Steve Rudd of Larking Gowen: I can see signs of optimism in the Agriculture sector
- Credit: Ian Burt
Steve Rudd, Larking Gowen partner for Farms and Landed Estates, finds a sector that never fails in its entrepreneurial drive.
There is no getting away from the importance of the agricultural sector to the East Anglian economy. The productive farmland that makes up our countryside not only supports families directly involved in farming, but also all the businesses that support the sector, from direct crop inputs, hauliers, machinery suppliers, engineers and advisory services, to name a few.
From the farmer's perspective, the 2017 harvest was something of an improvement over 2016, although the stop-start approach that had to be taken as a result of the weather made the 2017 harvest something of a long drawn out affair on some farms.
The weather as ever features prominently with those in the south of East Anglia still desperate for more rain and those in the north, having had a relatively easy autumn for lifting sugar beet and establishing winter drilled crops. With generally better yields (although there was some knock-back on cereals from the rain and wind at the end of June), and better prices, perhaps there's a little more optimism around than we have seen for the past couple of years.
Arable returns are the right side of the cost of production, with sugar beet being the star performer for the year.
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On the livestock side, prices generally rose through 2017, although they have tailed off over the past few months, but at least finishing the year on a par or higher than where they were 12 months ago. Milk prices have risen steadily over the year, but even with a 30pc increase these haven't hit the levels of 2013-14.
Most sectors seem to have come off reasonably well in 2017 although potato and vegetable growers may think otherwise.
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The weak pound continues to aid the sector in both crop prices and basic farm payment, but makes imported goods including machinery and inputs ever more expensive. Agri-inflation has been running higher than general inflation which is certainly another challenge for our farming businesses.
We have seen one small interest rate rise, with more likely to come and there has been quite a bit of investment in infrastructure and machinery while money is fairly cheap. Managing this risk with an increasing finance cost without strong cash flows will become ever more important, which is perhaps something farmers haven't had to worry about for a few years.
Land prices are still very much driven by local supply and demand, but there has certainly been a softening of the market during 2017, perhaps driven by uncertainty post-Brexit and a couple of pretty poor farming years.
Diversification is always on the agenda, but never more so than during 2017 as farmers look to generate more income from the resources to hand. Always easier for landowners than tenant farmers, but whether coming from conversion of buildings for residential, tourism or commercial use or renewable energy projects, the sector never fails in its entrepreneurial drive.
With high machinery prices and tight gross margins, I have also seen an increase in the number of farms looking to join forces, whether this is on a single piece of machinery, such as a harvesting syndicate, or on a whole scale joint venture arrangement helping to spread capital and costs across a bigger acreage.
I have had discussions with clients over the past 12 months regarding the future of subsidy payments and the impact on businesses. Mr Gove's plans for an 'easier' countryside stewardship scheme must be welcomed to help farmers care for our environment rather than getting stuck in red tape.
I cannot see that we are any further forward in understanding what the playing field will look like post-2019 but, whatever the outcome, those with well-planned and resourced businesses will prevail.
Sensible and targeted investment while interest rates remain low should give the opportunity to prepare businesses to enter the post-European market place as robust and well prepared as is possible.