Cash is king in a crisis, also in the agricultural sector

The corona crisis has a huge impact on our society and therefore also on the agricultural sector. Measures to combat the disease have top priority and can count on understanding. However, the consequences for the supply and demand side of the economy are far-reaching. It is now important for agricultural companies to keep their heads above water.

In the various sales chains, companies need each other now and in the future. Openness to suppliers and customers is necessary. They usually understand the situation and are often willing to help within their means.

ABN Amro would like to help entrepreneurs and is suspending the coming six months the principal and interest payments on† Other banks are taking similar measures. This provides financial space. For an average dairy farm, the cost price temporarily drops by 8 to 9 cents per kilo of milk, which is almost a quarter. For an arable farm with an average construction plan, the cost price of products falls by more than 20%. However, arable farmers only have 1 growing season, which is why it is more than 10% on an annual basis.

An average pot plant company sees its cost price temporarily fall by 10% and an average floricultural company by 15%. However, for many companies, especially flower growers, the drop in demand is so great that suspension of interest and repayments is not enough. That is why all companies in agriculture and horticulture can emergency credit for working capital (BL-C). Banks use abbreviated procedures for this emergency credit in order to be able to help quickly.

You can take such measures as an agricultural entrepreneur to limit liquidity shortages.

1. Be well informed and use supportive measures
   Government and banks offer support to entrepreneurs. Do not wait with taking measures, acting quickly and adequately is important. Make sure you are well informed, for example via the employer line agriculture and horticulture and the corona page of LTO† So there is the NOW allowance which compensates the wage bill of staff up to 90%. You can also call on temporary support for independent entrepreneurs without staff and offers the tax authorities deferral of payroll tax, VAT, corporate tax and income tax payments† However, do report. Entrepreneurs who receive a provisional income tax or corporate tax assessment for 2020 and expect a lower profit can adjust this so that they immediately pay less tax.
    
2. Keep track of liquidities
   Make a liquidity plan based on a realistic operating forecast. We don't know how long the crisis will last and what the impact will be on pricing and revenue, so choose different scenarios. The Central Planning Bureau uses 4 different scenarios. When applying for emergency credit, ABN Amro uses a scenario with three months of corona impact (until June), followed by three months of recovery to a normal situation as of October. Preferably make the liquidity planning in an accounting package or in consultation with the accountant, use his experience. Include all changes in this plan. For example, interest and repayments due, deferred premium payments (some insurers offer this), reduction of personnel costs and subsidies from the government. Based on these insights, you can take follow-up measures or consult with your bank.
    
3. Maintain cash flow as much as possible
   Sales for floricultural companies are currently stalling, but for most agricultural companies the impact is limited to lower selling prices. Are alternative revenues possible or are alternative sales conceivable at better prices? For example with sales through the retail channel or own (web) shop now that food service companies no longer have sales. Can your own machines or personnel be deployed elsewhere? Consultations with debtors whether payments can be expedited, perhaps by offering a discount. If you have items or machines that you do not or rarely use, you should consider selling them.
    
4. Reduce Spending
   Reducing costs is possible by eliminating or postponing unnecessary expenses or investments. What expenses are really necessary and what can wait? Consult with creditors whether a payment arrangement is possible. Keep in mind that liquidity space for some means shortages for others. Check all invoices for necessity. Think about what you can do if sales are bad for more than a few months. For example, by reducing production or accepting longer vacancy, so that variable costs are eliminated. Do not stock up on unnecessary stocks of feed or raw materials now. The price may be favorable, but you will lose the euros. Can the staff be deployed externally, for example through outsourcing? There are several companies where there is a shortage of (harvest) personnel.
    
5. Think about the future.
   What can you do during this period to emerge stronger from the crisis? Think of training courses for yourself and staff, completely digitally or with remote supervision. Investigate alternatives in your business setup or for the marketing of your product. Are you still in the market that suits you? Look at necessary investments that are possible right now, because everything is at a standstill. Didn't get around to setting up your own website or presentation of the company? Now is the time.  
    
6. Stay positive and help each other  
   We desperately need each other's help to get through the crisis. Farmers and horticulturists are a crucial profession and form the basis of the food chain. As an agricultural entrepreneur, you contribute to the healthy diet of 17 million Dutch people and many Europeans. My expectation is that after this crisis we will look at the world and our food differently.  

I wish you, also on behalf of my colleagues, a lot of strength and health.

Pierre Berntsen

Pierre Berntsen is director Agricultural Companies at ABN Amro. Through his work, he has a lot of experience in translating sector developments into business development in the agricultural sector and agribusiness.

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