29 March 2002

Falling prices and higher modulation dim arable outlook

By Olivia Cooper

FALLING cereal prices and increased modulation could force arable farm incomes down by over 50%, says a leading financial and business adviser.

Accountant Grant Thornton says a £10/t fall in wheat prices, as suggested by current forward values for harvest, on top of increased modulation would devastate even the best farmers.

The Curry Report proposes a rise in modulation to 10% by 2004. Although the cash is redirected into environmental schemes, not all farmers benefit from these, says Grant Thornton. Increasing modulation to that level would, therefore, reduce gross output by £8/acre, it calculates.

A survey of over 180,000 acres of arable land in eastern England predicts that net farm income, after rent and finance, would fall by almost a third for the top 25% of farms – a fall of some £25,000.

For those that do not make the top quartile, average farm incomes, including alternative sources of earnings, would drop by a massive 54%, to just over £12,000 before tax, drawings and capital repayments.

"Farmers must be under no illusions that their fortunes are set to change in the short term," says agricultural partner Gary Markham. "Each business must look at the effect of possible changes on their individual businesses. In our example, the average income on an 808-acre arable farm fell to just £12,606. Can you survive at that level?"

If the answer is no, farmers should look at alternative ventures, like diversification and share farming, he says. &#42