More must be done to narrow the gap between the best- and poorest-performing farm businesses across all sectors and meet the challenge of lower support, according to HSBC head of agriculture Allan Wilkinson.
Growing demand for British food offered farming businesses some of the best opportunities for a generation but expansion should only be considered where it would improve profits, he warned.
Launching the bank’s annual Forward Planning booklet which is designed to help with budgeting and planning, Mr Wilkinson urged farmers to question and challenge their businesses.
The agriculture industry was in a positive position, with immense interest in British food, fuelled by demand from home and overseas. Investment was taking place to drive economies of scale and cost efficiencies, he said.
Top-performing farms got there by examining their weaknesses thoroughly as well as focusing on profit generation, budgeting and benchmarking.
The publication estimates cost of production and income for the main agricultural enterprises and warns that unless the gap between cost of production and returns can be closed, the size of the red meat sector will fall further.
“With CAP reform likely to reduce the overall levels of support received by farm businesses, loss-making enterprises are likely to come under increasing scrutiny,” it says.
“Unless the gap between costs of production and returns from the market can be breached, then economics would suggest the size of the industry will continue to decline.”
The UK exports 15% of its beef production, but with cost of production at £3.20/kg liveweight compared with a market price of just £2.10p, only 60-70% of production costs are recovered from the market.
Higher beef prices were down to tight supply but the impact of CAP reform could force more producers out of suckler beef, warned Mr Wilkinson.
In contrast, about 35% of UK sheepmeat is exported but still only 75-80% of production costs come from the market. It costs £2.30 to produce a live kilo of lamb while market prices are at £1.75-1.85/kg lw.
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