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Funding the flow of milk

Dairy industry capital requirements

Executive summary

Overall there is no clear picture that explains how the industry should fund future growth. However, if some simple rules that have been defined as part of this research are followed, then access to capital to grow the industry shouldn’t be a limiting factor.

The key factor is the relationship between the asset values and profitability. Therefore, capital invested in the industry needs to be allocated to growth in productivity and if asset inflation occurs it needs to be at a rate slower than the growth in profitability. Being able to focus on the factors within farmer’s control, namely management, will improve the overall access to capital for the industry.

To answer one of the key questions of this research, is the amount of debt in the industry an issue or a limitation to future growth then the answer is, it depends. Simply put, what is important is the relationship between, asset value, debt and profitability.

 

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