Is your farm fit for the future?
The future for UK agriculture
The future for UK agriculture has been set out in the Agriculture Bill, which should pass into law later this spring. Michael Gove has referred to it as “The Fourth Agricultural Revolution” and has set out a timescale, at the end of which the UK will be farming without subsidies. Others have referred to it as a “Nine-year notice to quit.” The clock is running, and now is the time to start thinking about how your farm will be placed by the time the last Basic Payment Scheme (BPS) cheque arrives.
Here is a ten-point plan to ponder on a wet day this spring:
1. Do you have decent management information about how the business stands today? Why not start the process by listing the assets, liabilities, strengths, weaknesses, opportunities and threats facing your business
2. Have you prepared a 12-month future cash flow forecast? Even if the bank manager isn’t insisting on seeing it, preparing a forecast is a good discipline. It isn’t difficult, and it’s why we have spreadsheets. Once you’re happy with it, create some different versions to see what movements in yield, productivity or price might mean.
(If you’re already doing this, congratulations – you’re in an elite 33%, according to DEFRA.)
3. Now roll the forecasts forward ten years, taking account of the removal of BPS over the seven years from 2021. Is there enough cash left to live on?
4. How you will react? Now you’ve identified the extent of the problem, there are various options, but turning off the computer and thinking about something else is not one of them. You could instead:
5. Hunker down. Trim costs to the bone, accept a poorer lifestyle and hope for something to turn up. This will only work for the well capitalised freeholder who is prepared to endure the pain of living on far less money in order to avoid any other difficult decisions.
6. Work constructively with neighbours. Anecdotally, UK farms in some parts of the country are working with about 40% too much machinery. Look at sharing labour, machinery, storage or even land. Could you reorganise to swap outlying parcels or increase/decrease farm size to arrive at your personal optimum? These arrangements will take time to implement so now is a good time to start the process.
7. Think about the productivity of your own land. Are there areas which would lend themselves to environmental schemes, whether these be the current Stewardship packages or the longer term Environmental Land Management Schemes which will arrive in the future. Identifying these areas of land now, and slotting the reduced overheads into your ten-year plan may help close the gap.
8. Are there other underutilised assets on the farm? These may lend themselves to diversification, either by yourself or perhaps by your potential successors. You could lease them to other entrepreneurs or even sell them and use the cash elsewhere.
9. Do you have the appetite for this? Would now be a good time to start the handover process and bring a new generation in to deal with this challenging future?
10. Think the unthinkable. Is now the time to get out? This doesn’t always mean selling up (though it might be the answer for some). It could involve letting the land or setting up a contract arrangement with neighbours or independent contractors. Take advice from accountants on the tax consequences.
Whatever happens, ‘head in the sand’ is not the right answer. Even deferring action for a couple of years is dangerous since some of the options may take several years to implement. To end with a military adage, “Time spent in reconnaissance is seldom wasted.” There are much worse things you could be doing on a wet day.