Opinion: Farmers must plan ahead amid economic challenges

The weather and output prices give farmers plenty to worry about at the best of times, but wider economic challenges have now brought further concerns for the sector.

Headline inflation peaking at more than 10% only tells part of the story for farmers, with much greater farm input cost inflation as well as the effects of the Bank of England increasing interest rates significantly after a long period of rates being close to zero.

See also: Higher interest rates call for stress testing of farm budgets

About the author

Brian Richardson is head of agriculture for Virgin Money.

Financial uncertainty makes the future difficult to predict, but in September we saw the first pause in rate increases, and forward swap rates are indicating a flattening of that upward curve.

No one expects us to return to where rates were and a base rate of 4-6% over the next five to 10 years is predicted.

For many, this will create extra pressure and it is important each farm business looks closely at the effect of higher interest rates, particularly on future investment.

These higher costs coincide with other big increases, and for many farmers output prices are not covering these increases.

Having a budget accompanied by a cashflow is more important than ever in managing the inflow and outflow of cash, and seeing where help will be needed.

The majority of farmers have borrowings, so it is important to look ahead and engage with your lender sooner rather than later.

Budgets and cashflows are often not seen as a priority by farmers, but volatility and changes in support arrangements make planning more important than ever.

Less support

Alongside economic challenges, we have the biggest shake-up in post-Brexit support arrangements for a generation, again potentially affecting all farm businesses.

Use the planning process to see how you are doing and where possible, work with your professional support network to understand how your performance compares with others.

Can you improve productivity and efficiency? How do your costs compare and just how well is your business doing?

Also consider your costs and potential changes in how suppliers offer credit.

In a low interest rate environment, many suppliers were relaxed on credit terms, but that is changing quickly.

This is the time to make sure your supplier is providing good value – and check buyers are paying you on time and benchmark the prices you are getting.

Given higher interest rates are going to be around for a while, try to look forward to where you want to be in five years.

Certainly, any new investment will need to be looked at very closely.

That is not to say they should not go ahead, but do consider that extra borrowing cost and make sure your business can realistically cover it.

Banks continue to be supportive of the agricultural sector in the long term and recognise the transition that is taking place after Brexit with new support arrangements and a focus on net zero.

So talk to your banks’ specialist agricultural teams about the future, but focus on the following: 

  • Understand where you are now and any adjustments needed to make your business sustainable in the longer term
  • Look at where you want to be in five years and how best to build in that continuity and evolution
  • Think about meeting the ongoing challenge of net zero.

Farming is a great industry. I have confidence it will continue to deliver high-quality produce at incredible value for money, while supporting the management of the countryside in a sustainable way.

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