21 June 2002

Expanding to make more profit could be expensive

By Andrew Shirley

EXPANSION is seen by many farmers as the simplest route to higher profitability, but it is unlikely to be a cheap option for many, reckons one agricultural lender.

Commenting on the results of the latest Lloyds TSB Focus on Farming Survey results, head of agricultural banking Tim Porter says that there are still more arable and dairy farmers planning to increase the size of their businesses over the next five years rather than rationalise (see graph).

This, he believes, means the competition for limited resources such as land, quota and cows will remain high and prices are likely to reflect that demand. "A lot of farmers believe the only way to bring down unit costs is to expand, but the cost of this is going to be high. People will have to pay and there are going to be some tough decisions to make."

In the livestock sector, however, the pattern is slightly different. Although 30% of beef farmers are planning to increase herd size, 22% are expecting to reduce numbers. Sheep farmers are even more pessimistic – only 17% expect to scale up operations in the near future, while one-third propose to cut their flock size.

Not in "meltdown"

But the banker says that the survey results show that the agricultural industry is not, as is often quoted, in "meltdown". Of the 2262 producers who responded, only 13% said they were unlikely to be farming in five years time (the same figure as last year). Furthermore, of those planning to quit 60% gave retirement as the reason.

Almost one in five didnt believe they would be actively farming but maintained they would be involved with a farm-based business.

The survey also showed that the proportion of farmers in favour of the single currency has increased from 33% to 41% since the banks last survey. But six out of ten producers are still opposed despite most listing currency exchange rates as the main factor affecting the future prosperity of UK agriculture.

"This is one of the major areas of confusion. Farmers realise that today it might be beneficial to join the k but they are much more uncertain over the longer term," says Mr Porter. &#42