Prices are too high
'It is difficult to calculate investment in phosphate rights'
It is difficult for a group of dairy farmers to calculate an investment in phosphate rights (at the current price) economically; dairy farmers who have recently built a new barn notice this in particular. This is reported by DLV Advice.
According to DLV Advice it is difficult for many dairy farmers to calculate an investment in phosphate rights; Dairy farmers who built new barns in the period around the abolition of the milk quota have noticed this in particular. As a result, they have a higher financing burden. "It cannot be done unless the price of 1 kilo of phosphate is halved," writes Jan Dortmans, Financial Management advisor at DLV Advies, on the website.
Price is too high
The price of 1 kilo of phosphate has been moving around the €170 to €180† "With a production of 10.000 kilos of milk you need 46,4 phosphate rights per cow. That is an investment of € 8.350. If you have to pay this back in 5 years (such as Rabobank that is), then a farmer has to repay approximately €1.850 per year in interest and repayment. At a milk price of €0,35 per kilo of milk, the balance for which you have to purchase roughage and sell manure is €0,08 to €0,10 per kilo."
The cows that the farmer still has in the barn must then be able to earn the rest of the financing costs. "If the barn is 90% occupied and you have not recently made a significant investment, it is already difficult to buy back the 8,3% discount on your phosphate space." Dortmans believes that the phosphate rights should actually cost no more than €90 to €100.
Dortmans sketches a farm with 110 cows, which has built a barn for 140 cows. Financing is €1,25 million to €1,4 million; over 20 years, the repayment obligation will be €70.000 per year. "If that farmer wants to buy additional rights for the last 30 cows, then you are talking about more than €230.000. If you have to repay that in 5 years, this means a repayment of more than €46.000 per year (on top of the existing repayment obligation)." Dortmans believes that this is impossible.
Other options?
The investment in the phosphate rights is (as stated earlier) especially difficult to calculate due to the high requirements of the bank, for example the repayment term of 5 years. "As a result, many livestock farmers are obliged to look for other options. An example of this is that they enter into long-term partnerships in order to extend the repayment term to 10 years. They then choose, for example, to enter into a partnership." let Niek Groot Wassink, Cattle Adviser at DLV Advies, know.
There are more options to complete the investment. "For example, there are livestock farmers who choose to use part of their own buffer, for example in the form of selling shares. This can also be interesting from a tax perspective. With that money they can buy phosphate rights."
Groot Wassink mentions a third reason: "Some livestock farmers are looking for ways to increase their own resources. They do this, for example, via long lease, whereby they lease back their own land. With this they want to increase their liquidity. However, this is not our first preference, but is sometimes the only way, when livestock farmers by definition want to purchase phosphate rights."
Kimberly Baker
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