The importance of financial management in a volatile economic environment

Abstract

The purpose of this paper is to summarize the current financial management problems facing dairy farmers, review methods commonly used for setting the framework for farm management, and to then look at some specific actions that may help farmers to survive these volatile economic times. The current situation is not new to the NZ dairy industry. Dairy Historian, AH Ward in the 1975 book “A Command of Co-ops”, detailed a number of downturns through the early history of the industry (1922, 1927, 1934, 1958, 1966). In my 21 years of involvement in the NZ dairy industry, there have been a number of bad times, the most severe occurring during the economic re-structuring of the NZ economy in the mid-1980’s. Every down turn has its’ own “personality”. The difference between the 1980’s and today is that today we have a more market orientated economy. The NZ government is in a better financial position, world economies are more interconnected, the speed of communication has increased rapidly and there are an even greater numbers of salespeople and increased pressure on farmers to purchase products or change their farming system. From an international standpoint the world economy is suffering the “hangover” from a number of years of high growth and the liberalisation of banking standards.