In essence, sustainability is a far-reaching, holistic concept that encapsulates three interrelated dimensions (ie economic, environmental and social) such that the actions of today do not disadvantage those of the future, facilitating continued operations.
With reference to economic sustainability, despite ongoing and continued political and lobby intervention, on-farm profitability remains a fundamental challenge for the majority within the Irish agri sector, irrespective of the key performance metric utilised as point of reference.
Indeed, at a national level, spanning 2014-2018, on average, less than two in every five Irish farms are deemed economically viable (1), with significant variation across farm systems, and that’s before the likes of Brexit, Mercosur and climate change, etc, exert an influence.ADVERTISEMENT
More long-term, without a sustained improvement in farm incomes and/or continued reliance on off-farm income sources, we are probably looking at a changed, more consolidated sector in terms of enterprise mix.
1 Economically Viable: a farm business achieving a farm income sufficient to remunerate family labour at the minimum wage (assumed €19,616 per labour unit) and provide a 5% return on the capital invested in non-land assets (i.e. machinery & livestock)).
Calculating a farm’s breakeven output
To see where you stand, now and into the future, a useful starting position is to review the most recent profit and loss accounts for the farm and ask "What is the breakeven price that I need this year to cover farm costs, living expenses, repayments and income tax, assuming all other things are equal?"
Calculating a farm’s breakeven output price is an entirely farm-specific exercise. It is the milk/beef/sheep price that your farm business needs to meet all cash commitments. This calculation should include both capital and interest financial repayments, drawings/ household expenses and taxation. It should exclude depreciation as this is a non-cash expense (the capital portion of repayments is included in its place).ADVERTISEMENT
This exercise allows you to establish at what price your business will be in a cash deficit. Below is an example of a breakeven calculation for a 100-cow spring-calving dairy farm supplying 510,000 litres.
In this example, the breakeven milk price is 28.5c/l of milk supplied, which is typical of many dairy farms. It is important to note that this example doesn’t include any capital development or change of stock values.
Completion of this exercise should highlight your existing position, whether or not you need to take further action such as reducing costs or adding value to your output, and how much action you need to take. It is important to consider how items will change when contemplating the exercise.
Nationally, across all farm sectors, there is significant opportunity to improve on-farm profitability by increasing existing levels of farm efficiency. As you can see from the graph below, there is significant variation in financial performance between the top and average performers across all farm systems.
For those of you who would like to speak to somebody in AIB on how we can help you and your business, contact your local AIB branch or call 1890 47 88 33 (available 8am-9pm on weekdays and 9am-6pm on Saturdays).
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