The structure we put around the Advance Rate is a balance of getting farmers as much of their milk payment as early as possible, while also giving consideration to things like maintaining a healthy balance sheet for the Co-op. We need to have the necessary cashflow to operate day-to-day, meet our obligations to our banks and lenders, and pay our bills. If we did not have the Advance Rate, our Co-op would require more equity.
Maintaining a healthy balance sheet also helps our Co-op keep a strong credit rating which gives us access to a wider pool of lenders and lower interest rates. Our Co-op’s credit rating also influences the willingness of banks to lend to farmers and enables us to support farmers as we did in 2014 with the Co-op Support Loan.
Paying progressively over the season and finalising the Farmgate Milk Price after the end of the season is an important part of our capital and funding structure. Retaining part of the forecast milk payment until the end of the season provides capacity for the Board to adjust the Farmgate Milk Price if it determines it needs to do so to support the financial strength of our Co-operative. The Farmgate Milk Price is finalised in September after the end of the season.