Financial management practices on Irish dairy farms: The role-played by extension

With the advent of increased competition, adjustments to the CAP (Common Agricultural Policy) and the future globalisation of the agricultural sector, Irish farmers are involved in an increasingly competitive business environment. These changes have brought into focus the need for farmers to improve their business management as well as to continue best practices in production husbandry. Consequently, identifying the factors that may contribute or lead to an increased uptake in formal financial recording, planning and analysis systems among Irish farmers was the primary focus of this research. The literature on farm financial management highlighted a number of issues in relation to the slow adoption of farm financial management techniques among Irish farmers. The results in this paper illustrate the financial management practices in the Irish dairy farm sector and the link between these practices and their impact on the profitability of Irish farms was also highlighted. The farm, personal and financial management characteristics of the dairy farmers in this study who were most efficient in terms of costs and profit and who were most committed to the financial management aspects of their business. Introduction The land area in the Republic of Ireland (RoI) is 6.9 million hectares (Ha’s), of which 4.4 million Ha’s are used for agriculture (Department of Agriculture and Food, 2004). However, the importance and contribution of agriculture to Ireland’s Gross Domestic Product (GDP) continues to decline (Department of Agriculture and Food, 2006). Also various studies have reported trends of falling farm incomes, rising costs of farm inputs, rising levels of off-farm employment, increasing diversification of farm level enterprises, and the further polarisation of larger, more innovative commercial farmers compared to the smaller, state-reliant farmers (CSO, 2003; Connolly et al., 2003). These changes have emphasised the importance for farmers to improve their business management as well as to continue best practices in the production husbandry’s. AIAEE 22 Annual Conference Proceedings Clearwater Beach, Florida 113 Purpose of the Paper The purpose of this paper is to present an in-depth view into the farm financial management practices of Irish dairy farm managers who spend varying amounts of time working on the financial management side of their farm business across different farm business sizes (as measured by herd size). A further purpose of this paper is to measure the impact of financial management practices on the financial performance of Irish dairy farms using the Dairy Profit Monitor (a computerised service operated by Teagasc (Irish Agriculture and Food Development Authority) to provide dairy farmers with a detailed analysis of their farm financial performance). Methods and Data Sources Case study analysis was undertaken in order to obtain a comprehensive insight into the financial management practices of Irish dairy farmers. Participants in the case study research were selected from the Dairy Farmer Survey (completed prior to the case study research – see Byrne et al., 2003) based on the hours per week farmers spent working on the financial management aspects of their farm business and the number of dairy cows in the herd (Table 1). Table 1. Number of Respondents by the Hours per Week they Spent Working on the Financial Management Aspects of the Farm Business and the Number of Dairy Cows in the Herd (n=121) Hours per Week spent Working on Financial Management Number of Dairy Cows in the Herd 5 Hour (N=22) Category 4 85 7 (3) 13 (6) 6 (9) 16 (12) Pearson’s Chi Square = 19.931 D.F. = 6 Sig. = 0.003 *figures in brackets relate to the individual case study farmer A respondent from each of the 12 identified groups in Table 1 was randomly selected to participate in the case study research. For example, (1)* case study farm 1 was selected from those respondents in the Dairy Farmer Survey from Category 1 and who had a farm business with less than 56 dairy cows, and case study farm 2, (2), was selected from those respondents in Category 1 who had a farm business with 56 to 85 dairy cows, until all selections were completed. The case study ‘interview schedule’ used in this research consisted of two sections: Section 1 consisted of the participant filling in the Teagasc Dairy Profit Monitor Input Sheet with the assistance of the researcher and Section 2 involved discussing the financial management practices in place on their farm. The purpose of completing the Teagasc Dairy Profit Monitor Input Sheet was to determine the financial performance of the dairy farm business, and to examine the financial management tools used by the participating farmers to complete it. Prior to conducting the actual case study research, the case study interview schedule was piloted with three farmers. The case study schedule was adjusted to take account of the views expressed in this pre-testing phase. AIAEE 22 Annual Conference Proceedings Clearwater Beach, Florida 114 Results The three case study farmers in Category 1 were chosen across three different farm business sizes, as illustrated by area farmed and the number of dairy cows in the herd (Table 2). Their common costs ranged from 15.40c/l down to 8.8c/l with common profit ranging from 20.46c/l up to 23.98c/l. The Teagasc guideline figures in relation to common costs is 10.9c/l and common profit is 20.2c/l. All three case farmers were achieving the Teagasc target in the case of Common Profit, while only case farmer 2 was meeting the standard in terms of Common Costs. The case farm 2 respondent demonstrated a willingness to adapt new management practices to improve farm profitability as they are actively involved in a DairyMIS (Management Information System) discussion group which focuses on reducing their costs per litre of milk produced as well as improving the quality of milk produced. Table 2. Characteristics of Case Study Farmers in Category 1. No. of Dairy Cows Hours per Week work on Financial Management Common Costs(c/l) Common Profit (c/l) Financial Records Case Farm Area Farmed (Ha) Total Farm LU’s 85 5 Manual