Exit strategy for dairy farmers
Global milk prices are at such a low level that it is very hard to make margins. This is particularly the case for those farmers who have invested (too) much in the last few years. Of course you can argue whether these farmers can be blamed for it. But being a lecturer at an agricultural college in the Netherlands, I have learnt that some students are confronted with extremely difficult situations at their family farms.
Currently, a higher number of farmers than usual are experiencing a burnout. It is expected that in the coming year, more than 10% of the Dutch farmers will be forced to go out of business.
What can the farmer do about milk prices?
So time for all of us to review the future strategy and review the possibilities to be able to continue farming with profitable margins. Starting point for this is the current scenario with the low milk prices, which cannot directly be influenced by the farmer himself. So we should focus on stepping up the technical results of the farm, as these can be influenced by farmers themselves. Cost price can be kept under control with having good technical results, but financial income (especially milk prices) are difficult to improve.
Extra financing of the farm could be an option. At the moment, interest rates are low if you have a good deal with your banker. But banks are asking for depreciations of loans and delay is only accepted when you can show good technical results and the farm is considered a healthy operation. But what to do if you cannot fulfil these requirements? It is then absolutely necessary to have a liquidity forecast for the next 18 months and even better: a month by month forecast.
For me it' s obvious that the best option is to be honest and reliable with your suppliers. Make good agreements about how bills will be paid and when, and also make sure you don’t break agreements.
Stress and burnouts
Avoid stress and be careful. You will not be the first or last farmer with a burnout. Some farmers take the decision to end their lives because they can’t take the stress any longer. Unfortunately, this is not a solution for yourself, your family and your business partners. If a dairy farm has to be closed, don’t consider this as a failure. I have experienced a debacle on our farm with a biogas digester for example. Although you will feel really bad when things are not going the way you planned, be sure you get support from your neighbours, the society and business relations. This helped me a lot.
Have a solid strategy
Currently, we are calculating if the rest of our farm (the milking part) can survive with the current low milk prices, after the negative results of the biogas digester and the current discussions on the interest rate swap. So we are looking at the possibilities now to improve the technical results. My advice: Keep your farm under control and have a solid strategy in mind. The decision to stop farming can be a strategy too.
Author: Bram Prins
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