Are You Prioritising Your On-Farm Investments In The Right Areas?

In his book ‘The 7 habits of Highly Effective People’¹, Stephen Covey discusses the seven identified habits to achieving private victories. Farmers and their farming systems can apply these habits when considering investment priorities for the future of their farm.

Often, when considering investment plans on a farm, priorities are not always listed and considered. This may lead to unnecessary or unproductive investments in the short-to-medium term, while other key investment needs are often overlooked.

The first three habits of highly effective people as detailed by Covey are:
  • Be proactive;
  • Begin with the end in mind;
  • Put first things first.

The process for approaching farm investment decisions is no different. Irrespective of farm system, key on-farm efficiencies are needed by Irish farmers as they seek to compete successfully on the global stage.

Farmers must take a long-term view of agricultural investments; recognising the inherent volatility in farming and the efficiencies required to prosper. The increased volatility evident in the agricultural sector due to weather, price or unexpected individual on-farm challenges is a reality that each farm must manage.

Farmers must focus their investment priorities on improvements in on-farm efficiencies to survive and grow both across and within income cycles.

It is imperative that all farmers continue to develop a broad range of skills to navigate their business through all seas of calm and turbulence.

When approaching investments, farmers must begin with the end in mind, put first things first and ask themselves ‘will this investment improve my efficiency and profitability’?

Invested funds may come from both own savings/reserves or borrowed funds, with each carrying their respective costs.

Before any farm expansion is planned or new lands acquired, the existing farm must be operating at peak efficiency across all resources.

 

Key questions to consider when evaluating and prioritising on-farm investment options:
  • Are you currently measuring grass growth? If so, what is the potential for improvement?
  • What is the current platform and overall stocking rate?
    • It is clear from Teagasc eProfit Monitor results in 2015 and 2016 that farms targeting high levels of grass utilisation are more profitable.
  • Have you a reseeding plan for all pastures with up-to-date associated soil fertility results? Is land drainage required to improve grass yields?
  • Are farm roadways and grazing paddocks fit for purpose? Are improvements required for cow flow, walking distances or grazing rotations? Is further or improved fencing required?
  • Is the farm water supply system sufficient to supply adequate water needs in paddocks, the parlour and the home dwelling?
  • Are milking facilities appropriate for cow numbers and labour supply?
    • It is important to balance the funds invested in a parlour and the direct return from such investment;
    • The choice of milking system should be directly related to the number of cows currently being milked and the envisaged future herd size;
    • When considering investment priorities, it is better to focus on having adequate milking units rather than high levels of automation;
    • The availability and cost of hired labour must also be considered when evaluating investment priorities.
  • Existing level of farm debt and the remaining term on existing loans.
    • This will directly affect repayment capacity, ability to borrow for the planned investment and cashflow on the farm.
  • Objectives of the Food Harvest 2020, FoodWise 2025 reports and the current review of CAP include the need for effective methods for biodiversity conservation in both intensive and extensive farm systems.
  • Environmental impacts of on-farm investments must be included in all considerations and discussions.

Financial gain from investment decisions

Teagasc 2016 eProfit Monitor Analysis² for spring milk dairy farms detailed the top farms generated a gross output of €4,402/ha compared to €3,371/ha on the average farms.

The higher output on the top farms reflected a combination of both higher stocking rate (14% higher) and higher output per cow (9% higher milk solids output per cow). These farms reported a net profit of €1,827/ha compared to €1,043/ha on the average spring milk dairy farm.

The overall resilience and sustainability of the dairy sector is dependent on increased productivity and the efficient conversion of grazed pasture to milk. This relies on financially sound and sensible on-farm investments, which directly generate profit-enhancing outputs in an environmentally sustainable way.

As we look forward to 2018, it is worth reflecting on the first three habits of highly effective people as detailed by Covey and their applicability to on farm investment decisions:

  • Be proactive;
  • Begin with the end in mind;
  • Put first things first.

References

  1. Covey, S. R. (2004). The 7 habits of highly effective people: Restoring the character ethic. New York: Free Press;
  2. Teagasc (2017). Profit Monitor Analysis – Dairy Farms 2016 . Teagasc Specialist Service.

 

 

 

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Tuesday, 20 February 2018
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