The message came from a banking expert and from the agricultural advisory body Teagasc and served to puncture an irrational exuberance within the sector, based on projections of a 50 per cent rise in output by 2020. As with the property bubble of 2007, the danger of “group-think” in creating behavioural patterns was identified as a core problem.
Farmers were urged to make individual plans and to decide what levels of production and investment were advisable in the context of their own resources and expected price volatility. A lack of forward planning and of farm plans based strictly on profitability was identified as a major issue. Farming was being treated as a way of life, but it was primarily a profit-making enterprise.
As milk prices fell, some expansionist cheerleaders were prompted to shoot the messenger. The Irish Dairy Board came in for particular criticism because it warned that prices might decline substantially by the end of this year. Farm leaders warned against damaging “fragile confidence” at a time their members were investing heavily in expansion plans. It carried echoes of “putting on the green jersey” at the time of the banking crisis. Straight talking and unbiased assessments are what farmers require if they are to plan ahead in any meaningful fashion. Already, some may be in trouble because of falling prices and super levy bills based on over-production.
The abolition of EU milk quotas in April will certainly provide farmers and processors with opportunities for growth. With opportunities, however, will come financial risks. Prices are expected to rise internationally in the medium term, but with accompanying volatility. Because of that, caution is required. Expansion plans should be carefully phased and based on cash flow and profitability.
Source: IT