Loss-making growers urged to consider joint ventures

Growers making consistent losses from farming must look at fresh options such as joint ventures, according to an annual report.

In its 2016 rural business survey, accountant Churchgates found most arable businesses lost money from crop production.

An average business lost £86/acre from growing crops, based on a gross margin less fixed costs, before other income such as subsidies, environmental payments and diversification was included.

See also: Three growers slash labour and machinery costs with joint venture

Once those other activities were added in, the typical business turned a £42/acre profit, before rent and finance.

Even the top 25% struggled, losing £23/acre from arable, but bringing in a £117/acre profit overall.

Creeping machinery costs over several seasons have hit returns from contracting, with the average business last year losing £64 a contracted acre and the top 25% only making £11.

Generally, Churchgates found, profit in the whole farm business was coming from “everything but the farming”.

Arable losses

Gary Markham, Churchgates director of farms and estates, said the average-performing farms had to take note of the drain those arable losses were putting on their business.

He said farms with rent and finance greater than their BPS payments should look at their debts and land occupation costs to understand their marginal economics.

“If there is little or no margin from production, then the profit is BPS minus rent,” Mr Markham said.

“Rents [including landowners’ first charge] are far too high to be sustainable in the longer term in a great number of cases and there could be benefit all round in finding more sustainable, performance-related means to determine landowners’ returns.”

One of the options to consider, Mr Markham said, was a joint venture (JV), between stronger businesses and those making a loss. In 2016, the top 25% earned a margin from arable production £72/acre higher than the bottom 25% of businesses.

Machinery syndicates

“The most effective JV is sharing costs rather than contract farming – such as a machinery syndicate and possibly incorporating share farming on the cropping.”

The survey, which mainly covered arable businesses in the east of England, showed a sharp divide regarding machinery costs, which are captured in depreciation.

Compared with the average, the top 25% most profitable businesses had £35/acre lower machinery costs from depreciation, while machinery syndicates were able to spend £90/acre less.

This mechanisation strategy is rarely scrutinised, Churchgates noted, which was where syndicates – where the decision-makers had more accountability – tended to beat owner-managed businesses hands down.


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