Scots farmers invest in efficiency
Scottish farmers are gearing up for the future with increased investment to improve the efficiency of their farming operations, according to Iain Clark, head of agribusiness development with Clydesdale Bank in Scotland.
The surge in capital investment is being driven by attractive EU grants through the Scotland Rural Development Programme and low interest rates.
“These investments will make a big difference to the financial performance of the businesses concerned in future years,” said Mr Clark. “They’re also helping to make land-based work more interesting and less labour intensive. This is particularly important for the younger generation of farmers whose working ambitions are a little different to their forebears.”
Latest figures to the end of May show that bank advances to Scottish agriculture are £121m ahead of the same period in 2009 at £1506m, an increase of 8.7% (5.5% when inflation is taken into account). This is the largest annual increase in real terms since the year 2000.
More farmers are also taking advantage of risk management tools to hedge against volatile currency, fuel and wheat prices and lock into current interest rates for long-term investments.
“Given that 100% success in hitting the top of any hedging market is virtually impossible, producers are increasingly looking to lock into forward prices or costs for a proportion of their business,” said Mr Clark.
“The aim is to secure an acceptable return on a reasonable percentage of the business and this strategy is helping to reduce wide fluctuations in sector profitability. Inevitably, they may miss out on the top gains but will also avoid the catastrophic price and cost changes which can place a business under severe pressure.”
Mr Clark said the recent escalation of grain prices was a classic example of volatility in the market place which would bring a very welcome restoration of margins for cereal growers while delivering an unexpected increase in input costs for the livestock sector of the industry.
Speaking in advance of Aberdeen and Northern Marts “Spectacular” show and sale of store cattle, sponsored by the bank, Mr Clark expressed confidence in the long-term prospects for Scottish beef.
Although finished cattle prices had fallen from their peak and were around 10p/kg less than a year ago, prices had strengthened in recent weeks which augured well for the autumn sales of stores and suckled calves.
“Beef producers are adept at taking advantage of opportunities when they arise and equally skilled at protecting their margins when times are tough,” he said.
“Scotland has a strong foundation of genetics, excellent technical competence, good stockmanship and a strong brand image on which to build a new future for the beef industry and we are seeing positive business signs on beef units across Scotland that this is happening.”
ANM Group chief executive Alan Craig suggested higher grain prices would be good for beef producers as prices were likely to rise on the back of the increased prices which pig and poultrymeat producers would need to compensate for higher feed costs.
“We are seeing a recovery in the price of finished cattle and we can look forward to a period of greater stability with all links in the supply chain, including processors, achieving a margin,” he said.
Increased supplies of dairy-bred calves fed on cheap barley had been one of the factors in the over-supplied market earlier in the year but Mr Craig said more dairy calves were now likely to be slaughtered at birth because of higher barley prices.
Supply and demand was broadly in balance and an increase in imports from South America was unlikely. Demand for beef, particularly steaks and roasting cuts, had also recovered.
“But we won’t see the scenario we experienced last year when ex-farm prices rose to such an extent that processors were unable to operate profitably because they couldn’t recover higher prices from the marketplace,” he said.