Farming & Fisheries

Best ways to manage inflation on the farm

July 22nd, 2022 7:05 AM

By Southern Star Team

Farmers are encouraged to complete their 2021 accounts as soon as possible as it will let them see how the farm performed last year. This will better allow them to budget for the additional costs this year. (Photo: Shutterstock)

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FARMERS are very good at dealing with changes as they constantly have to deal with animal health, weather, price volatility etc but most will never have had to deal with the level of cost inflation that is happening this year.

Inflation is running at record levels but it is farming that is experiencing the highest level of cost inflation due to the increase in fertiliser and feed costs. Inflation is budgeted to run between 7 to 10% but fertiliser has increased by 250%.

Farming is very exposed to inflation due to the large expenditure on costs such as fertiliser, feed, diesel and plastic. A lot of these costs had already increased at the start of the year but the Russian invasion of Ukraine further increased these costs due to the fact that a lot of fertiliser, feed and oil comes from these two countries.

While it is a welcome relief that milk, beef and lamb prices have increased, much of these increases have been eroded by the additional costs of production. Some might have been lucky enough to have purchased some of their fertiliser last year before the price increases took place , are perhaps using a cheaper type of fertiliser, or trying to maximise the use of slurry.

Each farmers’ situation will be different but they will need to assess their individual situation in time. This may involve selling any surplus stock as soon as possible to lower their feed requirement both for now and the coming winter. It would be advisable to do a fodder budget to see if they will have enough feed to carry them over the winter as if there is a deficit it will be better to act in time as the purchasing of additional feed will probably be very expensive this winter. If additional feed is required then is there the available finance to purchase it?

If cashflow is low then you may have to consider postponing capital expenditure or getting additional finance from your bank. The banks and credit union are offering finance packages to help farmers pay for these additional expenses but careful examination should be carried out of your business to look at your present repayment situation and how this additional loan can be repaid.

I would encourage farmers to complete their 2021 accounts as soon as possible as it will let them see how the farm performed last year. This will better allow them to budget for the additional costs this year and will be required should they need additional finance from their lending institute. By having their accounts completed they will be in a better position to budget for their tax liability. This is important in any year but none more than this year.

Philp Salter, accountant, FDC Skibbereen.

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