Beware of Pressure to Increase Spending
Beware of Pressure to Increase Spending – Farm Business Specialist
Farmers should be very wary of financiers and advisers who want them to put on more stock and farm more intensively, according to Waikato-based farm business specialist Peter Floyd.
“Some farmers are being pressured by the rural business community to spend large sums of money on fertiliser, fencing and capital stock without any proper assessment of whether it will return a worthwhile profit,” he says.
“I have seen several examples recently of farmers being forced by banks to pay for expensive reports that simply give rule-of-thumb advice aimed at increasing production, but have no real profitability analysis.”
Floyd believes this ‘mindless production culture’ dates back to times when robust financial analyses were not possible and the main focus was on production per animal and per hectare.
However, successful farming today is not about more production, fencing, fertiliser or cashflow, he says, but about optimising profit per kilo of feed eaten by stock (P/kgDMe).
“We now have the business tools to measure P/kgDMe accurately and thus predict the effects of changes in management strategy on net profit,” says Floyd.
“Farmers need to make decisions based on profit, not on a production mindset that is 30 years out of date and may force them into financial difficulties.”