Opinion: Protecting working capital is vital when profits are low
© Adobe Stock I really envy livestock farmers at that point in the spring when they turn their cattle out onto grass. What an appropriate and optimistic way to start a new growing year.
Turning our daffodil croppers out into a muddy field in January just doesn’t elicit the same warm fuzzy glow.
I also envy the stock farmers’ fall in weekly outgoings at a time when our expenditure is rising.
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Spring on our farm means planting seeds, plants and bulbs, so instead of emptying our barns of animals, we are instead releasing the contents of our bank account from captivity.
A few million quid disappears during the first couple of months of each year, and it goes with the speed of a particularly energetic young heifer, skipping and frolicking to distant corners of the farm.
Despite going through this routine for decades now, I’ve never become relaxed about the process of trading the security of cash on deposit for the risk of fields full of crops.
It is nerve-racking to depend upon the mercy of the elements, the goodwill of our customers and the good sense of global politicians (not to mention a great deal of effort and energy on our part) to bring that money back again.
Imagine having a life that is so safe and boring that you have to race motorcycles, go hang gliding or do parkour at weekends.
Watching 5ha of nearly mature delphiniums through the April showers brings me as much jeopardy and adrenaline as I crave in my life.
It is perfectly sane for farmers to question how they deploy capital and what benefit it brings them.
Liquidating farming assets and working capital, and investing them into a low-risk investment portfolio would generate a better return for many of us.
Looking at the classified ads in this magazine, stuffed as they are with farm dispersal sales and adverts for pretty ring-fenced farms, it is perfectly understandable why so many families are choosing this option when the potential rewards for continuing are so stubbornly low.
I’m not planning to sell up, but I am increasingly interested in cashflow projections, stock valuations, depreciation, sales data and our costs of production, to give me a granular understanding of where we are winning and losing to make sure that we are benefiting from our hard work.
One concerning recent trend is that our customers are taking longer to pay us.
We bankroll some of our crops for three years before we harvest them so it is especially insulting when retailers don’t want to pay us until 60 days after they themselves have banked the cash for our product.
It has always been the model of multiple retailers – to get suppliers to pay for their expansion by providing them with free working capital – but this feels particularly egregious in the current climate.
Protecting working capital on farms is hugely important when profitability is low and this is an area where I wish the government would bring guidelines and fairness.
Farming is a noble and necessary profession and many of us were conditioned to stick with it through difficulties.
We see our outcomes in more meaningful ways than just profit.
But farming is also a business and understanding our numbers, our position in a changing market and – especially in these inflationary times – our return on investment is more necessary than ever.