A more profitable year for farming lies ahead, as long as the current weakness of the pound against the euro prevails, a new industry report suggests.
The UK’s combined total farming income is predicted to grow by 15 per cent, which will herald a return to the sort of buoyancy that has not been enjoyed by the industry for two years ago.
Most market prices were given a “Brexit boost” halfway through the year because of the weakness of the Sterling in the aftermath of the European Union referendum, the report by farm business consultants Andersons explains.
A falling pound boosts exports of British farm produce because it becomes cheaper for foreign customers to buy. Sterling’s plunge also means that direct European support payments to farmers, which began being paid on December 1, are worth 16 per cent more than last year.
An upturn in fortunes is forecast in the next 12 months following a year in which Total Income from Farming (TIFF) fell to its lowest in real terms since 2007. Government estimates show the aggregate profit measure for the farming industry was £3.77bn in 2015.
Andersons’ ‘Outlook’ report states: “It is estimated that TIFF in 2017 will rise by a further 15 per cent compared to 2016, bringing it up to £4.9bn. This returns it back into the range seen during the good years of 2011-14.
“All this is highly dependent on currency however; it assumes that the key pound/euro rate remains at around today’s level. Any strengthening of Sterling would have a detrimental effect on farm incomes.”
The report also highlights that the pound’s decline inflates the price of goods imported into the UK, making those products more expensive - a consequence which could “take the edge off any uplift in profits” in the year ahead.
Andersons advises farmers to use the current period of better profits to prepare for the future and ensure their future business strategies are “bullet proof” to weather any future downturn.
Farmers are advised to reduce debt in the times of relatively strong output prices and to take great care over investment decisions to make sure that they contribute to future profitability.
Adam Bedford, regional director of the National Farmers’ Union for Yorkshire and the North East, said: “The report from Andersons provides timely food for thought as farm businesses look to the challenges and opportunities ahead.
“There will likely be a period of reflection on the political and economic events of 2016 and how this will affect plans for 2017, and a projected growth in total income from farming is very welcome after a number of tough years for the industry.
“As we have seen in 2016, political and economic events are intrinsically linked and 2017 could again prove uncertain as we move to the triggering of Article 50 and the negotiations of the UK exit from the EU.”
While Andersons’ immediate outlook is rosy, the prospect of Brexit ahead means there are “significant clouds on the horizon” in the longer term.
Richard King, the consultancy’s head of business research, said: “By 2018, the prospects for the industry may well be deteriorating.”
Inflation, stimulated by the weak pound, is forecast to feed into farm costs through 2017 and continue into 2018 when there may also emerge some cyclical weaknesses in markets. The report offers a “tentative” prediction that TIFF will fall in 2018.