The challenges facing farmers have never been more apparent coming into the political negotiations surrounding Brexit, with particular concerns over trade deals and subsidy payments. When you add into the mix the issues surrounding changeable weather patterns, increased demand on food production and the push to manage land environmentally, you can see why the industry as a whole needs to come together to instigate change.
Farmers have long been used to weathering the storm of fluctuating commodity prices in an industry that is governed by the effects of a world market. Although trade negotiations have started with other countries, the ongoing trade relationship with the EU is at present unknown. 60% of all agricultural exports are exported to the EU across all sectors. If UK exports are to be subject to World Trade Organisation tariffs, this could have a significant impact on the export market.
Many farm businesses rely on payments from the Common Agricultural Policy, whether from direct or environment payments. It has become a stable source of income in all farming budgets that can often determine whether the business makes a profit or not. Although the Government has promised to honour the £3 billion a year farmers receive under the present CAP until it ends in 2020, there is no guarantee that these subsidies will be replaced under a new UK farming policy.
Although 2020 and the formal divide from Europe may seem a long way off, the need to analyse the profitability of individual farming enterprises has never been more critical. If they haven’t already done so, farmers need to in effect become business analysts. They can no longer bury their heads in the sand hoping that they will somehow ‘muddle through’, even though they may have got away with this in the past.
Today, more than ever before, each enterprise must be able to stand alone and generate sufficient income to allow for reinvestment in the business as well as making a profit. To achieve this, benchmarking and budgeting exercises are vital in highlighting which activities are financially viable, those which currently are not but have the potential to be, and those which are simply a drain on limited resources. Identifying why a farm might not be performing to the best of its ability will become critical to its very survival.
Looking at farming incomes in the South East specifically, we may have the highest land values but with average farm income of £26,624, rank second lowest (and well below the national average). This is largely because of the typically poor soil quality in comparison to other areas of the country where high value specialist crops can be grown. In the East of England the average farm income is £51,110.
For this reason, farmers in the South East must be able to stay ahead of the game to spot and seize opportunities whenever they arise, whether this is through unique marketing of products or by farm diversification. Historically, farmers have been very good at diversifying farming income and, here in the South East of England, there is significant potential in a variety of enterprises thanks to our location, climate and access to markets.
It is becoming increasingly apparent to us that farmers are moving away from ventures that require significant capital investment such as building conversions. In our experience, the enterprises that prove to be most successful tend to be those that creatively exploit either a particular skill or personal interest of the landowner. That is exactly what these Batcheller Monkhouse clients have done, with considerable success.
Region | Average farm business income £ |
North West | 30,855 |
North East & Yorkshire/Humber | 29,948 |
East Midlands | 29,306 |
West Midlands | 35,465 |
East of England | 51,110 |
South East (and London) | 26,624 |
South West | 23,145 |
England national average | 31,576 |
Music Festival
With its ‘buy local’ policy, the festival also helps other rural businesses who provide services such as catering, security and taxis to festival-goers. An enterprise such as this is confined to a single long weekend and therefore results in minimal disruption to normal mainline estate and farm operations.
Shepherd Huts
Looking to create an additional income stream to supplement farming income, our client invites guests to “enjoy a unique back to nature experience where camping meets boutique hotel.” The Shepherd huts are set apart from others on the market by providing an array of thoughtful extras within the rental price. These include welcome treats on arrival, a choice of breakfasts, BBQ, linen and towels, logs for the wood burner, wellies, and a selection of books, board games and kids’ activity packs.
Cookery School
In an example of the synergies that can be created between a farm and farm business, the cookery school will use selected farm produce in dishes created by its students. As an added benefit, the venture will provide part-time employment for local people. While it is still early days our client intends to run day courses for private individuals, cookery parties and team-building days for businesses, for which there appears to be an appetite.
In summary, analysis of the farming business is vital and unless the projected return on investment is sufficiently robust it may be time to consider alternatives that better suit your farm, available assets and skillset. You may find it helpful to talk to one of our experts here at Batcheller Monkhouse who will evaluate the situation dispassionately and give you the benefit of their commercial experience.