5 December 2007

Speaking at the Drought Planning Seminars held in Campbell Town, Oatlands and Cranbrook last week, Rabobank senior manager Tasmania, Greg Bott said that droughts have and will continue to occur - it’s the producer’s capacity to recover that matters.

All areas of the state have suffered from the drought although midlands and east coast areas have suffered the most and have been formally “drought declared,” Mr Bott said.

An initiative of the Tasmanian Farmers & Graziers Association (TFGA) and the 8x5 Program, Mr Bott spoke to the approximately 100 attendees, including both farmers and industry representatives, about the importance of financial risk management during drought , the importance of cashflow, perspectives on debt management, and capacity to recover quickly.

Mr Bott commented that total farm debt has grown steadily over the last 40 years but particularly so in the last five years. However, the growth in rural debt has occurred among the larger farms. This is the case both in Tasmania and throughout the country, he said.

“ Despite volatility, on an Australia-wide basis, the net value of farm production has been increasing ; farm asset values have been increasing at a greater rate than average debt levels,” Mr Bott said, adding that this does vary from sector to sector but farm values in most areas of Tasmania have increased notably in the last three to five years.

Every farm should have a drought strategy included in the business plan, Mr Bott told the audience. Droughts have always occurred on an irregular basis in Tasmania, he said, and farmers have been resilient in overcoming each one. While some districts are experiencing their second successive dry year, Mr Bott said planning should always acknowledge the reality that we will see at least one dry year in seven.

“There is no blanket answer, everyone is an individual, but consideration should be given to how a budget would perform under drought conditions, testing your budget with drought conditions is a good way of managing risk. While it is important to remain profitable a drought strategy may be an acceptance that some dry years will see losses which will be offset by the profitable periods,” he said.

There are several strategies that are commonly implemented including; culling older stock and feeding through, Mr Bott commented.

“Results from some leading producers suggest that getting out early and getting back in early are keys to future profitability. Breeding back slowly after a drought will see a delay in achieving full livestock numbers which may not occur until the start of the next dry period,” Mr Bott said, cautioning that every operation is different so operators should seek professional advice before implementing any actions.

Mr Bott also recommended that producers should measure the bottom line cash flow in their budgets. “If an overdraft deficit is looming, seek advice early from your bank manager, accountant, consultants, the DPIW and other relevant professionals so that you may exercise as much control over the situation as is possible. Don’t keep it to yourself and worry about it alone,” Mr Bott said.

Bankers see early action as good financial management, Mr Bott told the audience.

Contact

For further information please contact Denise Shaw, Public Relations Manager (Tel: +61 2 8115 2744) or email on sydney.mediarelations@rabobank.com.