Hone financial skills – DairyNZ

Kevin Argyle, leader of DairyNZ’s consulting team in the lower North Island, says in the light of the expected lower payout in the coming season, farmers need to closely monitor their financial position. 

Argyle was until recently chief financial officer at Massey University. He also runs a 440-cow herd near Palmerston North.

He says improving farmers’ financial literacy is something DairyNZ pushes with programmes such as Biz Start and Biz Grow.

“There is recognition across the dairy sector that financial management is critical to the success of a farmer’s business,” he told Dairy News. “Fonterra had warned dairy farmers to expect a lot more volatility in payout. Therefore there is significant risk… in this current year. 

“If we look at farm working expenses over the last few years we see these have crept up with increasing costs such as greater use of supplements.”

Argyle says it’s critical farmers have a budget for the year and every month look at expenditure against that budget and forecast out to the end of the year how their expenditure is tracking.

“[Also] develop a cashflow for the year so they can identify one-off significant things such as tax payments, share purchases or even money coming in such as dividend payments. They need to have a clear grasp so they can track their cashflow to avoid nasty surprises including a particular commitments in any given month.”

Argyle recommends adopting a ‘no-surprises’ relationship with the bank and talking through cashflow projections, highlighting any unique ‘requirements’ they might have.  

“They certainly should be doing monthly reporting, but not all farmers have the skill to do this, hence the special training programmes we run for them.  It’s all about developing financial skills and being able to measure and monitor the whole financial aspect of the business.”

Farmers are eternal optimists – a positive attribute, says Argyle, because they have to deal with so many unknowns such as adverse climatic conditions.

 “But farmers have got to be realistic about the forecast payout… monitor and listen to what’s happening in the marketplace including messages and signals from the likes of Fonterra and other milk supply companies, and make sure they provide for a ‘rainy day’ with money in the kitty.”

With a tough year expected, the focus is on the various dairy farm systems and whether high cost systems can survive the financial storm. 

The issue is not so much about whether a farmer is operating on ‘system one’ or ‘system four’, but rather that
whatever they’re doing is being done “damn well”.  “The key to success is making sure they plan, structure and manage highly effectively.”

Since New Zealand’s competitive advantage is in low-cost grass production, it’s important farmers manage it, harvest it and make sure pasture is monitored and measured weekly. 

“We still think there is opportunity for more farmers to do pasture  monitoring and pasture walks. This is because of the dynamic nature of pasture grown, because it can change rapidly from one day to the next. In feed budgeting you know what feed you have and then look at the strategic management so you know what other supplements are required.”