Unforeseen below zero is bad business

In the agricultural sector, we're used to fluctuating incomes. As a primary producer, your results depend on many factors. Some are within your control, but many are not. Maintaining a substantial cash buffer is becoming increasingly crucial as economic reality becomes increasingly volatile, as do the associated risks.

If your results are good in a year, you'll have to pay a substantial amount in taxes, despite all the advice. Keep in mind that to save €1.000 in taxes, you'll have to spend double that amount. After a good year, the Tax and Customs Administration always sends out high provisional assessments. This puts a significant strain on your wallet. Maintaining sufficient funds in your bank account becomes a real challenge. Consulting with your financial advisor about reducing your provisional assessments can be a smart move, but it primarily requires a thorough understanding of your future plans.

External factors
The pressure on everyone's finances is exacerbated by other kinds of uncertainties: geopolitical power shifts, the rise and fall of trade agreements, import duties, and changing global markets all influence our costs and revenues. Product prices aren't simply a balance between supply and demand; they're increasingly determined by other external factors. The volatility of international markets leads not only to price fluctuations but, more importantly, to uncertain sales.

These aren't just fancy words, but simply reality. For example, we're seeing a milk price of 35 cents per kilo in July 2021. Within four years, that will be 55 cents per kilo. Fortunately, this is an increase of over 50%, but it could also be the other way around. Farm-raised potatoes are currently hard to sell, while in previous years they were readily available and sold at good prices.

Whimsical weather
Furthermore, there's the influence of social media, where consumers can express their emotions with a single click by boycotting or embracing products. This complicates the picture. Emotion is increasingly becoming a factor in the economic puzzle. And let's not forget the frequency of extreme weather: too wet, too dry, too hot, or too cold, all intense and prolonged. A recent example is the collapse in the price of Dutch raspberries because the harvest season in Spain and Morocco was postponed due to erratic weather, coinciding with the harvest in the Netherlands.

All these factors drive the need to understand the company's liquidity needs for the coming period. An estimate based on a baseline scenario and, linked to that, several potential scenarios with exceptional circumstances can be helpful. I expect that you, as an entrepreneur, will recognize the need to invest the necessary time and effort yourself. This allows you to adjust in a timely manner and prevent the account balance from unexpectedly falling below zero.

Sjoerd de Beer

Sjoerd de Beer is an experienced business advisor at Farmers Funding & Advies. In more than 35 years of working with agricultural entrepreneurs, he has acquired knowledge and know-how in business, financial and fiscal areas.

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