The dairy sector faces significant change in the years ahead, given a combination of the road to net zero, removal of Basic Payments and introduction of new environmental schemes. Throw in aging infrastructure, limited labour availability and the need for succession planning and there’s a lot for producers to consider.
But change brings opportunity, and with some careful planning the sector has a bright future ahead, according to James Jackson, Distributor Development Manager at agricultural bank, Oxbury. “Facing such a time of change can be a bit daunting, but if you sit down and work out the different options available, and pull together a realistic forward budget, it can make things a lot more manageable.”
Decision making
Mr Jackson recommends bringing all stakeholders together – including the younger generation – to discuss strengths, weaknesses, opportunities and threats. “Sit down with a trusted adviser and explore all potential pathways, from low-cost management tweaks to longer-term capital projects to future-proof the business.”
It’s important to consider the impact that BPS withdrawal will have on the business, as well as the potential for new income streams through environmental schemes or diversification.
“Look at your existing assets and location, contracts, labour, inputs and overheads. And bear in mind the context of changing legislation and consumer demand, climate change mitigation and biodiversity net gain.”
Low-cost options to improve efficiencies – and therefore the farm’s carbon footprint - might include upgrading milk cooling equipment to reduce energy costs, or improving cow comfort to boost yields and general health.
More direct action to mitigate climate change may be through adopting regenerative pasture management to reduce ploughing and sequester carbon. This could require new farm machinery, electric fencing, or a joint venture with a neighbour.
In contrast, larger capital expenditure may be required, whether that’s replacing an aging conventional parlour with robots to improve efficiencies, covering a slurry store to reduce emissions, or installing renewable energy infrastructure.
“Regardless of the size of expenditure, it’s important to produce a realistic budget and likely return on investment,” says Mr Jackson. “You can then take that budget to your bank manager and identify the most suitable finance options available.”
Different sources of funding
With a variety of new grant schemes in the pipeline, it’s worth exploring what items might attract government funding – but don’t allow that to dictate the future business path, he warns. “Any investments must be made for the right business reasons – and it’s vital that those people involved in the day-to-day running of the farm are committed to your chosen path and take satisfaction from it.”
Short-term lending might be available through the ordinary farm overdraft, flexible farm credit on inputs like feed, seed and fertiliser, or by borrowing up to 70% of quarterly milk payments through Oxbury Flexi Credit – Milk Cheque. This enables farmers to draw down immediate funds as required with payments to suit farm cash flow.
To find out more about Oxbury Flexi Credit – Milk Cheque, click here.
Cash flow forecasts
And cash is king, he warns. Budgets should always include a cash flow forecast to identify pinch points, regardless of the long-term profit and loss outlook. “More than one otherwise profitable business has struggled due to lack of liquidity, so overlook cash flow at your peril.”
When it comes to larger investments, the business will likely need a loan to be paid back over up to 25 years, explains Mr Jackson. “It’s important that your lender really understands your farming needs so they can construct the most effective package. You may benefit from a larger or longer-term loan than initially considered to allow some breathing space with a new venture. Other considerations include choosing between fixed or variable rates, interest-only terms, or repayments that match the seasonality and needs of your business – all of which we can offer.”
And that’s where having a bank and relationship manager who truly understands farming and your individual business is critical, he adds. “Financing farm business changes cannot – and should not – be one size fits all. Every farm is different, so for maximum success it’s vital to have bespoke lending through a partner like Oxbury who’s genuinely committed to your profitable and green farming future.”
Visit Oxbury Bank today to find out what options could be available to your farm business.