Arable returns rise but cost must stay in focus, survey shows

Arable businesses earned more from both in-hand and contract farming agreements (CFAs) for 2017 crops compared with 2016.

Farmer returns in Savills’ annual arable benchmarking survey rose by about 75% for in-hand businesses, to £137/ha, while CFAs returned £226/ha to the farmer, a 53% rise on 2016 results.

However the figures also show fixed costs rising and representing a bigger share of crop price, despite the rise in market prices.

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“Given the uncertainty associated with Brexit, we are focusing on reducing costs and preparing businesses for change,” says Andrew Wraith, Savills’ head of food and farming.

Machinery expenditure should be focused on first for most arable units, he says, with the benchmarking exercise and recent farm business reviews showing there is still a massive range of costs in this area.

“You always have to look at each farm on its merits so there are no formulas but everyone should be asking ‘could we do this differently?’,” says Mr Wraith.

Full joint-venture machinery and labour sharing is an option but there are many other variations which could help reduce arable production costs before such a step is taken, he suggests.

Questions to ask include:

  • Are we carrying an element of “insurance” kit to allow us to cover all eventualities?
  • Could some operations be covered by hiring or contractors?
  • How do our internal costs compare with what a contractor would charge for a stubble-to-stubble operation? Nine times out of 10 this is a cheaper option, says Mr Wraith.
  • Does kit we are considering buying need have to have all the bells and whistles or would a good straightforward piece of second-hand equipment do the job?

The Savills arable benchmarking survey covers 20,000ha. Within this farms have an average combinable crop area of 325ha.

Harvest 2017 – contract farming returned more to farmer than in-hand operations (£/ha)

Combinable crop gross margin

643

633

Total income

643

633

Machinery costs

88

 

Depreciation

97

 

Energy

80

 

Labour

156

 

Contractor charges

85

407

Total machinery, power, labour

506

407

Farmer return (margin after machinery, power and labour costs

137

226

Source: Savills Research