The latest farm business income figures released by the government this month will make grim reading for many. Forecasting a decline in farm profitability almost across the board, the figures highlight the significant impact of increased market volatility.
Looking back at 2014, it was characterised by extreme price volatility experienced by many agricultural sectors. The impact of crashing farmgate prices on the dairy sector has been well documented, with 60 Yorkshire dairy farmers going out of business in the last year alone. However the problem is not unique to the sector, with the price received for pig meat, wheat, potatoes and oilseeds also significantly down. The strength of the pound against the euro has only served to compound the problem.
So the question everyone is asking is how farmers can ‘future-proof’ their businesses against what for many is a terrifying roller-coaster ride.
This is a very real challenge because if the farming industry is to continue contributing ever more to the UK economy, the future has to be about more than just surviving; farmers need to be able to invest for the long term.
The drive to develop modern, profitable businesses saw dairy farmers push ahead with on-farm investment on the back of better prices just a few short months ago. Now those same businesses face severe cash flow problems with no indication of when things might improve. An arable farmer I spoke to recently admitted he was just two bad harvests away from bankruptcy.
So, what’s to be done? In the short term, the NFU has contacted all the major banks, asking them to do everything possible to support struggling businesses through the dip. The response was supportive, so certainly we would advise anyone with a problem to work closely with their bank.
The tendency in a situation like this is to focus on the immediate problem. But having worked in the banking sector for several years, I know how important it is to take a longer term view, be realistic about timescales and establish a budget that is achievable.
Looking further ahead the NFU is calling on the government to introduce fiscal measures to help farmers manage the risk they face in such volatile markets - including setting a long-term substantial level for the Annual Investment Allowance.
In the budget, the Chancellor doubled the Allowance to £500,000 – but this only covered investments made up to 2016. Broader incentives for capital infrastructure investment were sadly lacking and this is especially frustrating as very few farming businesses can benefit from continued reductions in corporation tax.
Ahead of the general election, we’re asking the government to introduce a farm infrastructure allowance for building modern, environmental and welfare enhanced farm buildings, to enable farmers to plan over a longer period for the investments they need to make in their business.
We would also like to see farmers be able to use profit averaging to counter volatility. Currently farms can use this to help smooth out peaks and troughs over a two to three year period but we’d like to see this extended over five years at least.
There are other tools used in some sectors – use of the futures market in the cereals sector for example – and these are being explored for wider application.
Samantha Davies is a county adviser for the National Farmers’ Union.