Buying quota could be best alternative
MILK producers planning on leasing quota this season would do well to cost out the buying option as well, advises Ian Wilcock, finance manager with property consultants Bruton Knowles.
"Faced with lower milk prices, continued strength in the leasing market, and the fact quotas should be here until at least 2008, purchasing could be the better alternative," he says.
There should be up to 700m litres coming to market this year, and producers have a range of finance possibilities including retained profit, cash assets, sale of assets and borrowed money.
"With this in mind, it is important to consider which source of funding will provide the best return," says Mr Wilcock. "For instance, it may be worth selling land to buy quota if production can be intensified, as this means exchanging a low returning asset for a high yielding one."
Some of the best deals are to be found with borrowed money, he adds, pointing to interest rates at 30-year lows (see table). Long-term finance also allows a farmer to stabilise outgoings, reducing exposure to lease market fluctuations.
"But quota buyers should factor-in the tax implications. Leasing costs can be set against tax, whereas purchased quota only attracts tax relief on the interest element of the loan repayment."
Writing-off the cost of buying quota may also have a greater impact on a farms profitability than leasing over the same period, Mr Wilcock adds.
Real cost of quota purchase (p/litre)
Purchase 5 yrs @ 7 yrs @ 10 yrs @
price 7.25% 7.3% 7.3%
30 7.21 5.51 4.25
33 7.93 6.06 4.68
36 8.65 6.61 5.10
• GROWERS of fibre flax have until June 30 to return their cultivation declarations to the Intervention Board, if they are to qualify for area aid which last year paid up to £535/ha (£217/acre). Forms are available from the Intervention Board in Reading.
• EUROPEAN agriculture ministers have fixed set-aside at 10% for the 1999/2000 season as part of this years farm price package.
As expected, the deal struck in Luxembourg this week confirms the rate already agreed under Agenda 2000.
Most go for value
BRITISH farmers are missing out on the potential to grow organic livestock feed crops, according to Alastair Leake, organic project manager for CWS Farms.
"Organic feed wheat is trading at the same price premium as organic milling wheat. There is a powerful message there for UK farmers," Mr Leake told a seminar at Cereals 99 at Vyne Farm, near Royston, Herts, this week.
More than 80% of farms now in conversion to organic production are livestock units, he said. That is creating large-scale demand for organic feed from newly converted farms which may suck in imports particularly from Australia, Argentina, Canada and Denmark.
He also predicted particularly strong demand for peas and beans which face tough weed, pest and disease challenges under organic systems.