Back in early spring much of the country was hit by the Beast from the East. With six-foot snow drifts rural communities struggled as roads became unpassable, shop shelves were cleared and farmers struggled to keep livestock alive. Just a few weeks on we found ourselves in the throes of a mini heat wave with new lambs sunbathing out in the fields and the grass finally beginning to green up. In between these two extremes the cold, wet spring has been challenging; leaving many farms with worryingly low stocks of fodder, water logged fields and a significant delay in spring sowings. Farmers, if nothing else are adaptable and resilient!
Insecurity in agriculture isn’t new and across the UK there is currently a high degree of uncertainty as farmers and rural enterprises look towards a post BREXIT agricultural sector. It seems that for most of the UK economy the Government is aiming to deliver continuity in Regulation after BREXIT. But for agriculture there is a drive for significant change once we leave the European Union.
Following years of state intervention (e.g. subsidies) and substantial insulation from foreign competition, it is now clear that farming support will undergo major transformation. Given the likely degree of change in the sector, farmers will need to ensure their businesses are resilient enough to survive these uncertainties. The good news is that with the agreement of a BREXIT transition period until 31 December 2020 and a Government promise that farming subsidies will be protected at the current EU level until 2022, farmers have three or four years in which to review the performance of their business and ensure they are able to respond to the challenges and opportunities that a post BREXIT world will bring.
Income from the Basic Payment Scheme and environmental grants contribute a large percentage of the turnover in many UK farming enterprises. In some regions income generated directly from farming activities actually leaves businesses at a loss. They only turn profitable once subsidies and diversification incomes are taken into account. With subsidies under pressure and import tariffs likely to fall as a result of future trade deals, the UK agricultural sector will need to have a strong focus on increasing both productivity and profitability.
In order for farmers to become more resilient to risk and uncertainty they first need to develop a detailed understanding of the performance of their business. This will enable them to identify their strengths and weaknesses as well as identify opportunities for change. Key actions that can be implemented now include: benchmarking, identifying investment needs, influencing future policy, and understanding how changing consumer demands may impact on production decisions at a farm level.
What are the top 10% of farmers doing in your sector? Benchmarking enables farmers to understand how their enterprise is performing compared with farms of a similar nature in similar geographic regions. Benchmarking is a tool that can help businesses to identify where improvements can be made, establish standards for best practise and identify investment needs. It can also be used to highlight learning gaps and skills development needs, a crucial but often overlooked piece of the jigsaw. Benchmarking guidance is available through the Levy Boards and expert advice can be sought from rural business consultancies.
Since June 2016 the weaker pound has generally benefitted UK agriculture and this looks set to continue for the short-term. While inflationary pressures and the high costs of imported inputs make it important for farmers to keep a grip on their production costs, the relatively benign conditions combined with likely low interest rates for the foreseeable future can create conditions for investment.
Government is currently asking for views on their Consultation Paper “Health and Harmony: the future for food, farming and the environment in a Green Brexit”. Together with the many other rural economy and environment stakeholders, it is important that the farming community take the opportunity to help shape the future of agricultural policy in England. The deadline for responses is fast approaching (8 May 2018). For further information and to get your voice heard visit https://www.gov.uk/government/consultations/the-future-for-food-farming-and-the-environment
While the food market can seem remote from the day to day business of farming the vast majority of the output from UK agriculture goes to this market. Farmers should be more focussed on the requirements of their customers. While the UK food market is highly divergent the primary driver for the majority of consumers is price. Therefore, there will continue to be a price pressure exerted through the whole food supply chain right down to farm level.
In order to remain competitive and profitable, it is important that farmers meet customer specifications for their produce and have a good understanding of their customer’s service and commodity requirements. There is much work to be done in this area and it will require input from all parts of the supply chain. However, it is still important for farmers to keep themselves informed of how they are performing in this area, for example through carcass grading feedback, and to maintain a watching brief on how changing consumer demands may impact their business to inform future planning about production systems.
With the relatively benign economic conditions in UK agriculture likely to continue for the immediate future and no prospect of immediate change to the farming support system it is easy to continue as normal and do nothing. But now is the time to take the bull by its horns – analyse your business and identify the steps that you need to take to ensure that your enterprise is adaptable and resilient to these changing times.