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Advice for Wicklow farmers to mitigate rising costs next year

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Farmers are facing a number of different price hikes.

Farmers are facing a number of different price hikes.

Farmers are facing a number of different price hikes.

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WICKLOW farmers are being encouraged by farming, food and agribusiness specialists ifac to prioritise budgeting and cash flow management to mitigate the impact of rising costs and tight profit margins.

From a financial perspective, 2021 has been a good year on most Irish farms. Commodity prices are up for milk, beef, lamb and crops. Input prices were relatively stable for the first nine months and weather conditions for both grass and crops were excellent. Taken together, this combination of factors should result in higher profits in 2021 when compared to 2020.

Looking to 2022, while the outlook for dairy, beef, lamb and crop prices is bullish, rising input costs will hit profit margins. Currently, fertiliser prices have almost doubled when compared to this time last year while feed prices are up by about 20 per cent. Fuel and energy costs are also rising. With tight margins on many farms, good cash flow management will be critical in the coming months.

Ifac estimates that dairy farmers could be facing a potential extra cost of 4 or 5 cent a litre over 2021 (€591 per ha); beef farmers are likely to see input costs increase by €187 per ha over 2021; tillage farmers could face a potential extra cost of €281 per ha over 2021.

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Philip O’Connor, Head of Farm Support at ifac said: “The combination of the impact of these cost hikes , potentially impacting profits by as much as 50 per cent on dairy farms and 60 per cent on livestock farms, as well as other financial commitments such as drawings, loan repayments and tax, are likely to lead to cash problems for many farmers. This is not a position any farmer will want to find themselves in next year and it’s why this is the time to look for practical ways to reduce the pressure on cash flow.”

Depending on your type of farm, working out your fertiliser, concentrate and feed requirements will help you estimate what you need to budget for in the coming year. You also need to take into account that fertiliser and fuel costs are rising when compared to 2021. When input costs are rising, reducing your turnover may reduce your costs by a higher % and therefore could improve your profit margin. Where is the optimum profit margin on your farm?

You also need to look at both your income sources and any other costs you expect to incur. Once you have this information, you will be able to produce a financial budget and predict whether you will be cash positive or negative in 2022.

When you know where you stand, you can then look for opportunities to reduce your costs and maximise your profit margin or consider setting aside some cash to help tide you over next year. However, if you expect to be cash negative after drawings, loan repayments and tax, you need to review your loans and interest rates and look for opportunities to secure better value.

Your accountant and agricultural advisor can provide practical advice to improve the overall performance of your business and show you how your farm is performing when compared to similar farms in your sector. Benchmarking your business in this way will often highlight opportunities to enhance your operation and improve your margins.

Philip added: “In ifac, we always promote the concept of a ‘farming team’ where farmer, accountant and agricultural advisor work together for the benefit of the farm. By bringing all of your professional advice together, you get a deeper understanding of your business which enables you to identify and address potential problems, grab opportunities, and make the right decisions at the right time so that your farm can survive and thrive both now and in the future.”


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