21 April 1995

Arranging to export can cut overhead costs

Last week we considered the merits of using the farmers weekly/Laurence Gould "Farm to Farm Direct" service to import set-aside. This week Keith-Leddington Hill, senior agricultural consultant with Laurence Gould, looks at the scope for exporting

TAKING additional land and exporting set-aside by farm business tenancy or the MAFF transfer scheme will be attractive to farmers well placed to expand.

By exporting non-rotational set-aside the gross margin from crops can be increased on the home farm, overheads can be spread over a larger cropped area and there may be scope for greater attention to detail by focusing on profitable cropping only. A number of examples illustrate the potential of set-aside transfer.

Example 1 is a 400ha (1000-acre) all combinable cropping farm, with average yields. The aim here is to export the entire set-aside requirement, by renting 89ha (220 acres) under a farm business tenancy. A larger area is required because the set-aside rate is increased to 18% under this FBT transfer, because it will be non-rotational.

Existing system

Average gross margin under the existing system is £628/ha (£254/acre), with yields considered "average" at 7.4t/ha (3t/acre) for wheat, 5.9t/ha (2.4t/acre) for barley, 3t/ha (24cwt/acre) for oilseed rape and 3.5t/ha (1.4t/acre) for beans.

When the extra land is added the average gross margin falls to £614/ha (£248/acre). This is because the set-aside area has been increased. But more wheat, barley and rape can be grown, which lifts the farms overall gross margin by £49,400.

After marginal machinery and labour costs of, say, £7500, a balance of £43,400 remains. This equates to £474/ha (£192/acre) from which to pay a rent for the 89ha (220 acres) of exported set-aside. The scale of premium required will depend upon the level of supply and demand of importer land.

Clearly, where above average yields mean the home farm gross margin is inherently higher, the exporter stands to gain more. This means he is in a position to bid higher rentals to secure importer land. This situation is shown in Example 2.

Here the average gross margin is already £712/ha (£288/acre). Exporting the set-aside allows farm gross margin to rise by £54,325. After marginal machinery and labour costs of £7500 the balance of £46,825 equates to £526/ha (£213/acre) from which to pay the rent on the 89ha (220 acres).

For mixed dairy/arable farms set-aside transfer could allow set-aside to be exported, allowing maize to be grown on eligible land in a maize qualifying year. This is shown in Example 3, where set-aside is exported through the MAFF set-aside transfer scheme.

Although the area of set-aside again increases by 3%, to meet MAFF regulations, there are benefits. Not only can maize replace the set-aside, but eligible grassland can be cut back by 12ha (30 acres) thanks to the greater productivity of the maize. This allows a further 12ha of cereals to be grown on eligible grassland.

The result is an £11,220 increase in farm gross margin, more than enough to pay a fair "rental" to the set-aside importer of say £7140.

Scope for improvement

Clearly, scope exists for improving profitability by exporting set-aside. But before deciding on a policy change it is essential that proposals are accurately costed, taking into account all IACS regulations. The objectives of all concerned need to be considered.

Example 3: Effect of exporting set-aside on 162ha (400-acre) dairy/arable farm. (£)

With set-aside Set-aside exported

haGM/hatotalhaGM/hatotal

grassland811643133,300691932133,000

(160 cows)

cereals6969247,60081692560,00

set-aside122973600212976120

maize

AAP-VCs—1225300

farm GM1621139184,2001831376195,420

land transfer

rental21ha)–346-7140

net margin1621139184,2001831030188,280

Example 2: Effect of exporting set-aside on high yielding 405ha (1000-acre) all combinable cropping farm (£)

With set-aside Set-aside exported

haGM/hatotalhaGM/hatotal

total405712287,950494692342,275

Example 1: Effect of exporting set-aside on average yielding 405ha (1000-acre) all combinable cropping farm. (£)

With set-aside Set-aside exported

haGM/hatotalhaGM/hatotal

wheat195729141,600223729162,250

barley4059324,0005159330,000

OSR7066745,9009166760,750

beans4059324,0004059324,000

set-aside6029718,0008929726,400

total405626253,500494614303,400