Why farming can fail…This seems quite harsh – to single farming out as a specific industry burdened by failure. It is important to note that farmers in the UK deserve huge credit for succeeding.
However, the reason the UK farming industry deserves such credit is because it is a very difficult industry to thrive in. Plus, many farmers in the UK simply cannot make a financially secure business model.
The volume of legislation, changes to operating structures and guidelines which farmers contend with, almost on a daily basis, are nothing short of onerous. It requires management which is very focused on the business benefits to reap rewards or even maintain a profit.
Agriculture is an industry massively affected by global demand for food and is competing against a worldwide body of producers. They are often operating with lower overheads, favourable weather conditions and able to deliver produce for much lower prices than UK farmers can.
The UK’s unpredictable weather can blight progress for farmers with one poor summer making crops perform badly. This then causes a knock-on effect as feed has to be brought in to supplement poor silage, hay and straw yields.
There is a double blow from poor harvest conditions, smaller crop yields command higher prices, making them even less competitive. Additionally, supermarkets largely control food prices and the impact of this is widely reported. Many of the big supermarkets have no pledge to buy from British farmers sourcing the majority of their produce from overseas. This is forcing UK farmers to accept exceptionally low prices for their produce.
Meat is hugely uncompetitive and the BBC last year reported prices for UK lamb are now so low that farmers in Wales joined a crisis summit to try and find a way forward. With supermarkets stocking uncompetitively cheap New Zealand lamb and the export of UK lamb not economically viable, the problems are clear to see.
Diversification has been embraced by the most savvy farmers, but even the holiday home and bed and breakfast route does not make up for the shortfall in many businesses. This is because the UK weather creates a very seasonal business which has to compete with cheap foreign holidays. Not to mention many farms simply do not have this option unless they have suitable empty properties and the capital to seek appropriate change of use, planning permissions and building costs.
Aiming to produce high quality produce for local markets is commendable and another form of diversification undertaken by many farmers. But breaking into those markets with the kind of volumes which will deliver a profitable return is incredibly difficult and very time consuming.
The milk crisis needs little introduction, but it is worth noting farmers who have most of their investment into dairy herds are producing milk at a higher cost than they can sell it for. As a result, this one development has reduced the viability of dairy for UK producers.
And none of these factors include the devastation wrought by an outbreak of disease such as Foot and Mouth. A disease which decimated many UK farms in a short space of time.
Farming is an industry which has heavy overheads, with animal feed, wages, chemicals, utilities, vet bills, plant and equipment amounting to significant outgoings all needing to be balanced against any profitability.
Among the hardest hit are tenant farmers, where the cost of renting the property and land also has to be taken into consideration, alongside such slight profit margins.
So the situation for UK farmers is generally difficult from virtually every angle. With meat, dairy and arable markets so low, weather playing a crucial part and a vast amount of environmental considerations to contend with, farmers can occasionally get caught in a ‘perfect storm’ where several financial factors combine to cause huge problems for the business.
Not surprisingly, farming in the UK is in a state of decline, with the number of dairy farms halving in the last ten years. So with no short-term fix on the horizon, farmers need to be ever more diligent to avoid the potential for the business to fall into administration or even face bankruptcy.
What can be done? Well farming, although it involves livestock and tilling the land, is still a business just like any other. As a result, it needs viewing as a business first and foremost.
Farmers have suppliers, customers, creditors, debtors, cash-flow, assets, overheads, turnover and profit; balancing cash-flow is key to managing difficult trading conditions.
When things get so bad that you cannot pay the bills, cannot settle up with suppliers and have the bailiffs at the door, then it may well be too late to do anything. Those who are feeling the strain and have the foresight to seek professional assistance can recover the situation before it goes too far.
These points are just scraping the surface of what can adversely affect farming, but companies which are prepared will manage their circumstances and survive. Wilson Field can advise on the best way to manage the complexities of farming to keep your business afloat. This can give you a chance to work through the difficult times.
Don’t get caught out by the perfect storm – speak to us for guidance and keep Britain farming!