Business Planning for the Allocation of Milk Quota to
New Entrants
2
The business plan should start with a comment on where the farm is currently, what is planned over the next number of years and how it is anticipated that the investment will be financed. The business plan must be realistic. The financial feasibility of the plan will be one of the main criteria in evaluating the allocation of milk quota under this scheme. Data is included in some of the tables attached for illustration purposes only. The business plan should address the following issues:
1. Audit of current resources 2. Capital expenditure 3. Income and expenditure 4. Stock flow
5. Source and application of funds
3
1. Audit of Current Resources
Area
Adjusted area Forage area Buildings
Cows
Milking parlour Milk tank& Dairy Slurry storage
Animal Housing & Isolation units Calf rearing
Machinery
Tractors
Other machinery Contractors employed
Silage etc.
Labour resources available
Current labour resources Liabilities
Other
Livestock on the farm SFP
REPS
4
2. Capital Expenditure
Investment assumptions included in the analysis on the modelled farm
Item Description Cost
Stock 50 lactating cows €1400
10 heifers @ €750
€70,000
€7,500 Reseeding of farm 20 ha, one pass till, sow, roll +
grass seed + fertiliser
€10,000
Fencing 6,000 m @ €0.35/m €2,000
Water supply 10 water troughs + 1 km water pipe laid
€3,000 Farm Roadways 1 Km of 5 m wide roadways @
€5/m
€5,000 Milking parlour and feed
pad
14 unit herring bone shed + dairy + collecting yard/feed pad
€50,000
Milking plant 20 unit milking plant €25,000
Milk tank Milk tank & dairy €25,000
Slurry store Existing €0
Wintering pad Existing €0
Isolation Units Conversion €5,000
Calf Housing Existing €0
Silage Slab Existing €0
Electricity supply Existing €0
Machinery Existing €0
Planning Drawings + site assessment +
planning application
€5,000 Working capital Rent + feed +interest €5,000
Contingency 5 % allowance to allow for
unexpected costs that may arise
€10,000
Total Year 1 €222,500
Borrowed €148,750
Total Year 5 €321,500
Borrowed total €221,550
5
3. Income and expenditure
This will include
(i) Farm projections should show full profit and loss account details for the 5 years of the investment. Summary details only shown in table 2.
(ii) Economic assumptions included in the analysis (Table 1) (iii) Farm projections over the 5 years of the investment (Table 2)
(iv) Sensitivity analysis around milk price, concentrate costs and inflation rate on costs on surplus cash (Table 3)
Table 1: Economic assumptions included in the analysis
Default
Farm size (Ha) 55
Gross milk price 2010-2025 c/l 24.0
Cull cow value € 400
Male calf value € 75
Concentrate costs €/t 200
Urea €/t 360
CAN €/t 300
1stCut Silage €/Ha 250
2ndCut Silage €/Ha 190
Interest rate % pa 5.0
*Cost inflation % pa 3.0
* Inflation on costs included on fertiliser, machinery hire, silage making, vet, AI and medicine, farm consultancy, electricity, labour, machinery operation and repair.
Inflation rate taken at 3%pa from base of 2010 (not compounded)
6 Table 2 : Farm projections over the 15 years of the investment
Year Cow Milk
produced Kg
Labour costs
€
Milk price c/l
Interest repayment
€
Capital repayment
€
Veterinary cost €
Surplus Cash
€
Borrowings Year-end
€
1 50 275,519 20,000 26.58 7,438 6,893 8,666 -1,534 141,857
2 70 388,895 20,600 26.58 13,567 8,743 11,759 4,239 170,925
3 90 503,366 26,500 26.75 14,141 10,321 14,567 13,115 191,691
4 110 628,983 32,700 27.19 14,392 11,802 15,459 27,729 208,185
5 130 748,338 33,600 27.20 13,865 12,480 18,757 40,935 209,070
Total 84,483
Stock value at end of period
Cows 110*€1,400 154,000
Replacement heifers 30*€1,300 39,000
Yearlings 30*€700 21,000
Cash Surplus + Stock value 298,483
7
Table 3: Sensitivity analysis around milk price, concentrate costs and inflation rate on costs on surplus cash Milk price 24c/l Concentrate costs €200/t Cost inflation 3%/Year
Year Base -2c/l +2c/l €250/t €150/t 4%/year 2%/year
1 -1,534 -7,210 4,143 -2,363 -704 -1,534 -1,534
2 4,239 -3,765 12,244 3,073 5,404 3,552 4,925
3 13,115 2,712 23,518 11,612 14,618 11,470 14,759
4 27,729 14,550 40,910 25,701 29,757 24,888 30,569
5 40,935 25,248 56,625 38,422 43,448 36,714 45,157
Total 84,483 31,534 137,439 76,444 92,522 75,090 93,876
8
Stock Flow
This will include
(i) Biological performance assumptions included in the economic analysis. (Table 4) (ii) Stock and liabilities at end of each year of plan (Table 5)
Table 4: Biological performance assumptions included in the economic analysis Year Protein
%
Fat
%
Milk Solids
kg
Milk yield kg
Cows in milk
MS/Ha Culling percentage
%
Additional Veterinary
cost
€/cow
Total vaccines
€/cow
Mortality in calves
%
Mortality in cows
%
Herbage production
kgDM/Ha
1 3.40 3.90 403 5,510 50 978 27.5 20 50 7.0 3.0 11,752
2 3.40 3.90 406 5,556 70 987 25.6 15 45 6.5 2.5 11,906
3 3.42 3.93 411 5,593 90 999 23.8 10 40 6.0 2.5 12,074
4 3.46 3.99 426 5,718 110 1,070 21.9 0 30 5.5 2.0 12,908
5 3.46 3.99 429 5,756 130 1,113 20.0 0 30 5.0 2.0 13,570
9 Table 5. Stock and liabilities at end of each year of plan
Livestock No. €
Cows
In-Calf heifers Weanling heifers Heifer calves Other stock Total
Feed Silage t Hay (bales) Straw (bales) Concentrate t Total
Liabilities Overdraft Term Loan Other loans Creditors
10
5. Source and application of funds for each year of plan
1. The SFP and other agricultural related income should be added to the cash output from the cash flow statements from the dairy enterprise.
2. Drawings should be deducted
3. An estimation of tax should be made and deducted from cash income
4. All repayments not related to the dairy enterprise (repayments related to the dairy enterprise will have been included in enterprise analysis) should then be deducted.
5. Any investment that is made on the farm and not included in the profit and loss or cash flow statement
6. Any interest accrued
