The Ifac Irish Farm Report 2023, which has been published today (Thursday, February 16), shows that 53% of farmers do not actively budget.
As well as that, 37% of respondents have not reviewed their borrowings for their farm businesses in the last 12-18 months.
The report states that, while margins were strong in 2022 across the main farming sectors, this could change quickly if key commodity prices take a downward trend and input costs remained high.
For that reason, Ifac says that farmers should know their own business and where their breakeven price is.
Speaking to Agriland ahead of the report’s publication, Ifac’s head of farm support Philip O’Connor said: “It’s not a case of just budgeting for a random reason in the future. It’s actually about looking at your financial accounts, and going ‘right, if this happened, or if that happened, what does that mean to me’.”
O’Conner explained that budgeting should not merely be done for reasons of determining profit, but should be done “the whole way down the paycheck” in order to cover all outgoing costs.
“It’s about what do you need to earn this year to be revenue neutral. If you started the year with €10,000 in the bank, what do you need to do to finish up the year with €10,000 in the bank account. Ideally you want more. That’s the point of looking at that,” he said.
“The reality, really, is that actually the process of doing the budget is more valuable than the budget.”
O’Connor added: “The figures that come out of it, I won’t say they’re irrelevant, but they won’t happen, because life happens. But what comes out of it is the process of going through the figures and talking about it. It allows the farmer to see where the pinch points are.”
He explained: “If milk price dropped, or if there was a weather event, or if you had to up the feed, you have a good idea how that’s really going to impact your farm finances. It gives you a greater understanding. It gives you an idea of how much leeway do you really have in the business.”
A more comprehensive budget will, according to O’Connor, allow farmers to know if they can carry any unplanned additional costs that may arise.
“It’s about not wondering can you carry that, or will you be able to carry that, or are you going to find out halfway through the summer that your overdraft has overshot the runway and you’re looking for a cash support loan.
“It gives you clarity and a bit of understanding around the figures. That is the real value around doing budgets and forecasting. It’s looking at the figures and understanding how they are going to impact your farm,” he added.