the Dublin City University Ryan Academy and chief executive of The Finance Expert.
AgriLand reported live from the Dairy Ireland conference in July earlier this year. Here’s a recap.
“Forget about the co-op, the industry, the big wide world, because it is your farm, your input is what I want farmers to focus on,” according to John Crawley.
Crawley was a speaker at a the Dairy Ireland-organised think-in on Ireland preparing for post-quota dairy expansion.
“Running a farm is no different to running Intel or to running a school or to running a coffee shop,” he explained to the packed crowd of farmers and businesspeople.
“How many times have you heard a politician stand up and say, ‘The first time in the history of the State this has happened’. So it is a big seismic event, but so what. In 2000, the IT guys said we were all screwed and the world was going to end with Y2K. They made a big deal out of it and nothing happened. The question is, is that what Ireland is doing for post-quota 2015 when milk quotas will be abolished? Is that what you doing? Is this a much-to-do-about nothing, another Y2K seismic event?”
These are the questions that need to be asked, the risk assessor insisted. ”I am sick reading about this in the media that everybody says there are opportunities straight ahead for the dairy industry and dairy farmer. Everybody says milk production could go up and they pick a number. Everybody says milk prices are going to have a soft landing, soft landing my arse.”
He has observed a big push for farmers to invest and has warned farmers not to leap in without concrete plans. ”Everybody says invest, invest, invest. Get robots, get bigger milking parlours, get bigger, bigger and bigger. Everybody says it therefore it must be true. Now do you not remember the fable in school about the emperor’s new clothes. Just because everybody says doesn’t actually make it so. Everybody said that in the property boom that prices could not go down and look what happened there,” he said matter-of-factly.
“In terms of farming and dairy expansion, we need to look outside the box, way outside the box and think about things differently.”
Among the recommendations from Crawley for dairy farmers was planning. “If you don’t know where you are going any road is going to get you there.If you are in this lovely position of not knowing where you are going, off you go, have fun knock yourself out. But it is a little bit like peeing in a spacesuit. You’ve got a nice warm feeling for a while but then you are suddenly going to realise what you have just done. It ain’t going to be nice in there.”
He said that the main focus for farmers should be farm output on his/her farm. ”Forget about the co-op, the industry, the big wide world, because it is your farm, your input is what I want you to focus on,” he said.
Among the questions that need to be asked, he said was, is it a good idea for you to go into farming and have you got the stamina to keep going?
“This is going to be rough. As Bill Cullen would say, where are the liathroids? Are the liathroids dangling where you want them to be dangling? And if you have them in place to keep yourself focused on where you are going to take this thing over the next couple of years. Because if you don’t have that it is an opportunity to say ‘Hang on’.”
He also asked the crowed of farmers if they were quiet simply exhausted. “Are you jaded? You were moaning about the wet weather, the fodder, the late start in the season and then the good weather came. Jesus you have been harvesting all day and night, on the farm all day and night. Are you jaded? Is it time for the mini-break? Is it time to stand back? Are you having your ‘Bridget Jones’ moment by actually coming to Mitchelstown? If so, you need to stand back and say why. Why is the most important word and now is the time to do that.”
Another consideration, according to Crawley, is this the right time for individual farmers to expand. “If you had a choice in the morning to increase profits by 10pc or to increase 10 things that increase your profit by one per cent, what would you do. I would go for the 10 things that make up the one per cent as it is much less risky.”
With dairy post-quota he acknowledged the opportunities. “Obviously there is an opportunity. The world trigs that, we trig that. Milk is not a product that is going out of fashion any time soon. The world drinks milk … You are in a business that has a sustainable future. It is just a matter of how to get that right.”
He referred to New Zealand as a great study to benchmark Ireland again. In terms of finance for individual farmers and dairy expansion plans he simple said: “How are you going to finance it? Where is the money going to come from into the future?
“There is a massive lazy bastard syndrome that is embedded in people’s brains that says just ask the bank for money. I don’t know where that logic comes from. It is obviously very good marketing, because it should not be your first port of call. I love free stuff, we all do. There is free money available for your business, you just need to think about it a small bit differently.”
In this regards he said efficiency is key, talking to people is free. “If you hired people, farm hands did you ever look at their CVs and see if they can do anything else. That’s free. The suppliers to your business. Can they give you a little bit more credit? That’s free. Hedging your milk prices at a certain level, can also be a free bet.”
He said there were different forms of finance for farmers. “Don’t assume your only route is jump in the car and down to the local branch … When they come back to lending it is not the only form of financing.”
Are you a chicken or a pig?
He referred to the business finance analogy “Are you a chicken or are you a pig?”. ”These are two very different forms of financing a business. Think of your breakfast. If you had an Irish fry this morning, did chicken and pig contribute? Yes, but the pig made a big sacrifice of being there, didn’t he. The pig made a bigger sacrifice coming up to your breakfast this morning. He is a really committed person, the chicken only made a small contribution. Chickens are the bankers, pigs are the owners.”
He urged the crowd to think of the same analogy when it comes to co-ops. ”If you are members of co-ops and if you are not a ‘pig’ finance person you are best to get out as ‘chickens’ won’t work there. You cannot be a bit of the road. In my view you have to be committed to make your industry better. Pigs are good. Chickens are like farm hands and suppliers, you take them in from time to time, as in they are easy to dispense with.”
He also asked how do individual farmers measure performance on their farms. ”What is really important for your farm? How do you measure that? Is it the end result? Is it the focus on fat, protein, costs, grass? What are those things, you need to ask.”
What are the key performance indicators for your business, he asked. ”You need to focus on: How do we about killing animals or people? How efficient are our processes in terms of technology in milking parlours? How do we feel about burning money? How do we feel about profit? So of course you are always going to say, no. I hate all those things. But we do have farm accidents, we do have systems that go down, farm do loose money and farmers do not always get a good wrap. Maybe we are listening and not doing. The same applies to all industries and sectors.”
He warned farmers not to get confused between activity and productivity. “There is this great debate about being a busy fool. You could be working very hard, but getting nowhere. Are the activities you are doing getting the business somewhere?”
He said farmers facing post-quota expansion need to be “really brave”. ”What would you do if you weren’t afraid. Think about that question. You are heading into really exciting times, what is the thing that you would like to do now if nobody was going to give out to you about it. What you need to be successful is good ideas, good people, good staff in terms of suppliers, fellows and customers. You also need good money and good luck.”
He stressed that there is great opportunities ahead for Irish farmers but a balanced logical approach is needed.
“There has to be an understanding that conservative is good if it is accompanied by a logical approach to running a farm, but conservatism can be a byword for procrastination. Exuberance in the property market was a rush of blood to head to. Now there is an opportunity to invest but you need to think it through.”
Here were the top tips that was outlined by the financial expert.
* Ask yourself why change? If you are happy with what you are doing, don’t change. Don’t mind anybody else. Change for the sake of change is not good.
* Is this time to break out to cash in the chips? You may not be the right person to move a farm business forward and that is ok.
* You need an A-Team? Who are you going to have at your side to help you work through the next couple of years? Pick your team. Rub off good people. There is no point hanging around gobshites, you’ll more than likely become one.
* Size matters. You can’t eat like a mouse and shit like an elephant. You can’t work like that. If you are going to go for it you have to make the big decisions on how get critical mass. What size do I want the farm business to be?
* Have I got the capacity to expand in terms of land holdings?
* Am I dealing with the right farmers? Am I dealing with guys who have the balls, who have the ideas, who know very simply how to get stuff into cows cheaper than they can get it out.
John Crawley, financial advisor of the Dublin Docklands Development Authority, lecturer at the Dublin City University Ryan Academy and chief executive of The Finance Expert.