The ability to effectively manage cashflow is one of the critical skills a farmer needs to possess. The nature and background of our industry means that farmers are no strangers to the highs and lows of business performance.
As a whole, the sector's performance over the last three years highlights the changing nature of our industry and the importance of managing cashflow within the farmgate.
Changes come from many directions, including extreme weather events, policy changes and, as we have seen in recent years, conflicts.
Yet, despite its importance, many businesses grapple with managing cashflow. Understanding how to navigate the ebbs and flows of money within your farm business is not just an option, it's a necessity for sustainability and growth.
Sector performance 2022
While the Irish agricultural sector recorded a strong performance in 2022, it was delivered against a backdrop of unprecedented challenges and uncertainty right across the supply chain.
Record farmgate prices were overshadowed by a significant increase in farm input costs. Global events, such as fluctuating commodity prices and Russia's invasion of Ukraine, impacted agriculture worldwide.
Rising input prices, especially for items such as fertiliser, fuel and electricity, spiked production costs for all farming enterprises.
Across different sectors, dairy and tillage enterprises saw substantial increases in income, mainly driven by high milk and cereal prices, despite rising production costs.
Dairy farms faced a 32% increase in production costs, but benefited from higher milk prices, resulting in record incomes in 2022.
Despite the higher input costs also, tillage farms benefited from higher cereal prices, strong yields and favourable weather conditions, resulting in very strong incomes in the sector in 2022.
In the other drystock sectors, while output prices did increase, the rise in input costs negated much if not all of the benefit (Teagasc National Farm Survey).
Daniel Noonan from AIB’s economic research unit noted: “The preliminary estimate from the CSO shows that farm incomes grew by 25% in 2022, primarily due to large increases in the price of outputs.
"Looking at the key underlying trends from last year, milk output rose by 46%, but this was predominantly due to a 45% increase in prices, with production volumes increasing by a modest 1%.
"In terms of livestock, cattle, pig and poultry volumes declined slightly, but were more than offset by increases in value. Sheep volumes and values rose by 2.4% and 4.5% respectively. Elsewhere, crop production declined by 1%."
2023 sector performance and outlook
Coming off the back of a record year in 2022, the performance and outlook for the sector in 2023 looks very different.
AIB’s head of agriculture Donal Whelton said: "The agricultural input and output price index, as measured by the CSO, shows output prices have decreased by over 14% in June 2023, from their peak in December 2022, reducing steadily each month.
"And while input prices have fallen by 12% in the same period, much of that reduction has only taken place in the last month or two.”
In general, the agricultural sector experienced a favourable year in 2022, witnessing substantial increases in farm income for both dairy and tillage farmers.
However, with a prosperous financial year comes the potential for increased tax liabilities.
As the deadline for the 2022 tax bill approaches, farmers are acutely aware of the challenges in meeting these obligations, particularly when farmgate prices have significantly declined compared with last year.
AIB is aware of the pressure that the upcoming tax bill may put on cashflow for farmers, especially in a year when output prices have reduced.
As such, it's important to contact and actively engage with your bank early - if support is required - to discuss the potential cashflow solutions. AIB has several helpful options for farmers, including PromptPay Finance.
PromptPay Finance is a product designed to spread large one-off payments, such as preliminary tax, over an 11-month period. It allows businesses to budget by offering a fixed interest rate with set repayments over an 11-month period.
However, farmers can actively manage their cashflow and navigate the ups and downs associated with the volatility we have witnessed in the industry in recent years by completing these three simple steps:
1. Detail all sources of income and expenditure: document and record all invoices, receipts and bank statements, along with recording all household income and related expenditure.2. Prepare on a monthly basis: keeping it simple, while entering actual and anticipated cash inflows and outflows, is essential. The difference between the inflows and outflows should reflect the business's current account at the end of each month.3. Continue to actively revisit, monitor, and amend the cashflow: cashflow management is an ongoing process. Regularly review and update your cashflow projections and strategies as your business evolves.These steps will help farmers manage the flow of cash through the business, providing them with the information needed to assess the business's current state and make necessary changes to ensure the business continues to run smoothly.
Mastering the art of cashflow management is not just a skill, but a necessity for every farmer. The agricultural industry's resilience and adaptability have been showcased through both prosperous and challenging years, like 2022 and the more evolving landscape of 2023.
By staying vigilant and proactive in tracking income and expenditures, exploring financial solutions such as PromptPay Finance and continuously reassessing cashflow strategies, farmers can navigate the financial peaks and troughs of their industry.
As we move forward, it's clear that a firm grip on cashflow will remain an essential tool for ensuring the long-term sustainability and prosperity of farming enterprises – and no more so than in 2023.
If you’d like more information on AIB’s products, please see AIB’s PromptPay Finance webpage or contact one of AIB’s agricultural advisers in your area.
Allied Irish Banks plc is regulated by the Central Bank of Ireland.
The ability to effectively manage cashflow is one of the critical skills a farmer needs to possess. The nature and background of our industry means that farmers are no strangers to the highs and lows of business performance.
As a whole, the sector's performance over the last three years highlights the changing nature of our industry and the importance of managing cashflow within the farmgate.
Changes come from many directions, including extreme weather events, policy changes and, as we have seen in recent years, conflicts.
Yet, despite its importance, many businesses grapple with managing cashflow. Understanding how to navigate the ebbs and flows of money within your farm business is not just an option, it's a necessity for sustainability and growth.
Sector performance 2022
While the Irish agricultural sector recorded a strong performance in 2022, it was delivered against a backdrop of unprecedented challenges and uncertainty right across the supply chain.
Record farmgate prices were overshadowed by a significant increase in farm input costs. Global events, such as fluctuating commodity prices and Russia's invasion of Ukraine, impacted agriculture worldwide.
Rising input prices, especially for items such as fertiliser, fuel and electricity, spiked production costs for all farming enterprises.
Across different sectors, dairy and tillage enterprises saw substantial increases in income, mainly driven by high milk and cereal prices, despite rising production costs.
Dairy farms faced a 32% increase in production costs, but benefited from higher milk prices, resulting in record incomes in 2022.
Despite the higher input costs also, tillage farms benefited from higher cereal prices, strong yields and favourable weather conditions, resulting in very strong incomes in the sector in 2022.
In the other drystock sectors, while output prices did increase, the rise in input costs negated much if not all of the benefit (Teagasc National Farm Survey).
Daniel Noonan from AIB’s economic research unit noted: “The preliminary estimate from the CSO shows that farm incomes grew by 25% in 2022, primarily due to large increases in the price of outputs.
"Looking at the key underlying trends from last year, milk output rose by 46%, but this was predominantly due to a 45% increase in prices, with production volumes increasing by a modest 1%.
"In terms of livestock, cattle, pig and poultry volumes declined slightly, but were more than offset by increases in value. Sheep volumes and values rose by 2.4% and 4.5% respectively. Elsewhere, crop production declined by 1%."
2023 sector performance and outlook
Coming off the back of a record year in 2022, the performance and outlook for the sector in 2023 looks very different.
AIB’s head of agriculture Donal Whelton said: "The agricultural input and output price index, as measured by the CSO, shows output prices have decreased by over 14% in June 2023, from their peak in December 2022, reducing steadily each month.
"And while input prices have fallen by 12% in the same period, much of that reduction has only taken place in the last month or two.”
In general, the agricultural sector experienced a favourable year in 2022, witnessing substantial increases in farm income for both dairy and tillage farmers.
However, with a prosperous financial year comes the potential for increased tax liabilities.
As the deadline for the 2022 tax bill approaches, farmers are acutely aware of the challenges in meeting these obligations, particularly when farmgate prices have significantly declined compared with last year.
AIB is aware of the pressure that the upcoming tax bill may put on cashflow for farmers, especially in a year when output prices have reduced.
As such, it's important to contact and actively engage with your bank early - if support is required - to discuss the potential cashflow solutions. AIB has several helpful options for farmers, including PromptPay Finance.
PromptPay Finance is a product designed to spread large one-off payments, such as preliminary tax, over an 11-month period. It allows businesses to budget by offering a fixed interest rate with set repayments over an 11-month period.
However, farmers can actively manage their cashflow and navigate the ups and downs associated with the volatility we have witnessed in the industry in recent years by completing these three simple steps:
1. Detail all sources of income and expenditure: document and record all invoices, receipts and bank statements, along with recording all household income and related expenditure.2. Prepare on a monthly basis: keeping it simple, while entering actual and anticipated cash inflows and outflows, is essential. The difference between the inflows and outflows should reflect the business's current account at the end of each month.3. Continue to actively revisit, monitor, and amend the cashflow: cashflow management is an ongoing process. Regularly review and update your cashflow projections and strategies as your business evolves.These steps will help farmers manage the flow of cash through the business, providing them with the information needed to assess the business's current state and make necessary changes to ensure the business continues to run smoothly.
Mastering the art of cashflow management is not just a skill, but a necessity for every farmer. The agricultural industry's resilience and adaptability have been showcased through both prosperous and challenging years, like 2022 and the more evolving landscape of 2023.
By staying vigilant and proactive in tracking income and expenditures, exploring financial solutions such as PromptPay Finance and continuously reassessing cashflow strategies, farmers can navigate the financial peaks and troughs of their industry.
As we move forward, it's clear that a firm grip on cashflow will remain an essential tool for ensuring the long-term sustainability and prosperity of farming enterprises – and no more so than in 2023.
If you’d like more information on AIB’s products, please see AIB’s PromptPay Finance webpage or contact one of AIB’s agricultural advisers in your area.
Allied Irish Banks plc is regulated by the Central Bank of Ireland.
SHARING OPTIONS