Opinion: Capital is vanity, income is sanity, cashflow is king
© Adobe Stock Does farming make money? This is a question my mates ask me, and it’s frustratingly tricky to answer.
As someone born on a dairy in the year the Milk Marketing Board disappeared, I grew up with the woeful lament of “farming just doesn’t make money” ringing in my ears.
Of course, using the catch-all word “farming” isn’t helpful – profitability depends on what, where and how you’re farming.
See also: Opinion – why ‘versus’ is an overused word in farming
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Agricultural businesses have complex balance sheets with overheads and enterprises balancing out and subbing in.
But Jeremy Clarkson (no matter whether you like him or not) has pushed the post-Brexit farming profitability question into the public consciousness, and Baroness Batters will be providing her answer next month.
Obviously, we have to get the economics of farming right if we want a thriving rural sector.
Food sold below the cost of production
But food is still sold for below the cost of production, value is sucked out of the supply chain, we’re very good at not fully accounting for costs (farming partners/spouses – I see your free labour).
And we are only just starting to work out how we value and sell all the other essential ecosystem services (carbon, biodiversity, flood mitigation benefits etc) that land managers can provide.
UK farming undervalues itself in all kinds of ways, and we need to fix this.
Land management is the one sector where we can try to prove that restoring the planet should stack up financially.
The problem is often the lack of revenue.
They say “revenue is vanity and profit is sanity”, but in farming all income is sanity and it’s the (sometimes overinflated) capital that is our vanity.
You can’t run a business on capital alone. Cashflow is king.
Considering the average UK farm relied on the Basic Payment Scheme (BPS) for half of its income pre-Brexit, government support is obviously critical.
The transition from BPS to the Environmental Land Management scheme has been a roller coaster, but as we don’t yet have private markets that pay the full price for the services farmers can provide, government paying for the delivery of public goods makes sense for both farming and society.
Pretty much all of our farm in Surrey is within Countryside Stewardship or the Sustainable Farming Incentive.
We’re doing exciting, ambitious habitat restoration, as agreed with the government.
Rural Payments Agency fails to deliver
Unfortunately, this ambition is undermined when the Rural Payments Agency fails to deliver.
We’re currently waiting on months-late payments and spending hours on the phone. This delayed cashflow does not make running a business easy.
When a Defra funding announcement pings in my inbox, I feel warm and fuzzy that government wants to support better land management.
But recently I’ve been feeling disappointed because every new announcement is for capital funding.
The Big Chalk pot, Access Funds, Farming in Protected Landscapes funding. All great stuff, but farmers don’t just need stuff. We need income.
We need ongoing sources of revenue for delivering ongoing benefit, rather than just one-off payments.
Capital is short-sighted funding, and risks treating farms like projects.
The benefits we create don’t stop once the pond/hedge/woodland has been created.
I worry farming is starting to feel like fundraising. Grant here, opportunity there.
By the time we’ve gathered multiple quotes and pulled together a proposal, the funding pot has often run out.
Dear government, please don’t forget that when it comes to farming, capital is vanity, income is sanity and cashflow is king.