Cash flow is king
Cash flow budgeting is going to be critical for dairy farmers in the coming season.
“To our farmer clients we say ‘the payout might be $6 but plus or minus $1; so factor that into your budget’. If you look at the history that is typically the range – the opening forecast plus or minus a dollar. So people have to budget for volatility.”
But currently the industry is in a reasonable position.
“The payout is forecast to be above $6, we are addressing the environmental concerns and climatically things are ticking along right at the moment,” says Allen, who will now focus on his role as managing director of Waikato AgFirst.
“There are some challenges as well: environmental compliance will continue to get harder and harder. For some people in some regions farm system change is going to happen.
“I also have confidence there are research and ideas out there that will enable us to get through this okay.”
The dairy industry has been through rapid growth but is now consolidating on those gains.
“I would be surprised if we see any significant growth in dairy in those numbers and I wouldn’t be surprised if we see a slight decrease,” says Allen.
“I think we will see a slow but continued increase in per cow production, we will see an increase in environmental best practice and I am hoping we will see a few more added-value premiums come in at the farm level.”
Asked to comment on the Fonterra situation, he says although the co-op has had its challenges, part of the reason for posting a loss was that they may have ended up paying too much for milk. So the farmers are getting that milk price but the dividend stream is not high.
“If I was purely a Fonterra shareholder I’d be a bit grumpy at the moment,” he says.
“For me definitely there is cause for concern about some of the issues at Fonterra. But equally the feedback I am getting is that some of the recent changes at Fonterra management and governance level have been quite positive. The word on the street is there is a bit more transparency coming through.”
On volatility he says farmers are now more aware of it. They have had a few really tough years in the payout, in the climate, in a few regions and in the negative comments the industry has been attracting, unfortunately.
“It has been hard work. People are more aware of the challenges; there is a bit more caution about how much debt people are willing to take on. Some of that is self-enforced and some is enforced by the banks.
“You have a bit more fiscal prudence, a lot more environmental awareness and I think every year people are getting better at managing their team.”
Every year AgFirst sees more professionalism; they see farms “running more as a business; they are big businesses and they need to be treated as such”.
The industry has its challenges. “But the dairy industry has been through plenty of challenges in the past so I am confident what is ahead of us we will cope with.”
Consultancy is quite a different business compared to when it first started, he says.
“It will continue to evolve. As farms become more professional the whole area of rural professionals is changing and becoming more professional as well.”
While there is plenty of good free information out there, people are paying for good advice on how to apply the information, how to make things happen and get good results.
