Many farmers will remember 2008 as a profitable year, but punishing cost increases will have to be felt in 2009’s books, says farm business consultant Andersons.
“Total Income from Farming in 2008 is estimated to be about £3.5bn, up by a third in real terms on 2007, says Francis Mordaunt, Andersons’ head of business research. This will mean the highest returns for farmers since the bumper year of 1997. (TIFF is the aggregate return to all farming businesses – in simplistic terms, the profit of ‘UK Agriculture Plc’ but before the farmer has taken a wage for manual labour.)”
One of the main reasons that TIFF is forecast to have improved so markedly in 2008 is that the full extent of this year’s punitive cost increases will not be seen in the current year’s accounts, Mr Mordaunt said. In particular, the fertiliser that helped produce the 2008 harvest was bought much earlier at price levels far below those seen this year. But 2008 looks like being a one-off in terms of farm profitability; the coming year looks set to see income fall below £3bn once again.
Livestock businesses, particularly in the pig sector, will welcome some return to cheaper feed in 2009, as cereal values have fallen sharply on a year ago. But far higher fertiliser costs (despite recent falls) will affect arable and forage profitability alike.
“The crystal ball gets cloudier looking into 2010. An important factor will be whether the economic downturn is relatively mild or persists into late 2009, and even beyond. This is likely to affect the demand and price for commodities. It now appears that few countries and industrial sectors will escape recession.
“At least some comfort can be gained by the weakening pound. Despite raising the cost of many imported inputs, this does reduce the pressure from overseas competition on domestic farmgate prices. It also helps keep the sterling value of the single payment high. In 2008 it looked like some sectors of the farming industry achieved profitability without support. For 2009 it seems likely that UK farming will return to a situation where subsidy is not just providing all of the profit, but helping prop up some enterprises.
“On present trends, it seems possible that TIFF could fall by a further 5-10% in real terms in 2010, compared to 2009. This would keep it firmly in the £2bn-£3bn range seen for the last five or more years.
The Meteorological Office recorded the highest rainfall (205mm) for 30 years in England during August and September and sunshine hours in August were the lowest in living memory. The fact that most of the crop was harvested at all is a tribute to the achievements of UK farmers to cooperate and press on through the most arduous conditions.
Mountains of sodden grain revealed that on-farm facilities to dry and store the crops are showing signs of under-investment. “This is largely as the cost of storage per tonne is high, and the benefits of storing grain have been marginal in the recent years of bear markets. Nor have arable margins in recent years left much room for replacing grain stores. But reliable drying and storage is something that needs to be addressed if the industry is to meet the ever increasing requirements for the quality and safety of produce.
“Every arable business is being affected by a significant increase in the amount of working capital required to fund the 2009 harvest. So far lenders in the UK appear to be able to extend facilities given some advanced warning, but the global financial crisis may worsen yet.”
There is still some way to go to the 2009 harvest, with tax payments to make in January and July. “The preparation and monitoring of a realistic business plan, including a cash flow, will be a vital part of optimising the profit from the 2009 and subsequent harvests,” said Mr Mordaunt.