29 May 1998

SPONSOR CALLS FOR

STRATEGIC PLANNING

Times are tough, but spending a few moments thinking about your businesss

strengths and opportunities could pay dividends, says Ian Stockley, chief manager

of agriculture at Lloyds TSB Group, the main sponsor of Cereals 98

LLOYDS Bank is delighted to be the main sponsor of Cereals 98, helping to provide growers with the opportunity to speak to those closely involved in the industry and look at the latest developments and newest technology that may be of benefit to their business.

Such an event takes on even greater importance given that cereal prices have fallen significantly over the year. Growers need to be looking very carefully at what they grow and how they grow it in order to optimise returns.

Whilst farm businesses are generally experiencing reduced profitability at the moment, with increased pressure on cash-flow, there is a danger of overstating these difficulties and generating a self-fulfilling prophecy of doom and gloom in the industry.

Many farm businesses are entering this period of difficulty in a much stronger financial position than they did with the similar situations in the late 80s and early 90s. Certainly our evidence suggests that few customers are experiencing dramatic difficulties at the moment.

Future options

In looking to the future there is a danger of overstating the benefits of economies of scale and assuming it is easier for large businesses to survive than small ones.

However, the quality of technical and financial management, together with the clarity of business objectives, are the critical factors for future survival and prosperity. As such these areas play a key part in the Cereals 98 event.

Many small businesses will survive, particularly where the farmer and his family:

&#8226 Own their farm unencumbered.

&#8226 Do not employ labour.

&#8226 Have modest drawing requirements.

It may seem a silly question, but it is always worth asking yourself, "Why am I farming?" The ultimate reason will usually be a complex mix of different objectives. But it is nevertheless worth identifying the more important ones for you and your business.

Objectives may include:

&#8226 Maximising profit.

&#8226 Enjoying a way of life.

&#8226 Handing the business to the next generation.

&#8226 Building a bigger business.

Having clarified objectives, one needs to examine the quality of management, using criteria such as:

&#8226 Checking enterprise output (yield x price) and identifying technical weaknesses.

&#8226 Calculating technical efficiency (for example by GM% of farm output).

&#8226 Comparing fixed costs with peer groups.

&#8226 Monitoring business performance and correcting weaknesses.

However, for those farmers who may wish to consider withdrawing from the industry, it is appropriate to identify the criteria which might make such a move attractive. These includes situations such as:

&#8226 Principals approaching retirement.

&#8226 No family succession.

&#8226 Existing asset value (eg land and quota) are likely to reduce over the next few years.

&#8226 Adverse changes to the current tax situations (eg CGT allowances, retirement relief).

We all need to be fully aware of the changing scenario against which farm businesses must operate. We may have little or no influence on some of the factors listed below, but we ignore them at our peril:

&#8226 CAP reforms as illustrated by the draft proposals for Agenda 2000.

&#8226 Changes in world markets resulting from future WTO talks (we have not fully been affected by the earlier GATT negotiations yet).

&#8226 Food safety and traceability.

&#8226 Requirements for environmental cross compliance.

Whilst current times are challenging for farm businesses and we are likely to face an increasingly volatile environment, you will find a positive approach from Lloyds Bank. So please call in and talk to out agricultural managers who will be pleased to meet friends old and new and discuss farming business.

Ian Stockley – chief manager, agriculture

Lloyds TSB Group