Handsome expansion

1 April 2000

A robust business, sound management and a well-motivated workforce are key ingredients for expansion for one Wiltshire grower. Tom Allen-Stevens reports in the first of our new series examining how to reshape, and revitalise arable businesses.

Handsome expansion

NEVER before have there been more opportunities to expand your acreage: more and more farms are being sold, put out to contract or let under farm business tenancies. But if the farm next door suddenly became available, how do you know if your business could handle a large increase in acreage?

"The key is knowing your marginal overheads – you must be absolutely sure of them." Richard Jackson, of farm consultants Andersons, advises growers to anticipate future capital requirements carefully: "Beware of fooling yourself into thinking you can take on extra land and pay extra on just wearing parts and diesel."

Management is another key issue. "Watch out for dilution of management. With 1,000 acres you may be able to paper over the cracks of poor planning. Increasing to 1,500 can present a real challenge. So often we see people who are good technical operators take on extra land and the performance of the host business deteriorates.

"Its important that youre clear what youre going to get out of it. The challenge for the acquisitive business is to expand and make profit. Make sure theres extra profit, not just extra work."


But he does not want to sound too downbeat: he believes there are some real acquisition opportunities for the best technical and business performers. "Historically some of the largest businesses have been constructed during times of farming adversity. Many of East Anglias big farming businesses were built up during the 1930s."

And the end of the 20th century has seen another spate of restructuring. The McSharry reforms started this off at the beginning of the 1990s. Following the collapse of sterling, the process went on hold while businesses that would otherwise have gone under were held afloat by a period of high profitability. Now the reforms are taking effect and Agenda 2000 is likely to increase this pressure. So expansion for the fittest businesses is a plausible prospect.

Church Farms near Salisbury is a good example of a farming business that has been doing just that. Arable director James Dean joined the business run by his father-in-law in 1989 when they farmed 400ha. Today they farm 1,200ha under FBTs, share farming and contract farming agreements.

"When IACS appeared in 1993, the banks got jittery at the prospect of wheat at £70/t, and thats when the acreage started to grow. Then the good times came and new business dried up until recent years," recalls Mr Dean.

At the heart of the business, and what keeps it growing, are sound finances. Mr Dean knows to the penny how much it costs them to grow a tonne of wheat and farm an acre of land. This means he knows what the pull on the business will be if a new opportunity comes up. "We were in the black by 1993. Then we made money and saved it during the good times. That means weve got cash to spare for when we need it."

The quantum leap, when they took on a large portion of new land, came a few years ago. Due to a sudden death, they were offered 370ha to add to their existing farmed area of 720ha. "We were already farming at full capacity, so we employed more staff and bought extra kit – fortunately we had the spare cash to do it." But this does not mean they managed everything in house. It was not going to be feasible for the existing two combines to take on the extra acreage and the cash reserve did not stretch to a new one.

"We employed a sub-contractor to help with the harvest. It worked well for him because it spread the cost of his combine, and it meant I could get on with drilling rather than worry about the linseed. They did the combining for a few years before we saved enough to buy a new one. Overall we like to keep things really flexible; we help other people out and they help us."

And this flexibility carries through to the relationships Church Farms has with the farms it deals with: if a farmer wants to retain the spraying, for example, Mr Dean is willing to accommodate it. This even stretches to providing him with an extra pair of hands during peak periods. It can be a welcome relief for Mr Dean: he readily admits taking on extra staff gives him the biggest headache until theyve settled in.

Right calibre

The quality of the staff (there are two full-time dedicated to arable operations) is the single most important factor that makes things work at Church Farms, so every effort has to be made to recruit the right person: "Getting good staff and keeping them motivated and happy is the key. If you get that right, everything else falls into place. Theres no point in spending just £12,000 a year on someone. Theyll go out and put the wrong rate of fertiliser on and they wont care. Whats more you may not realise until its too late."

Finding the right person is tricky, however. There are no cottages to offer to prospective staff, so to attract the right calibre of employee a decent salary has to be offered. The last time they advertised, these tactics brought in some 400 applicants, but Mr Dean was soon able to whittle it down to a handful when he explained the quantity and quality of work he requires of them.

Having staff they can trust also means management is under less pressure. Mr Dean feels he can quite comfortably run the entire 1,200ha on his own, "but we must never get too big that we cant keep an eye on everything". He is responsible for buying most inputs over the farms and does a proportion of grain selling, the remainder of which goes to Wiltshire Grain. Most of the crop is moved at harvest, which means Mr Dean has only a small amount of stored grain to worry about.

Chemical applications are decided by three different agronomists who share the crop walking, approximately a third apportioned to each. Although this may sound like a nightmare to co-ordinate, Mr Dean says there are definite advantages: "It means you can check costs and compare rates. I wouldnt ever want to go down the route of one agronomist because I have three pairs of eyes inspecting my crops. If one notices disease, for example, I can ask the other two to look out for it."

This is not the case with the machinery dealers, however. He deals with just one for each piece of kit. "You need a good relationship with the people you buy machinery from; you cant afford to fall out with them, easily done if you start trading one off against another. When choosing new kit, it all comes down to who my local dealer supports. I certainly dont buy on price alone." This relationship ensures a competitive, prompt and efficient service. If anything goes wrong the dealer is keen to keep downtime minimised.

Routine servicing and repairs are handled by the farm staff; each operator is responsible for his own main tractor, combine and implements. The advantage, according to Mr Dean, is that the machinery is looked after better and stays reliable. But there are no recriminations if someone borrows anothers tractor: "Weve all got a good sense of humour, which is important because it means we work well as a team."

So Church Farms has a strong team, sound finances and room for manoeuvre in management, but is Mr Dean ready for another quantum leap, and will he get the opportunity? "We could easily take on another 1,000 acres now – and itll soon come," he says confidently.

Andersons Richard Jackson has this advice:

1. Look to see whether youve got spare capacity. With set-aside at 10%, if you were at capacity before, youve at least got another 10% to spare now.

2. Consider what the machinery requirement will be and whether there is enough leeway in your finances to afford it.

3. Remember you dont have to own a new machine and employ a man to run it. If you have a combine running at full capacity on 1,000 acres and take on an extra 500, an extra combine will only be running at half capacity. So consider alternatives such as:

&#8226 Short-term or long-term hire

&#8226 Using a contractor

&#8226 Finding out if a neighbour has spare capacity

4. Similarly, explore new ways to spread the workload, especially with your tractors, for example:

&#8226 Running for longer hours per day in peak times and sharing the driving.

&#8226 Tweaking your rotation to spread the cultivation window.

5. Above all, once youve worked out your strategy and your costs, dont blow it all by upping the ante during bidding. Decide on what price you can afford for a neighbouring block of land, bid up to it and stop.

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