Drought Sharpens Financial Focus (Australia)

Like many Australian dairy farmers, Russell and Gale Foote had to make some tough decisions during the drought. Even though the drought has broken, it will take some time to see the full impact of those decisions.

With 300 cows calving last spring, and two-thirds of their usual irrigation water, Russell and Gale had to make some major changes throughout the season.

“We started off with the obvious things – culling 48 cows and drying off some land from irrigation. With increases in the price of water and supplements, it became clear that our cash flow would be affected, so we decided to take a closer look at our financial situation,” says Russell.

As cash flow was likely to be tight, at least in the short term, the Foote’s looked at the real costs of growing pasture, applying urea, purchasing extra irrigation water, buying in feed or culling more cows.

There were some surprises in the results, and the process gave the Foote’s confidence in the decisions they made.

“I was quite surprised at the true cost of growing pasture – normally $120-$140/t DM when you include the real cost of owning the land, but more than $200/t DM with the drought. We always hear that pasture is the cheapest feed for dairy cows, and in our case it was, but the actual cost is more than I’d thought,” he said.

Looking at the true costs helped Russell view his system from a different perspective.

“We knew this was an exceptionally bad year and that we’d make a loss. Our aim was to keep the loss as small as possible and to protect the long term viability of the business,” says Russell.

Having reviewed their financial situation, the Foote’s dried off some of the irrigated pasture, and purchased extra water to keep pasture production going on the land left. He also culled another 19 cows and bought in some supplements.

“We knew our total milk production would drop but our aim was to keep the cows in reasonable condition as an investment in next season’s fertility and milk production,” said Russell.

“In fact per cow production dropped only slightly, which was a bit of a bonus. And the cows came through the drought with an average condition score of 3.8, so Russell feels they are well set for a quick recovery from the drought,” said Russell.

So how did he do it? Many people – not just farmers – find financial analysis so daunting that they simply avoid it.

“I don’t have any formal training in accounting, but farming is our livelihood so I need to approach it as a business,” says Russell.

The Foote’s were fortunate to be involved in the pilot testing of Red Sky, a new business management tool designed especially for farmers.

“Red Sky made it extremely easy for us to base our decisions on both financial and practical considerations,” says Russell.

By running the data from their annual accounts through Red Sky, Russell was able to get reports on the actual costs of his current system. It was also a simple process to look at how different options would affect his financial position. The Foote’s intend to use Red Sky regularly as a business management tool.

“The reports don’t just produce pages of dazzling numbers. The numbers are presented in a way that is meaningful. I can put them in the context of the whole farming operation. Red Sky also has a data base of information of other farmers so that we can look at how we compare to other similar dairy businesses. I can use the reports not just for financial decisions, but for farm management decisions as well,” he says.

For the Foote’s, this is a major leap in the use of their accounting data. “We go to the accountant every year and he tells us how much tax to pay. But to run our business successfully we need to understand more about our financial position. Red Sky gives us the power to turn our accounting information into a business management tool.”

Red Sky helped Russell Foote calculate the true cost of growing pasture,
about $130/t DM but up to $200/t DM in the drought.
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