Survey predicts arable profit struggle

By Robert Harris

MOST arable farms will struggle to make a profit up to the millennium and beyond, according to recent figures released by Aubourn Farming.

The Lincolnshire-based firms Benchmark survey of about 60 farms shows average net profit will halve this year to just £50/ha, and will struggle to double by 2000. But poorer performers – those in the bottom 25% – will make losses of £125/ha plus.

“Gross margins have now declined to pre CAP reform levels of about £230/acre,” says economist Angus Bell. “However, fixed costs – especially labour and power – have risen sharply.” The average farm spends £504/ha (£204/acre) on fixed costs before rent and finance, £125-150/ha (£50-60/acre) higher than before CAP reform.

Applying Agenda 2000 reform proposals shows a moderate improvement, assuming the Pound continues to weaken to the Euro equivalent of DM2.60. “However, net profits for the average and bottom 25% of farms will remain at unsustainable levels unless fixed cost structures are addressed,” Mr Bell warns.

Tractor and combine costs can be cut dramatically, he says. “If you cant match competitive rates for each operation, should you be doing the job yourself?” The survey shows average annual tractor use amounts to just 700 hours, and combines just 276 hours. “Can you afford to own a combine at all?”

Hiring, contracting or sharing could mean big savings. “Labour and machinery sharing are an ideal way of joining forces to reduce costs,” he says. Typical savings of £100-150/ha are possible. “Newer, more efficient machinery can be justified allowing more timely operations at lower costs.”

Contracting out releases capital and enables some or all operations to be delegated for a fixed fee of £200-250/ha, halving some farms costs, he adds.

Opportunities abound for contract farming to spread fixed costs, he adds. “But can the additional area be absorbed without jeopardising management and timeliness on the home farm?”