Proper budgets can help combat volatility

22 Jun, 2018 03:05 PM
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BETTER BUDGETING: Ian Halliday, outgoing Dairy Australia managing director, has called for a greater uptake of budgeting tools, by farmers.
How do we continue to help build farm business management skills?
BETTER BUDGETING: Ian Halliday, outgoing Dairy Australia managing director, has called for a greater uptake of budgeting tools, by farmers.

Dairy Australia’s outgoing managing director, Ian Halliday, has bemoaned the take up of business management tools by Australia’s dairy farmers.

Speaking at the annual DA Situation and Outlook breakfast, Mr Halliday said he was concerned only 51 per cent of farmers were doing a budget.

“We have actually gone down from the prior year,” Mr Halliday said.

“You would think with all the challenges we have had in the past few years, the figure should be upwards of 70-80pc.

“I think Tasmania is the only place which is nearing the 70pc mark.”

Registrations for DairyBase, now sitting at 2000, had started to plateau.

“How do we continue to help build farm business management skills?” Mr Halliday said.

“We don’t want to tell farmers what to do, but help them understand what drives profit and what they should really be focused on.

“When we have all this volatility, and they know they have no control over milk prices, we have a role to build farm business management skills.”

Mr Halliday said the future was optimistic, with production growth set to return.

“If you add up all the extra milk that is being sought by processors, over the next three to five years, you very quickly get to an extra 1.5 to 1.8 billion litres," he said.

“Most of that is in Victoria or Tasmania.”

But, he said, the real challenge, facing the industry was a lack of confidence.

DA’s annual national farmer survey, of 800 suppliers, found less than half those surveyed were confident about the industry’s future.

The figure of 47 per cent was a marked drop from 75 per cent four years ago.

Mr Halliday said he felt confidence would have risen, since the survey was taken, because the price outlook had improved, albeit on the back of increased input costs.

“How do we help farmers restore confidence, restore trust, restore profitability that incentives them, to want to then grow?” Mr Halliday said.

The survey was against the backdrop of increased volatility, with an average price cycle of three-and-a-half years, down from seven.

Mr Halliday said farmers also faced challenges from climate volatility.

Fonterra Australia managing director Rene Dedoncker said the company decided several years ago to build resilience in the business.

“What sort of player; did we want to be here, in the long haul?” Mr Dedoncker said.

“Was this a base to grow a market, internationally, or not?

“Did we want it to be an outpost, of the mothership, in New Zealand?”

He said decisions on significant investment were based on building confidence in the industry over time.

“We are trying to give ourselves more resilience and more opportunity so that when we do get tough times, we don’t stand up and say ‘that’s a surprise, what are we going to do do, our business system can’t cope with that?’,” he said.

The company was making intentional investments, to take the risk out of business.

Fonterra was also taking a deliberate decision to move away from what he said was a “transactional relationship” with farmers.

“I think it has been in the past," he said.

"But if we don’t wrap our arms around the way we do this and get it into our DNA, we have got a problem.

“We are fronting up, more frequently.

"We are far more vulnerable than we have ever been.”

That included Farm Source, described as a comprehensive package of tools and services to assist farmers with farm business management.

Its Farm Source Digital program allowed farmers to monitor their operations, manage finances or run their own income estimates, for a full 12 months.

Mr Dedoncker said farmers were asking Fonterra about the commitments it had made.

“Confidence will only come if you deliver your commitments, one step at a time,” Mr Dedoncker said.

“Grand promises don’t work.

“Over time, that will build confidence.

“Confidence is a step towards pride and trust but I think they are still years away."

Mr Dedoncker said the greatest opportunities for all processors were offshore, particularly in south-east Asia.

“It’s a Korea story, it’s a Japan story, its right through south-east Asia,” he said.

Mr Dedoncker said processors needed to use provenance to build markets.

“It’s about trust in the source," he said.

“If we are smart, as an industry, we will play the Australian story.”

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Andrew Miller

Andrew Miller

is a journalist for Stock and Land
Twitter: @journoandy26

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