AIB’s chief agricultural advisor Pat Butterly has told AgriLand that “milk supply contracts should be considered as part of the mix of options, which dairy farmers should consider as they strive to cope with the challenge of market volatility moving forward.”
“Experience from other sectors would indicate that contracts work best if they are long term in nature,” he added.
“The core principle coming into play is that of allowing farmers to gain more control over their market returns.”
The AIB representative made these comments while attending today’s Teagasc Liquid Milk conference in Navan. He added: “Ensuring that cashflows remain adequate over the long term will remain a crucial component of future farm management strategies implemented here in Ireland. In achieving this goal, producers must strive to build reserves during those periods when margins are strong. Taking this approach will also encourage the banks to provide the support that farm businesses will require during those period when market prices dip.”
Butterly strongly advises farmers to develop a clear and coherent plan for their businesses: “The advice of Teagasc advisors and accountants should be sought in developing a farm plan. The actual process of thinking through the opportunities and challenges that lie ahead will allow farmers take a more strategic approach when it comes to planning for the future.
“Crucially, a well thought out farm plan will allow take a proactive approach to be taken when it comes to managing their businesses. Issues such as the development of new infrastructure, the purchase of additional land and extra labour costs can be factored in along with the extra income levels that will be generated.
“Our own research shows clearly that a high proportion of Irish dairy farmers intend developing their businesses, once quotas end in 2015. For many this will entail the securing of additional finance.
“From a bank’s perspective issues such as a proven ability to re-pay previous loans and the availability of accurate cash flow and income projections will be taken into consideration when it comes to deciding on whether or not additional fiancé will be made available to individual clients.
“That said, the availability of a well thought out farm plan will be taken as a very positive factor in the context of the bank’s decision making process.”
He concluded: “The outlook for agri-food remains extremely positive. But farmers must take a strategic and proactive approach to the development of their businesses if they wish to convert all of this potential into sustainable profits.”