Radical strategies

3 July 1999

Radical strategies

Activists in white hoods, pulling up Monsantos GM beet, stole the major news headlines at Cereals 99. But they didnt hijack the essence of this top arable event. New thinking, new products, new crops, new technology and new machinery won the day. Radical times require radical action – catch up with the best of the ideas right here.

DOING nothing is not an option. The painful picture of arable farming requires radical action, urges Andersons senior business consultant Francis Mordaunt. He suggests three areas to increase profitability:

&#8226 Altering rotations to increase margins

&#8226 Reducing labour and machinery costs

&#8226 Reducing rent and interest costs

"A 50:50 rotation of wheat and set-aside is an attractive option to fit in with Agenda 2000, especially for those who could benefit from working less land," says Mr Mordaunt. But this route is unlikely to lift margins by more than £50/ha.

Savings in rent and interest costs are possible, especially for those prepared to admit that land taken on recently may be overpriced. "Are you sure you can justify £120/acre for a farm business tenancy?

"Giving up land, either rented or owned can be a very effective way of reducing overheads – especially if machinery and labour are a little over-stretched," advises Mr Mordaunt.

"Labour and machinery costs present the biggest opportunities to lower costs and raise profits," Mr Mordaunt maintains. "Be prepared to embrace radical solutions – but do some very careful planning. Whole business appraisals, taking into account personal objectives and skills as well as farm location and soil type can help secure future profitability," he states.

Tweak your tackle

How long do you spend getting a crop established? This question is the key to driving down costs, believes ADAS adviser John Bailey. "Many smaller farmers on a plough-based system are spending between 170 and 220 min/ha getting their crop established. This equates to £100/ha or a third of all machinery and labour costs. If you want to maintain profitability, the time spent must be reduced," he insists.

Try to cut down the number of passes during establishment: "Two passes on light land should be sufficient with no more than four for heavy land farmers."

First step is to combine specific operations. Using a plough and press or furrow cracker helps, and a combination drill can reduce establishment time by as much as 25%, maintains Mr Bailey.

Minimum cultivation systems are an excellent way of cutting costs when managed well, but he warns that costs can spiral upwards if they are not planned properly. If youre turning more than 500ha (1,250 acres), its worth investing in a set of discs. A discing system can slash establishment time to just 65min/ha, while direct drilling can shave it further, to a mere 20-40min/ha.

Tips on adding value

EFFICIENT farmers have gone as far as they can in their battle over costs; the only way to increase margins now is to add value, says Deloitte & Touches Mark Hill. He warns of producing a commodity crop in a market that is dominated by the US wheat barons: "This is not a war we will win."

He says head for premium markets; such as milling, malting, seed and even organic. "The enticement is there: premiums start at £20-30/t at present." Indeed their company survey reveals that nearly half their customers are moving to premium markets.

Before embarking on such value added markets, consider:

&#8226 Soil type – is it suitable for the premium crop you have in mind?

&#8226 Rotation – how do the premium crops fit into your rotation, and what is the net return over the whole rotation?

&#8226 Storage – extremely important in these days of farm assurance and traceability and to segregate varieties.

&#8226 Impact on yield – premium varieties yield almost as well as feed nowadays, but there can still be a difference. Better management of the crop is also vital to get the required quality.

&#8226 Location – how far must the produce be hauled and will haulage costs wipe out your margin? Also, are there any good local niche markets worth exploring?

&#8226 Impact on cashflow – if going into organic farming, for example, there is the required two-year lead in time. What is the net effect on your cashflow, and can you afford it?

&#8226 Long-term risk – is this something you should be doing right now? Can you afford to take the risk or is it time to hand down the reins to the next generation or to someone else?

Focus on fixed costs

IT is time for some serious restructuring, according to Smiths Gore consultant Douglas Ogilvie. "Ask what are you looking to achieve out of your business? Are there any elements that are under-performing that could do with a serious shake-up?"

One option is contract farming, which can seriously reduce labour and machinery costs. It is mutually beneficial to both parties: the grower can reduce his costs, free up capital and concentrate on other things, while the contractor can spread fixed costs over a larger area. Mr Ogilvie advises this route if you want to concentrate on one enterprise: "If your interests lie with the dairy side, you could contract out the arable, for example. Contract farming can be used to get rid of bad apple enterprises, too."

Less radical, would be to look at individual overheads. "Shop around for your insurance. We have cut costs by over 50% for some of our clients," Mr Ogilvie claims. Splitting cover between two insurers could also have advantages: one insurer can provide lower cost machinery cover, with another offering better rates for property.

Restructuring your borrowing can have remarkable savings. Farmers are currently carrying high debts on overdrafts, he claims, and could benefit from lower rates by switching some of their borrowing into longer term loans. "Get to know the other costs of borrowing as well: arrangement fees and other routine charges can be reduced," advises Mr Ogilivie.

Selling some assets could also be an effective way to reduce borrowing; cottages and non-arable land, for example. It can be worth selectively selling such assets in order to clear debt and save the on-going interest charges. "Be careful not to strip the business of assets, though," he warns.

Val Wallbank, of accountants Grant Thornton, warns about the tax implications of restructuring: "Look out for capital gains tax when selling major farm assets. There are many ways to avoid paying some, or even all of this tax though. Planning and good advice is the key."

Velcourts vision

WITH returns down by about £40/ha (£16/acre), James Townshend of the Velcourt farm management company must take drastic action to restore margins. But he has a plan – a cunning plan – called System 2000, devised by the companys technical director Keith Norman.

System 2000 is a crop production programme that harnesses the best in new technology to boost profitability. Instead of cutting back on inputs, Mr Norman is prepared to spend more on some – because hes convinced there will be a worthwhile payback at harvest.

The idea is to keep spray passes to a minimum but without compromising on plant potential – so hes focusing on seed treatments. These are coupled with a new pre-em herbicide thats simply sprayed onto the soil surface. Heres the detail of System 2000:

&#8226 Seed treatment fluquinconazole, now in the PSD approvals pipeline, wins Mr Normans vote for its activity against take-all coupled with useful early foliar disease control. "Second and third wheats will feature more following the Agenda 2000 reforms, so we need take-all control. But weve found the early disease control is good enough to take wheat through until about first node – even in a wet spring."

&#8226 Imidacloprid seed treatment protects against BYDV; this product is already on sale as Sibutol Secur. This has knock-on environmental benefits because it takes away the need for autumn insecticides.

&#8226 New molecule JV485, a pre-emergence grass weed herbicide, tackles all blackgrass and broad-leaved weeds.

After the crop is drilled and the pre-em has gone on, then you could close the gate until its time for growth regulators and a strob-based fungicide programme, says Mr Norman. He has a plea for manufacturers. "We cant put a cost on this system until prices are announced – but they have to be realistic."

Ian Price, crop protection specialist with Cargill, has some reservations about System 2000. "It looks simple here – but would it work out as easy in practice?" However, there was wholehearted enthu- siasm from a random sample of Velcourt farm managers at the event: "Once you start putting next years prices into the budget, you just cant make money at current levels of input. New technology has to be the answer."

A top up from Brussels

BRUSSELS will be giving you a small top up on your IACS cheque, according to Frances Mordaunt. This is part of the new agrimoney compensatory system set up following the introduction of the single currency. To compensate UK farmers for the strong pound and weak euro, they will receive about £30/ha in their payment this year.

Two further tranches are due in 2000 and 2001 of two thirds (£20/ha) and one third (£10/ha) respectively, but since half of the further payments are at the discretion of UK government, budget for £10/ha and £5/ha. The top-ups go to whoever makes the initial application, irrespective of what subsequently happens to the land.

Oilseeds boost

T HE Spanish could be Europes unwitting heroes. Severe drought this spring has led them to apply for a very large area destined for sunflowers to go into set-aside. The countrys planned oilseeds area would have triggered the predicted oilseeds base area overshoot. So, has a sufficiently large area been left unplanted? We wont know for sure until January, but predictions may or may not be confirmed as this year progresses, so watch this space…

How the costs might stack up

Budget 99 System 2000

Seed + treatments £30-45/ha more….but how much?

Fertilisers same same

Herbicides £35-50/ha less

Fungicides £65-85/ha less (2 sprays)

Insecticides £6-16/ha less – no BYDV control

PGRs same same

Total inputs £219-294/ha less than £290/ha

Source: Velcourt

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