Recent research from R3, the association for Insolvency and Turnaround professionals, which shows that farming businesses are currently least at risk as an industry from formal insolvency, must have come as quite a surprise to the farming industry itself. It has been claimed that as many as half of UK farms are no longer making a living from farming itself.
Low farm gate prices, particularly for milk, cereals and pig-meat are well documented; less obviously, but as important are delays in BPS payments, the strength of the pound against the euro, increases in the minimum wage and pension provision and the ongoing down-turn in supermarket profits which encourages them to pass more of the pain up the supply chain.
A longer-term lens shows that the value of agricultural land has become completely de-coupled from the trading value that can be extracted from it, with investors and life-style purchasers simultaneously attracted to its long-term security. Average values have tripled in the last 10 years to c. £8,000 per acre; there are reports in hot-spots such as Hampshire of prime land going for almost double this.
The flip-side of this is the average super-market customer being for some time addicted to super-cheap food. Food takes up the lowest percentage of the average pay-packet ever currently, leading inevitably to rampant wastage, but more to the point, narrowing margins for producers which nullifies gains from technological developments and their own ingenuity.
The truth is that increasingly farming needs to be performed by a trained expert in order to be viable, rather than by gifted or hereditary amateurs. Furthermore, the era of the mixed 100 acre farm is drawing to a close; scale in farming matters. So does tight control over your business model, careful cashflow management, and regular review of funding requirements and funders and association with professionals – accountant, solicitor, agent and farming advisor – who really deliver value for money to your business. The current down-turn does not appear to have an end in sight.
Perhaps the cause of R3’s findings is the legendary ability of the average farmer to dig in, cut costs and see the storm out; however, the current agricultural business environment feels more like a sea-change than a temporary storm. It may be time for some to fold their cards rather than endure death by a thousand cuts.