Pressure on cash-flows has added £22,000 to the average dairy farmer’s borrowings, despite higher milk prices than a year ago, according to new figures from consultant Promar.

The consultant’s Farm Business Accounts survey, which collects evidence from 600 farms and is reconciled against businesses’ trading accounts, shows the average dairy farm’s profit grew sharply in the past year but was still insufficient to cover drawings, tax, pension contributions and reinvestment.

And farms were facing the twin pressures of a shortage of cash – caused by higher inputs and tighter trading terms – and an acute shortage of skilled farm labour. “Some herds are on their third herdsman in six months,” said regional consultant Andrew Thompson.

Many farmers also faced paying significantly higher tax bills, adding to the drain on cash.

SFP income

Although owner-occupied farms had seen their balance sheets strengthen in the same time thanks to rising land values, overdraft extensions were up by £22,000 on average.

The average herd in Promar’s sample of 114 herds made a profit of £43,768 in the year to March 2008, up from £17,248 in 2007. But single farm payment income represented more than £31,000 of that figure.

That leaves a net surplus of £12,476, an improvement on the year, but scarcely enough to fund partners’ drawings, pension contributions and reinvestment.

Profits

However, the top 25% of herds in Promar’s sample saw profits, including SFP, rise from £48,127 to £101,912. “These businesses could accommodate increases in costs more easily,” said Mr Thompson.

The credit crunch was making itself felt in supply industries surrounding farmers, he said. “Take fertiliser – in some cases farmers now have to pay for the product before it has even been delivered. Seven- to 14-day credit terms are not unusual now.”

Farmgate milk prices had risen by 3.8p/litre to March this year and had continued to rise since, said Mr Thompson. But costs had also risen by 3-3.5p/litre in that time.