29 November 1996

Dont tie up too much in long term assets

YOUR farm business could be financially unstable, with too much money tied up in long-term assets. That was the stark message which Bill Hall of ADAS gave to a farmers weekly Farmer Forum at Smithfield this week.

"Rather than taking advantage of recent profitable years to develop businesses and ensure they remain competitive, too much money is becoming capitalised," he said.

High land values, high rent payments and milk quota were among the culprits.

"Farmers who budgeted to get £110/t for their wheat this year, for example, may only get £90/t. But that wont change the fact that the land might have been bought at £3000/acre. Or that a high farm business tenancy rent is still payable."

Ideally, finance charges such as rent and interest should account for less than 15% – and preferably nearer 10% – of gross output, he said.

Robin Hobson of Laurence Gould, meanwhile, said subsidies had led to over-capitalisation. "They are like a vast shopping basket which allows a business to accumulate more expenditure and encourage farmers to overstretch themselves. But subsidies have reduced short-term risk and allowed expansion faster than would otherwise have been possible."n