‘Use current calm period to prepare for Brexit’
While farm profitability in 2017 might have bounced back from the lows seen in 2016, farm businesses should use the returns from this “period of calm” to make the necessary changes to their operations to set themselves up for the next decade.
Farmers were advised to make the most of this short period before the full impact of Brexit was felt in the preface to the annual Outlook publication produced by farm consultants Andersons.
And although the returns for some sectors might have picked up by as much as a third over the past year, the group said this had been from a very low figure in 2016. Director Richard King said that while the improvement was partly due to greater productivity and a better supply and demand balance in the milk and pig sectors, the majority of the increase in farm incomes was actually down to the continued weakness of sterling since the Brexit vote.
Stating that profitability was likely to slide again in 2018 he said that beyond that the “Brexit factor” came into play, making predictions difficult.
He said that farm profitability would be dependent upon future trading agreements, labour availability, the regulatory system adopted and support measures introduced for the industry.
He added: “Forecasts on how this might affect returns in UK agriculture are, at present, highly speculative.”
However, he said that on the support side, it was clear future policy would be significantly different from under the Common Agricultural Policy (CAP).
“Whilst this may seem a significant threat to UK farming profits, what is evident is that ‘income support’ has in many cases held back productivity and simply increased farmers’ cost of production.
“This conversion of subsidy into increased costs needs no better illustration than the unrealistically high short-term rents that some UK farmers are prepared to pay for the right to farm land.”
He said in his organisation’s experience there were opportunities for improvements in productivity and reductions in the costs of production across all sectors of the industry.
However, he made it plain that farmers should act now as there was no need to wait until the effects of Brexit began to bite to start this process.
He said: “Undertaking such changes now in a measured and considered manner can both boost profits in the short-term and set a business up to be resilient into the future.
“It is easy for the industry to become focused on external events over which it has little or no control. In fact, the biggest determinant of business profitability is how the business itself is set up and operated.”