Loss-making suppliers and buyers pose real risks

Watch out for failures among those who buy from and sell to farmers, warns a new report which reveals that between 20 and 30% of traders are making a loss. Some of these are serial losses, warns analyst Plimsoll Publishing.

Many of these companies trade in high volume, low margin products and commodities where price volatility makes them very vulnerable. Catching up from the effects of a poor year is increasingly difficult, said report author David Pattison.

The highest risk sector is meat, where almost one in three made a loss in their last accounts. Of 1,000 companies, 280 lost money which is a slightly higher rate than a year ago.

Within the feed sector, the level of loss makers is one in four companies, almost twice the rate as two years ago.

Of 890 agri-merchant companies studied, 197 were loss-making in their most recently reported year. While this was the first loss for some which simply had an isolated bad year, many were ignoring the problem, warned Mr Pattison.

“Ninety-five companies are making a loss for the second, even third year running and are simply selling at prices their business cannot sustain.

“They have put off making the painful decision that more prudent companies made a while ago. No one wants to trim costs, lay off staff, cancel dividend payments and the like, but carrying on regardless is now unviable. They can no longer bury their heads in the sand.”

However, the loss rate among merchants is slightly lower than a year ago, although 95 were losing money for the second year running.

One in four machinery dealers and parts companies are loss making, with the proportion here also improving slightly compared with a year ago.

Across the sectors, more companies are making a loss for the first time in their history. “Many can rightly claim to be victims of difficult trading conditions. A quick refocus on profitability would ensure this an isolated occurrence,” said Mr Pattison.

“Those who fail to take the necessary action are running out of time and cash. Without a big increase in demand they cannot support their pricing strategy much longer. Watch out for a number of failures among the companies we have identified”.

Customer/supplier precautions  

  • Get to know companies better – understand their business structure
  • Know exactly which part of a business you are trading with
  • Check on financial standing
  • Warning signs include late payments, late filing of accounts
  • If a deal looks too good to be true, it probably is
  • Use credit checking
  • Consider credit insurance

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