Brown’s Farm model reveals recommendations to future-proof East Anglian farms
- Credit: Mike Page
A hypothetical East Anglian model farm has been used to highlight the potential implications of a loss of direct payment subsidies after Brexit.
While the government has guaranteed farm payments until 2019, the level of future financial support – and whether it becomes dependent on environmental or other criteria – depends on the post-EU farm policy which must be devised under the next parliament.
This financial uncertainty is reflected at Brown's Farm, a budgeting model conceived by rural business consultants at Brown and Co, based on a typical Eastern Counties unit growing a mix of combinable crops and sugar beet.
It is described as a well-managed family farming partnership with 420ha of land (260ha owned, and 160ha on a Farm Business Tenancy) and reasonably strong yields, with wheat at 9.25 tonnes per hectare. However, it carries some high costs for rent, finance, power and labour compared to similar businesses which, coupled with exposure to fluctuating commodity markets, has been reflected in its recent financial performance.
Business profits have fallen from £50,500 in 2014 to £6,300 in 2016, and in the year ending April 2016, the Basic Payment Scheme (BPS) accounted for 14pc of turnover and 22pc of gross profit.
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Andrew Fundell, an agri-business consultant at Brown and Co's Norwich office, said the profit of £6,300 would have become a loss of almost £66,500 without BPS monies.
He said: 'It is entirely possible that direct subsidy payments will reduce from 2019, so investigating ways of farming without reliance on current levels of support or identifying ways to replace that income is of paramount importance.
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'Change may seem daunting, but farmers who identify the key opportunities and threats to a business and act accordingly will be well placed.'
Brown & Co has introduced a new service to help individual farmers and agricultural businesses prepare for the future in what is already a turbulent agricultural market.
Fit for the Future is a 'broad-brush strategic review' of a farm's physical and financial assets and performance, including the contribution of single payment receipts to profit.
Mr Fundell said the assessment will identify opportunities which could improve and protect the business, and recommend immediate actions and longer-term strategies.
'At the least such access will help confirm or challenge ideas that a farmer may already be considering,' he added. 'It is also very likely to open up avenues that may currently be off the radar, helping farm business take full advantage of the opportunities that all change brings.'
RECOMMENDATIONS FOR BROWN'S FARM
As well as its declining profits, total borrowings at the hypothetical Brown's Farm have increased by more than £76,000 since 2014 to about £1.1m, often due to drawings exceeding profit and machinery investment.
The business faces another challenge in the form of family succession. Farm manager Mr Brown wishes to retire within five years and hand the business over to his son.
Brown and Co's 'Fit for the Future' recommendations for the farm would include:
• Review current structure of finance arrangements. Place some debt on a fixed-rate basis.
• Assess marketing potential of off-lying land with the view to reducing borrowings.
• Review rent levels and act accordingly.
• Review machinery structure and costs, disposing of redundant farm machinery.
• Consider possibilities for machinery sharing, including joint ventures.
• Assess planning and development opportunities.
• Firm up timescale for succession. Involve son in strategic and management decisions.
• Consider options for replacing employee when retirement comes in four years.
• Consider environmental scheme opportunities.