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.
|Average farm business income £
|North East & Yorkshire/Humber
|East of England
|South East (and London)
|England national average
July 2015 saw the inaugural Walled Garden Musicfest at Brightling Park. Now a three-day festival that in 2016 attracted an enthusiastic crowd of 1,500 people who enjoyed sets from performers including Marc Almond, Go West, the Tom Robinson Band, Steve Harley and Chris Difford of Squeeze. In only its second year of running the music festival provides a useful source of income to the estate and continues to grow in popularity. The July 2017 festival has attracted names such as Howard Jones, Toploader, Beverley Craven, the Thompson Twins’ Tom Bailey and up-and coming bands Embrace and Talk in Code, and looks set to grow still further. One of our clients owns a traditional estate consisting of a large house and historic park. In the centre of the estate, surrounded by woodland, is a Listed walled garden which was overgrown and crumbling. The family had long recognised the importance of diversification and explored several ways to generate additional income streams – letting property, running a racing yard and a farming enterprise, with more recent investment in holiday accommodation. However, they had never exploited the untapped potential of the walled garden.
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.
We helped one farming client to capitalise on the current glamping craze by first helping to secure planning permission for two shepherd’s huts on their land and then obtaining grant aid through the LEADER scheme for rural projects in England. Part of the Rural Development Programme for England (RDPE), funding is open to local businesses, communities, farmers, foresters and land managers who must apply for it through Local Action Groups (LAGs). Grants range from £2,500 up to £50,000 and all money is 40% match-funded.
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.
Another farming client recognised the potential of an underused barn to house a cookery school business to supplement farming income. They had a personal interest in this specialist area and identified a gap in the market. With our help, the landowner secured planning consent to extend the barn’s size by 53% to provide demonstration areas, a formal communal dining area, kitchens and other facilities.
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.