Cold comfort on the farm

British farmers are facing their worst crisis in living memory: rock-bottom crop and livestock prices threaten many with ruin, and the problems are starting to hit other rural businesses.

Accountants are no exception, and many small-town general practitioners are beginning to feel the strain filtering through from their farming clients. According to figures from the English ICA’s farming group, average farm incomes nearly halved this year, and are forecast to plunge still further.

Already hit by the BSE crisis, farmers have been hit by a 57% drop in pig prices and a 36% drop in lamb prices over the last two years. The price of wheat has fallen by at least 31%, and chicken and milk prices have all fallen by at least a fifth.

The strong pound, EU ban on UK beef exports, and collapse in Russian and Asian demand for foodstuffs have all contributed to farmers’ difficulties. The situation is so serious that general practitioners nationwide have given up advising their farming clients on how to make a profit; they are focusing on survival. Cash flow rather than profit dominates increasingly desperate conversations between accountants and farmers.

Aubrey Davies, a partner with Colwyn Bay firm Aston Hughes & Co, is also chairman of the institute’s farming group, set up a year ago to provide a voice for chartered accountants dealing with farmers and rural businesses.

He says: ‘Things are disastrous from a farming point of view. Prices in all sectors are on the floor.’

He warns that accountants who depend on agriculture and related businesses as their clients are in for a difficult time. ‘It is not just farmers who are being affected; there is a general knock-on effect on the rest of the rural economy,’ he adds, citing examples of agricultural businesses that are also suffering. Tractor sales have plunged by almost half over the last year, and sales of other agricultural machines are down by 34%.

He advises rural practitioners: ‘Keep a close watch on your clients’ affairs and try to help them, because in the end you will be helping yourself.’

Jim Greenwood is a sole practitioner from Berwick-on-Tweed, England’s northernmost town. He says the town’s economy depends almost entirely on agriculture and the effects of the crisis are being felt by the whole community.

‘Farmers have traditionally supported many activities in the community.

If they are having good times then they tend to spend.’ He names the construction industry, agricultural machinery distributors and even kitchen outfitters as those most affected.

Around 60% of Greenwood’s clients are farmers. ‘A lot of them have to think about whether they can, and if they want to, continue.’ Tenant farmers, he says, are having a particularly tough ride because they have fewer assets to see them through lean times.

‘On smaller units, farmers could start working part-time and look for another job, but there aren’t many other industries in which to get employment. My practice is looking at a drop in the number of clients.’

Yet he is optimistic about the future of his practice, and hopes to poach clients from larger firms. ‘There are bound to be opportunities arising from which we can benefit. Many of the big farms will be looking at costs and may decide to move to a smaller local accountancy firm,’ he says.

The situation for farmers is just as bleak north of the border. Elgin-based Andrew Shepherd is a partner with WD Johnston & Carmichael, an 18-partner Scottish firm serving the rural North-East of the country. He says there is very little good news for farmers.

In common with accountants in other parts of the UK, Shepherd says the knock-on effect of the agricultural crisis is considerable. ‘For every job in farming there are four in related industries,’ he says. These jobs will be hit, he adds, because farmers are cutting expenditure to the very minimum needed for survival.

As for the impact on general practitioners, he says: ‘We recognise we are involved in the agricultural industry and are in it for the long term.

We cannot turn our back on our clients: we have to help them through this.’ He suggests that, in the short term, the crisis would mean more work for general practitioners. ‘Everyone tries to get paid, but there will be some cases when that just won’t be possible,’ he adds.

General practitioners in the traditionally more prosperous South have not escaped the crisis. Peter Silk, a sole practitioner in Hastings, says: ‘We are now at a time when farmers need good quality financial help quickly because otherwise they will go out of business.’

He criticises the supermarket chains which, he says, are using farmers’ profits to revamp and extend their stores, and certainly not passing on low market prices to their customers. ‘I think we will see the progression of farms into larger units. Many family farms will be obliged to call it a day.’ Commenting on the role of accountants, he says general practitioners should try to hold their clients’ hands through the crisis.

The Irish economic tiger has bypassed rural areas, according to a County Kildare sole practitioner. Michael Higgins, a member of the Irish ICA, warns the incomes of many Irish general practitioners will suffer as farmers deal with the impact of low prices across the sector.

He says: ‘My main concern is that there will be a generation of people lost to farming. Farmers’ sons are saying “Why bother?” There are plenty of alternatives for them at the moment.’

It is not just the smaller accounting firms and sole practitioners that are feeling the pinch. Figures recently released by Deloitte & Touche Agriculture also illustrate the growing crisis. Deloittes says that in 1997/1998 net farm income fell by 56% to just #123 a hectare, a level last recorded nine years ago when its survey began. These figures mean that incomes have fallen by #240 a hectare in just two years.

Deloittes is predicting a further 48% fall to just #64 a hectare over the next year. With what some might regard as somewhat forced optimism, national agricultural partner Vincent Hedley Lewis comments: ‘For those who restructure their businesses correctly this will be a time of opportunity.

The important thing is not to panic. Our survey shows the best farmers are still making adequate, if significantly reduced, returns.

‘They can continue to run profitable businesses by paying close attention to detail and minimising their costs of production. They also need to focus on their cash resources.’

Small comfort, perhaps, for the smaller farmers who have less capital reserves to see them through a sustained difficult period.

BASIC FINANCIAL ADVICE FOR FARMERS

The English ICA’s farming group has provided a list of survival tips for accountants to pass on to their farming clients:

Reduce overheads wherever possible

Cut back capital expenditure to the absolute minimum

Cut back on salary drawings

Spread fixed costs, for example by sharing machinery

Consider realising under-used assets, such as using spare land or buildings for housing

Consider contract farming or share farming arrangements

As a last resort, consider selling up

The group is even advising farmers to think twice about long-term commitments such as school fees. Britain’s private-school sector could therefore become an unforeseen victim of the agricultural crisis.