It has been trade as usual for most farm businesses this year, but restructuring is set to accelerate during 2006 as farmers react to static incomes and the new decoupled single payment.
According to the Outlook 2006 report released by farm business consultant Andersons this week, there are signs that the large livestock sector “is behaving logically”. Producer numbers are already falling, and production is set to follow.
Andersons’ partner Francis Mordaunt said it was clear that a number of businesses had some hard decisions to make, espe-cially as incomes were unlikely to improve significantly in the near future.
“Total income from farming has been stuck at about 3bn for the last couple of years. We expect the figure for 2005 to fall below this benchmark as a result of lower prices and higher costs.
“Looking to next year, TIFF in 2006 seems unlikely to recover above 3bn.”
Only if cereal prices recover next year and beef and sheep prices firm si there any chance of breaking back through the £3bn barrier, he said.
That meant there would be plenty of loss-making farmers who should consider the single payment as a real chance for change, said colleague John Pelham.
For many growers, a combination of an open autumn and the availability of dedicated labour and machinery had been an effective barrier to reviewing business options, Mr Pelham added.
“Farmers often overlook the true cost of capital and labour when making the decision whether to crop or not. So we haven’t seen much change in cropping area, with many areas being planted that won’t make money.”
Farmers also often overlooked their own contribution, he said. “Farmers can lose sight of the opportunities for increasing the financial return from their own time and capital, especially if they have to work ever harder to generate sufficient profit.”
The earnings of a proprietor averaged just £14,800 in 2004 (only 300 more than the average subsidy cheque), a small return on the average capital provided of just over £500,000 a head. “That capital has a significant opportunity cost,” said Mr Pelham.