Exploring the options beyond dairy farming
Exploring the options beyond dairy farming
Giving up running your dairy
farm doesnt mean giving in.
But the thought of not being
a working farmer often stops
many owner-occupiers looking
seriously at the alternatives.
Simon Wragg reports
NOBODY likes giving in. Accepting that the milk cheque is not enough to cover costs is bad enough, but having to face the prospect of releasing loyal staff, worrying what neighbours and friends might think and deciding what to do next simply stops many people in their tracks.
But what if the change meant securing your future? Change, however difficult, can be a good thing.
"Its a natural reaction to put it off," says Ian Bailey of FPDSavills research department. "There are a number of lifestyle issues attached to farming which often interrupt business decisions. But I would say to producers, as one who has stopped farming myself, at least challenge the options.
"Moving away from day-to-day farming will mean change, but for those producers surviving on low income it could be a positive move, especially where there is no son or daughter to take on the business."
The dairy farming scene is changing at pace, says Mr Bailey. FPDSavills research suggests herd size is rising quickly, with production concentrated around the main processing sites. But size does not always guarantee profits – world markets and the relaxation of support mechanisms by 2006 (such as quota) will squeeze margins.
The company estimates that where dairying is the main business, only the top 25% of producers and those serving niche/value-added markets can expect a reasonable income in future. "Even forecasts with yield increases of 82 litres/cow and a better milk price of 18.24p/litre suggest the middle 50% of producers will struggle to break even in five years time," he says.
"At present, these herds with an average of 94 cows have a net farm income of just £4000 before private drawings and finance, taken from MAFFs farm business survey results.
"Even if milk prices were to rise by 20% this autumn, incomes would still only be around £10,000 for an average unit before drawings, which is insufficient to invest for the long term. The danger is that owner-occupiers will use their private capital to maintain the business. Its simply erosion of the capital base – the funds for the future, often retirement.
"The question all producers should ask is, by moving away from the core business of actually farming their own land, will they be better off in five years time? Many are worried about their future, but cannot face the reality of accepting that getting out is a realistic option."
Here, lifestyle issues can be the main concern. Selling up is a major step, but it offers a clean break from the worries of ailing farm incomes. Although land values could remain flat for the next year or so – prices have fallen 16% since the mid-1990s – the current market continues to be underpinned by residential sales.
Typically, one-third of all farms under 100ha (250 acres) handled by FPDSavills last year were sold to "new lifestyle buyers", incomers to rural areas. These properties often represent units that were most vulnerable to low farm incomes. Investment, funded by domestic property sales, helped dairy farmland prices average £4750/ha (£1932/acre) so far this year – more than farm incomes alone would warrant, says the company.
For those looking to retain land, expanding dairy units are driving interest in farm business tenancies. "The alternatives of share farming or management agreements require trust when pooling labour and facilities," says Mr Bailey. "With an FBT, you know the level of income without being tied to someone elses business decisions."
FBTs could also be suitable for farms that require investment to upgrade milking plants if a neighbour is looking to acquire land and buildings but wants to use their own parlour. "Quota can also be leased out," he adds.
For example, a 79ha holding with 94 cows averaging 6000 litres/cow and which owns its quota might make a net farm income of £4000. But by leasing out the quota at 4.4p/litre and putting land on a FBT for £50/acre (two-thirds of the level suggested by MAFF surveys), the business could realise £34,566 – a net gain of £30,566.
"There are a number of options which will allow owners to retain both land and stock if preferable," says Mr Bailey. "Free of the day-to-day management, farmers can then begin to look at what they want to do in future. For some that may mean retraining."
Where land is let out and stock sold, money could be invested to generate income from redundant buildings. Options include housing livestock or storage, although the latter may require planning approval. "The opportunities for income will vary according to individual situations. Location will be key, as will farm size and whether some or all of the land is IACS-registered."
On an individual level, age may determine future plans, as will a farmers tax position, says Mr Bailey. "All these factors will affect your future and will have to be considered. But farmers should at least take a look at the options. There is little scope for a substantial improvement in dairy farm incomes, but money could be generated elsewhere and with less risk." *
Ian Bailey: Income squeeze.