10 May 1996

QUOTA

– STICK WITH IT OR CASH IT IN?

Milk quota sale squares the circle for one Oxon family

FOR the Walkers, milk quotas offered the choice of continuing profit from milk production, or scope to redistribute and consolidate family assets. They chose the latter.

"It was sad the cows had to go. But we had no trouble taking the decision." Neil Walker believes it was a one-off chance to enable him and his two brothers to get a fair share of the farming business that his grandfather started by in 1932.

Manor Farm, Garford, Abingdon has grown to 690ha (1700 acres) in the intervening 64 years. In the western Thames valley, its heavy clay and alluvium grows good grass and can be cropped with winter cereals and oilseed rape. Since the start, it was also a dairy farm. The Landmead Herd of pedigree Holstein Friesians had risen to 210 cows before most were sold last November.

The herd was performing creditably, with an average yield of 6860 litres and a latest margin over concentrates of £1362. At peak times, the monthly milk cheque was topping £30,000. Selling the licence to generate such a healthy cash flow was a serious decision.

Mr Walker thinks it was worth it. "It has allowed us to re-arrange the ownership of the land within the family between myself and my two brothers. They wanted their money out so that they could develop farm businesses elsewhere."

The money had to come from somewhere. The options were to sell a chunk of the farm, or to cash in the quota.

"Both the dairy herd and the farm itself had been built up over 60 years, so there were strong ties to each. But in the long run, cows are replaceable, while 1700 acres in a ring fence is not," observes Mr Walker.

There were more than a million litres to dispose of, much of it through quota broker Ian Potter Associates. It has been sold in lots when prices seemed appropriate, starting in June 1995, and there is still some left.

The sale initially involved an 11-month Gladstone v Bower tenancy, subsequently converted to a standard farm business tenancy.

The most dramatic effect has been loss of cash flow. The milk cheque ordinarily helped to fund the cost of establishing the arable crops.

The cash deficit has been partly redressed by the farms dairy goat enterprise, which had been building up over about eight years. While the revenue from this cannot match that from 200 cows, it helps. However, Mr Walker is confident that the dairy goat business it will eventually replace the income formerly delivered by the cows.

The goat herd has been increased substantially to nearly 600, moved into a new unit, and provides work for the former cow herdsman. It also presents a marketing challenge, but from experience Mr Walker is hopeful that he can find suitable buyers.

Even so, he notes that they are unlikely to prove such regular and reliable payers as cows milk buyers. That is an increased element of risk, but it is offset by absence of the risk that the Walkers felt was represented by the paper value of quota.

A switch to arable involved the alternative risk of being even more heavily dependant on IACS revenue. However, Mr Walker believes they can live on a relatively small margin/acre, with the added benefit that capital involved in arable cropping runs less risk of being written off by a change in CAP rules.

They looked at the total investment of realisable capital that they had in our cows, plus the extra investment they believed would be necessary over the next five or six years to stay in the job.

"The return we were getting didnt justify either the investment or the risk. The value of quota was on paper. It could have disappeared or been seriously reduced overnight," he says. "When we got down to it, the cows were less than a fifth of the total value of the assets. The rest was tied up in quota, which might ultimately be worth no more than the two pieces of A4 paper it was written on." &#42

Most of Neil Walkers herd was sold last Nov. It was a sad but easy decision.