Advice on key focus areas to ease pressure on arable margins

The outlook for arable businesses in the year ahead is one of tightening margins, rising costs and increasing uncertainty.

Farm output is under significant strain, driven primarily by poor commodity prices, with wheat prices currently trading around £165/t.

The war in Iran is adding further pressure, with spikes in the cost of fuel and fertiliser ahead of the busy spring period.

Farm consultant Leo Page, who works for agronomy firm Hutchinsons, says that for many farmers, the industry is not in a comfortable position.

Alongside financial pressures, some growers have grappled with flooding and crop failures in areas pushing up the cost of production.

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Reality for growers

“Last year saw relatively low fungicide expenditure due to reduced disease pressure, but resulting gross margins did not reflect this,” he says.

“Add to that the higher overheads we’re facing this year, greater yellow rust pressure and increased labour costs, expenditure is pushed up again.”

It seems business surplus is now being propped up by an overdependence on the Sustainable Farming Incentive, rather than being generated by core agricultural activity.

“This is the reality growers are wrestling with, but there are things we can do to reduce exposure and plan businesses better.

“We need to focus on making businesses as resilient as possible,” he advises.

What makes a resilient business?

A financially resilient business is one that in most years generates sufficient trading surplus for growth, reinvestment and long-term security, explains Leo.

Analysis of Farm Business Survey data shows stark differences between the top 25% of performers and the middle 50%.

The strongest businesses consistently demonstrate tighter control over fixed costs, particularly machinery, labour, rent and finance.

They also spread risk through enterprise diversity, not necessarily by moving away from arable farming, but by finding ways to add value and reduce exposure.

“Top-performing arable businesses have a diversity of enterprises. They’re spreading their risk.

“They’ve got plenty of fingers in plenty of pies, but that doesn’t necessarily mean diversifying out of arable, it is thinking about what else you can do,” says Leo.

Soil health

A strong focus on long-term soil health is a common thread. Incremental, year-on-year decisions that improve soil structure, organic matter and resilience are delivering measurable gains over time, both agronomically and financially.

The soil, Leo notes, remains the farm’s most important asset. High-performing farms are far more likely to embrace technology and use data tools to plan operations, target inputs more precisely and drive yield.

Team motivation

Often overlooked, but equally critical, is personal fulfilment and staff engagement. This is one of the most forgotten drivers of performance and is directly linked to productivity and business success.

Farms with motivated employees who feel involved in decision-making and part of the business, with clear objectives, are consistently more productive.

Diversification and stewardship

Among the top-performing businesses, about 50% of total revenue was generated directly from agriculture.

Income per hectare from stewardship was higher, but still small relative to arable revenue.

“The amount of income generated per hectare on these farms from stewardship was much greater, but it was dwarfed by the revenue generated from the arable agriculture,” says Leo. “That’s the same for diversification.

“While the businesses were all invested in stewardship and diversification projects, they were less reliant on it.

“They were likely using it for all kinds of clever ways to add value to commodities.” 

Thoughts for the future

The pressures facing arable farming are unlikely to ease quickly, but the evidence suggests that businesses which focus on fundamentals – costs, yields, soil and people – can still generate a surplus from farming itself.

“It’s the people who are making strides in their business planning, managing cashflow effectively and focusing on yield who are producing a business surplus.

“It shows it is possible to do. That paints a happy picture for the future of arable farming,” concludes Leo.