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20
Forage & Nutrition
Guide 2018
On average, the cost of producing
1kg of live weight gain or 1kg of
milk solids from grazed grass
is 80-85 per cent less when
compared with an intensive
concentrate-based
system (varies by grain
price) and Teagasc
research has identified
that increasing grass
utilised by 1 tonne (t)
dry matter (DM) per
hectare (ha) per year is
worth 181/ha to dairy
farmers and 105/ha to
dry stock farmers.
FARM INVESTMENT
Irish farmers have invested
significantly in their businesses
in recent years with close to
800m borrowed from financial
institutions to support on-farm
development (between Q4 2016 and Q3
2017) as reported by the Central Bank of Ireland. At
the same time, Irish farmers continue to reduce their overall
lending with banks, as outstanding balances to the sector
have reduced by close to 2bn or over 40 per cent since 2009.
Research conducted by Ipsos MRBI (May 2017) on behalf
of AIB suggests that one in two farmers are planning on
investing in their farms in the next three years; this figure is
higher among young farmers, with the average investment
amount of 44,000 planned. The main areas of planned
investment include upgrading of existing equipment and/
or machinery, general upgrading of existing infrastructure,
investing for farm safety improvements and introducing
labour-saving technologies.
BETTER BEFORE BIGGER
Teagasc Profit Monitor data shows that there is significant
variation in the financial performance of farms across all
farm sectors no different from any other business sector.
When making investment decisions, just be conscious that
it is not always about expanding and increasing output.
Expanding from an inefficient base will only amplify existing
inefficiencies and, ultimately, offer little financial reward
for the investment undertaken. A focus on increasing the
existing levels of on-farm efficiency will not only provide a
buffer during periods of lower margin returns, but also offer
significant potential for improved farm profitability.
PLANNING FARM INVESTMENT
There is a general acceptance that farm financial
management and planning
does not necessarily get
the time and attention
it deserves. In recent
years, price volatility
has highlighted the
importance of, and
the need for, greater
financial planning
at farm level and
the importance
of incorporating
risk management
strategies into
farm plans,
operations and
practices.
It is important to
devote adequate
resources to the planning
process. Significant financial
resources are often tied up for
a number of years with individual
farm investments so you need to be clear
on why you are making the investment, and
determine from the outset what the proposed investment
will be worth to you and your business's bottom line when
complete. It is important to always take a multi-annual view
of the farm and examine performance over time, such as
the previous three-to-five-year period. This ensures that
investment decisions are not based on a very good year
or indeed a very bad year, but on a truer reflection of farm
performance and capability.
Below are some considerations for young farmers
contemplating farm investment:
It is essential to fully cost any farm investment don't
rely on what somebody else's development cost;
Take time to visit similar projects and learn from the farm
investment experiences of other farmers;
Include a contingency of 10-20 per cent when planning
farm development as over-runs are common;
Talk to your bank at an early stage where finance is
required, and ask what will be required to process a credit
application;
Structure any loans over the appropriate time period,
ensuring you don't place undue pressure on farm
cashflow by trying to repay the loan in an unrealistic time
frame;
It is important to distinguish between cashflow and
profit. Increased farm profits may not always be fully
available to meet higher bank repayments;
Finally, ensure that any investment fits in with the long-
term goals of your business.