Maintaining profitability with rising farm operating costs
13 December 2021
Many farmers are under profitability pressure as farm operating costs continue their trend upwards. So, taking the time this holiday season to revise farm budgets to better project cashflow, profit and loss expectations, could be a decision that pays dividends for years to come.
Driven in part by rising inflation rates stemming from the pandemic, farmers are facing product shortages which puts pressure on pricing. This has flowed onto farm operating costs, which are predicted to increase over the coming months. And it’s not only diesel and fencing gear set to increase but interest rates as well.
An increase in expenditure can quickly erode profitability so, although we are currently seeing a rise in schedule prices and milk price payout, farmers need to be factoring these increases into their budgets.
Taking the time to revise your farm’s budget will help maintain cashflow and enable you to better estimate profit and loss expectations for the period ahead. This will help you to see the impact of decisions you make regarding upcoming expenditure plans. For example, you might be considering rolling over expenditure from the prior year but when you add the additional 30 to 40 percent in fuel costs to reflect current prices, it becomes apparent this may not be a smart way to plan.
While you are reviewing your budget, it’s also worth looking at a few other areas that can help you reduce costs and maintain profitability.
Farm systems and policies
Are there any changes that can be made to your systems and policies that could reduce costs and maintain profitability? For instance, could a change in your stock mix between cattle and sheep reduce costs? Being open to adaptation is key in the current environment.
Look at updating your stock reconciliations so you have an idea of predicted sales for the season. Ideally, do a farm tally and then forecast out to year end. This will help enable decisions to be made with accurate data to support.
The current pricing pressures make it the perfect time to look at buying options. Investigate buying direct from the supplier, get quotes and challenge your current prices. Look at how you can make inputs go further, being strategic in how you plan and accurate in usage.
New Zealand farmers are innovative and driven to succeed. Although the current environment brings challenges, there are massive opportunities to be made in making new decisions and implementing these new plans. If you’d like some assistance, contact the Findex Accounting and Business Advisory team.