27 February 1998

Will profits slump to £67/ha in 2001?

By Andrew Swallow

ARABLE profits could slump as low as £67/ha (£27/acre) by 2001, warns farm business consultancy Andersons.

That was the stark message for delegates at the Berkshire Farm Management Association winter conference in Newbury last week. Currency effects plus the introduction of Agenda 2000 CAP reforms will hit profits hard.

Presenting forecasts for the 243ha (600-acre) farm on loam soil used in the RASE/Andersons farm business modelling project, the consultancys Francis Mord-aunt warned farmers not to bank on weaker sterling to rescue revenues. "The £ has to fall a long way before support levels rise."

Indeed, arable area payments could fall 16%, he warns. Due to the launch of the euro the agrimoney system is under review. "The 1997 crop arable area aid payment was at the frozen green rate of £0.775/ecu. This is 11.5% over the current green rate, which itself includes a near 5% real monetary gap. Both could be removed on Jan 1, 1999."

Compensation may be offered by the EU, but it would probably be at the discretion of member states to apply for it.

Applying current Agenda 2000 proposals to the loam farm, even without modulation and with extremely modest rent and interest charges, leaves profit prospects looking poor. "And this is not the worst case scenario," emphasised Mr Mordaunt.

A major challenge

A major challenge for the coming years will be to reduce the land and finance elements of fixed costs. Many farm businesses will face far higher rent and interest charges than those used in the project, reflecting arable farmings relatively better fortunes over the past few years, he said.

"Land, whether rented or purchased, must come down to values from which a realistic return can be generated," Mr Mordaunt stressed.

The strong £ may cut variable costs slightly, but advances in technology, such as strobilurin fungicides could add to costs, he added. However, growers should embrace new technology to boost output, Mr Mordaunturged.

Flat crops, flat prices… is profit possible after Agenda 2000? Francis Mordaunt of Andersons says yes, but only just.

Model farm profits – 243ha (600-acre) loam farm


1998 2001 2001

£/ecu 0.775 0.695 0.75

Sales 509 469 529

Area aid 294 277 299

Output 803 746 828

Variable costs 198 208 208

Gross margin 605 539 620

Fixed costs 343 353 353

Pre-rent

surplus 262 185 267

Rent +

interest 119 119 119

Profit 143 67 148

Based on rotation of winter wheat, winter barley, winter osr and spring peas and 5% set-aside 1998, 0% in 2001.

FARM PROFIT

&#8226 Do not plan on weaker £.

&#8226 Embrace new technologies.

&#8226 Manage overheads.

&#8226 Reduce cost of land.