In these current economic times of high inflation and increased uncertainty around the squeeze on household incomes – imagine if your business is involved in the farming industry. Where the business focus is in food production, food prices are not just something that you need to deal with at home, but also on a day-to-day basis.
The government has announced its food strategy with the help of the “Dimbleby Review”. In a recent article in the publication ‘Farmer & Grower’ by the NFU, there are certainly positives to the food strategy, but also some areas for farmers to watch.
Highlighting a positive from this article is food resilience and security which the strategy is recognising as successful domestic food production to protect us from global events such as the grain being held in Ukraine. If the UK was heavily reliant on imports of grain, then this would have a far greater impact to the food production, whereas imports currently only amount to 15% of the UKs requirements.
The strategy says that the capacity in agriculture needs to be maintained. For farmers to continue, they need to look at ways they can protect themselves from the inherent factors such as the weather or rising inputs. These factors threaten their ability to produce a good quality yield and return the level of profit needed which can be very challenging. One method of protecting themselves from this is to consider diversification in order to spread the risk and impact that these factors are having on the business.
Diversification would depend on the business having the working capital in order to so, however at the outset – the level of investment may only need to be small in order for the farm to understand whether there is a future and worth pursuing further. Drawing up a business forecast would allow the farmer to understand what the additional revenue stream may contribute to the business to answer some of these questions.
The areas to watch in the food strategy refers to the Agricultural Transition Plan which is aimed at the government trying to reduce and then stop untargeted direct payments going to land owners that are not farming the land.
By freeing up money, the government is looking to support agriculture in different ways. Farmers will receive funds for improving the environment, making improvements to animal health and welfare and also for reducing carbon emissions. Whilst this may be of financial benefit to the farmer, if land is being taken out of food production in order to enter into elements of the environmental land management schemes, this will have a negative impact to the capacity in agriculture that needs to be maintained for the food strategy to be successful.
Farmers will need to review the schemes available to them and decide which grants are achievable when the criteria is met. Compare this to the reduction in potential yields to determine whether this form of diversification is viable for the business to make the change. This increase in working capital can then be reinvested and help the business to become more successful in core farming activities, for example in newer, more efficient machinery.
For the government to achieve the food strategy it needs farmers to remain in business and maintain food production. Farmers need to remain vigilant to the factors that are out of their control whilst monitoring the performance of the business in order to act quickly to maintain profitability.
We have extensive experience in preparing agricultural accounts and advising farming businesses. If you would like to chat with us, please call and speak to Craig Weavers.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.