Trying to dig farms out of recession.
Farmers need to take tough decisions to survive in today's harsh
Farmers need to take tough decisions to survive in today's harsh
Crisis has become a byword for British farming over the last four years and there seems little respite as the agricultural sector continues to grind through its prolonged recession. Farmers may be a sturdy bunch able to weather the harshest conditions with a healthy grumble, but the talk on farms across the UK has slipped from innate pessimism to talk of extinction within the next 10 years. Bad news continues to be heaped on bad news each week. Controversy over the effect of GM farming and health scares such as bovine tuberculosis; the strength of sterling; over production and the all-powerful UK supermarkets driving prices further down and forcing farmers nearer the breadline or out of business. The National Union of Farmers says wages are at their lowest relative level since the recession of the early 1930s and incomes have fallen by a staggering 75%. British agriculture lost 22,000 full-time jobs or one out of every 12 of its workforce last year, according to the NFU, with the same number predicted to go this year causing most redundancies across the supply chain from farm equipment manufacturers to agricultural marketing staff. And last week the English ICA’s farming group added to the gloom with its annual survey of farmers’ accounts which showed that over half of farms contacted continue to see profits tumble. One in five farm accounts out of almost 120 surveyed up to April showed a trading loss, with overall profitability down 23% and profits down to #27 per acre. Farms are now earning an average income of just over #9,500 according to the survey, while the NFU pitches farmers annual profits even further below the breadline at a staggering #8,000. Aubrey Davies, chairman of the farming group, said: ‘The survey confirms the circumstantial evidence which has been reported from around the country that farm capital is continuing to be eroded.’ The group estimates the average farm saw its capital slashed last year by over #12,600 and is alarmed that farmers will go further into debt and farm equipment allowed to age in order to survive the lean years. ‘In practical terms, this is likely to represent either an increase in bank borrowing or the fact that machinery is depreciating and is not being replaced,’ he added. ‘Most of these farms will be supporting one or two families out of a net income of less than #200 per week, which is of course below the level of an agricultural wage and well below the national minimum wage. ‘It is going to take a long time to climb out of this crisis and to be frank, there is no sign of when it is likely to end.’ At a conference near Birmingham last week, accountants serving the farming industry gathered to share ideas about how to help their clients survive. David Hudson, chief agricultural adviser at AMC, argues that accountants are often the thin red lifeline between survival and ruin, particularly with the farming industry awash with ‘too many agricultural consultants who have too slight a grasp on the sector’s real needs’. ‘Accountants can offer their farming clients vital impartial advice and are often the individual a farmer will discuss financial issues, such as borrowing or selling land,’ says Hudson. ‘I think they have a greater role to play to not only help farmers survive, but also prosper.’ Unfortunately, the tough measures required if farming clients are to survive can prove difficult for an industry with links to land and inherited traditions. Keith Oxtoby, a partner with agricultural management consultant Ellam Oxtoby & Peck, says that farmers face a range of options, many of them difficult: to prosper from selling or letting farm buildings and cottages; expanding to reduce unit costs; converting to organic farming, or even leaving the industry altogether. ‘A route such as using contractors to farm your land is very difficult psychologically for most farmers,’ Oxtoby says. ‘But, this option will release a lot of capital and make big inroads into borrowing.’ Others opt for diversification, which now range across around 300 different categories for schemes. Hudson says: ‘From bed and breakfast to golf courses, there is a lot of talk about diversification, but a business that is all over the place and badly managed is not going to succeed, whatever it does.’ And even if farmers decide to opt for diversification, according to tax expert Angus Burnett, they could end up with ‘exceedingly unwelcome tax side effects’. Burnett says: ‘Tony Blair has made much of the need for farmers to diversify into other rural business, but unfortunately his Treasury is doing little to make this attractive from a taxation point of view.’ To compound revenue uncertainty for farmers, agricultural subsidy from the EU remains in transition. Subsidy payments have fallen for all crops and produce apart from cereals. And agri-monetary payments are due to be phased out by 2003, with no guarantee that government will pay its 50% share over the next three years. www.icaew.co.uk www.nfu.org.uk Cold comfort on the farm www.accountancyage.com/Practice/71052 INDUSTRY FIGHTS FOR SURVIVAL National Farmers Union chiefs met government ministers last week at the first meeting of an industry forum set up to monitor commitments given at a Downing Street ‘farming summit’ in March. NFU president Ben Gill went with a full agenda and said farming had maintained an ‘incredible record’ on improvement and ingenuity in spite of the crisis that had hit the industry. But he said swift action was now needed by all the summit partners, which include the government and other parts of the food industry, such as the supermarket chains. Key issues of discussion at the forum will be the implementation of business support, the completion of a retailer code of practice, de-regulation and monetary aid for the cereals sector. Ben Gill said: ‘The continuing strength of sterling is a major headache for our industry which is now focusing acute problems on the arable sector.’ ‘While farmers elsewhere in the EU are receiving additional arable aid payments this autumn to compensate for cuts in support prices, uniquely, as a result of sterling’s value, UK farmers will get less help than last year.’ He added that a fairer share of the final retail value of food to farmers was also fundamental to a healthy agriculture industry in Britain. The Industry Forum is due to meet again in three months time.