Inside Milk sector vision
Rabobank: Increase in interest rate risk for dairy farmer
Dutch dairy farming can no longer manage by only focusing on a competitive cost price. According to Rabobank, new revenue models are necessary to achieve the minimum margin of 3 cents per 100 kilos of milk. Investments will also have to be made more cautiously.
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In a dairy cattle vision, the bank looks ten years ahead. During that period, shrinkage and a transition to new revenue models for Dutch dairy farming will be central, sector manager Marijn Dekkers predicts. Reducing nitrogen will also be an important theme in these decades. The bank provides four possible solutions: specialise, broaden, move or stop.
Calculate with interest rate increases
Rabobank is critical of the investment policy of Dutch dairy farmers. Too much attention is often paid to liquidity and current interest costs instead of calculating the average costs over a longer period. Dairy farmers often assume value increases, but that is too opportunistic and can be a pitfall. The bank points out the danger of a possible interest rate increase. Dairy farmers should take this into account.
In the coming years, the bank expects that the cost price will increase based on adjustments to the climate policy in our country and the revision of the Common Agricultural Policy (CAP). For healthy business operations, a dairy farm needs a minimum margin of €0,03 per 100 kilos of milk for buffer formation and investments. A three-cent margin is easier said than done. In the past six years, only 2017 managed to reach that level. The profitability in Dutch dairy farming is therefore too tight, the Rabobank concludes.
Dairy farmers can still take steps to improve technical results. The shortest hit can be in raising the milk price and lowering feed costs. This is evident from an analysis in which Rabobank compared the group of the 25% of companies with the highest margin with the rest. The average feed cost for the group of leaders is 10,31 per 100 kilos, compared to an average of €11,32 for the rest.
3 revenue models
Rabobank expects that dairy farming in our country will focus on three revenue models in the coming years. A (small) portion of dairy farmers will focus on increasing the value of dairy products. Another group of dairy farmers will expand further through nature development, water management, tourism and the generation of sustainable energy. Yet another part focuses on product specialization and participates in market concepts such as PlanetProof. Although there are additional returns linked to this, the cost price in this picture should not be forgotten.
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