Growers told to focus on preserving capital
TOO many arable farmers are failing to address rising overhead costs, which now account for over half of farmings output.
With the decoupling of area payments from production a real possibility after 2006, farmers must move their businesses into the above average or best category quickly, says Jay Wootton, of farm business consultant Andersons.
Speaking to farmers weekly at Cereals 2002, he urged farmers to stop worrying about retaining their independence and concentrate on preserving farm capital.
"Unless they do so they may soon erode that capital altogether." Even £1m of assets on a 200ha (500 acre) farm supporting two families could disappear within a decade at current profit levels, Mr Wootton added.
"I am astounded by the number of farmers I first meet who havent thought about how they are going to address the current situation."
Overheads accounted for 53% of gross output from farming in 2001, at £8.1bn. That is £0.6bn more than in 1996, with inflation counteracting many savings. "Nevertheless, this is an area that must be tackled," said Mr Wootton.
Few growers could survive with wheat at £55/t, especially if area payments are separated from production, which could happen after the next CAP reforms in 2006.
Even production costs as low as £515/ha and a yield of 9.5t/ha means wheat still costs £54/t to produce, leaving just £1/t profit before drawings in 2006. More typical costs of £685/ha and a 9t/ha yield produces a £21/ha loss. Even budgeting at £65/t leaves little or no room for error for the best farmers.
Farmers might still receive some form of decoupled subsidy after 2006, but they will have to adapt to growing the right crops at the lowest cost to make up for the loss of direct support payments, Mr Wootton warned. *