25 April 1997

Growers warned of 20% profit slump for combineable crops

By Philip Clarke

FARM management company, Broadoak Farming, is warning of a near 20% fall in net farm profit on combineable crop farms for the coming season.

After five years of steady growth, average gross margin on a "typical" 405ha (1000-acre) farm managed by Broadoak is budgeted to drop 12% to £677/ha (274/acre).

And, after deducting fixed costs and contracting charges (but before rent and finance), the "divisible surplus" is predicted to drop 19% to £353/ha (£143/acre) (see graph).

"Although set-aside has fallen, the exceptional circumstances of the past two years have deserted us," finance director, David Hadden, told a London seminar last week.

Feed wheat prices are budgeted at under £100/t, with winter rape at £175/t. The firm is also anticipating a drop in area aid.

"The latest green £ tinkering has prevented the rise in sterling from reducing area aid so far, due to the arbitrary 11.5% buffer," said Mr Hadden. "But any further green £ revaluations before July 1 will hit payments." Without the buffer, Broadoaks forecast "all crop" average area aid of £326/ha (£132/acre), would drop to £269/ ha (£109/acre), a cost of £23,000 for the 405ha (1000-acre) unit.

But, despite the impending "hard times", company managers remain optimistic, not least because overheads are under control.

Since the introduction of total quality management in 1992, fixed costs have been more or less static at about £326/ha (£132/acre). "This gives us a competitive advantage of about £52/ha (£21/ acre) below the average, which translates into the net margin we share with our landowning partners," said chief operating officer, Malcolm McAllister.

"Many farmers have only been sustained in the past few years by high prices and area aid. They will now be looking for a different strategy," he added. &#42