UK agriculture's prospects have improved markedly, but this is no excuse for farmers to delay restructuring their businesses, says a new report from Andersons.

The farm business consultant's Outlook 2007 report highlights firmer cereal, beef, sheep and pig prices this year and says it looks likely that these will persist into 2007.

While it says these improvements have not come in time to significantly boost Total Income from Farming for 2006 (the figures will be released in January), the report says TIFF could top £3bn in 2007.

This is well above the £2.5bn recorded in 2005, but is still far below the peak years of the mid-1990s, when TIFF approached £7bn. Andersons' Francis Mordaunt said these years should be regarded as an anomaly, with current profits more likely to be the norm in future.

Real issue

And this was the real issue that farmers must address now, reckoned Mr Mordaunt. Despite the improved situation, it was still clear from the firm's figures that many businesses could not survive without support payments, which were certain to plummet as more EU cash was diverted to rural development, he said.

Mr Mordaunt said it was also important to recognise that not all sectors had benefited from recent price rises. Falling milk values and rising costs meant, even with support payments, Friesian Farm, the firm's model 150-cow dairy unit, would be showing a loss of 0.1p/litre as early as the 2007/2008 milk year.

Loam Farm, the firm's 600ha (1482-acre) efficiently run, model combinable crops unit, will make a business surplus of £109/ha (£44/acre) in 2007. But take away the single payment and entry level payments and the margin from production is a loss of £121/ha (£49/acre).

The situation could be even starker for upland units. Upland Farm, Anderson's 285ha (700-acre) model beef and sheep farm, will make a business surplus of £7840 next year. But almost £71,000 of farm income comes from support and environmental schemes.

'Substantial drop'

"It has never been clearer that after 2012 there will be a substantial drop in the single payment," said Mr Mordaunt, who was concerned that some farmers could be distracted from the need to cope with this bytheir newly bolstered balance sheets.

"There is a history of farming not addressing change when the times are good," he said. "There are signs of the savings that can be made when people are prepared to start with a clean sheet, but it is still not happening enough - 56% of farm businesses in the UK still have lower outputs than inputs."

Part of the problem was that rising property prices meant farming's overall balance sheet looked very healthy and this had prevented more businesses from going under than might have been expected.

"DEFRA figures show that drawings from farm businesses were higher than the profits from the past seven out of 10 years. The difference is usually made up by 'raiding the balance sheet'. In the long term this is not sustainable and the industry will have to continue and even accelerate its restructuring so resources are used by those with the skill and drive to prosper," he said.