Much of the industry will be in a position to source working capital and manage the cycle.
Australian dairy producers entered the current global price downturn “well prepared” with sufficient equity levels, putting them in good stead to weather the current storm, according to a recently-released industry report.
The report, Oceania Dairy – Let’s Debt Serious by agribusiness banking specialist Rabobank says the 2016/17 season will be financially challenging, with milk prices for many export-orientated producers likely to remain below breakeven.
However, much of the industry will be in a position to source working capital and manage the cycle, it says, with Australian farmers having learnt from previous cycles the importance of generating cash buffers and appropriate gearing levels to help manage volatility.
“Over recent years, many dairy producers have taken the opportunity of improved farm profitability to pay down debt rather than expand their business,” says report co-author Rabobank senior dairy analyst Michael Harvey, “and this focus on manageable debt levels has proved paramount to maintaining farm resilience in an ever-increasingly volatile climate.”
With equity likely to be eroded during this downturn as farmers access working capital to manage the challenging conditions, Mr Harvey says, producers will need to use the next upward price cycle to strengthen their business structures.
“This may see farmers adopt a business strategy focused around reducing debt and rebuilding equity, rather than chasing the profit margin in the upswing,” he says.
Mr Harvey says the adoption of a flexible production system is also a good long-term strategy for farm resilience.
