Stronger farm profits predicted next year but more clouds on the horizon, says Andersons Outlook 2017 report
- Credit: Copyright: Archant 2016
Farmers must make the most of improved profitability during the next 12 months, to equip themselves for the uncertainties which could follow.
That is one of the key conclusions of the Outlook 2017 report published by farm business consultants Andersons, which predicts a recovery in farming profits next year after a gloomy period of depressed prices.
Last week, Defra published revised estimates which showed the UK's Total Income from Farming (TIFF) fell by 24pc between 2014 and 2015, to £4.009bn.
But Andersons estimates the figure for 2016 will rise to around £4.3bn, as most market prices received a 'Brexit boost' halfway through the year from the weakening of sterling, which also helped increase the value of the Basic Payment Scheme subsidy, which is calculated in Euros.
The Outlook report forecasts a further 15pc rise in 2017, bringing TIFF 'back into the range seen during the good years of 2011-2014' – although this would depend on currency rates remaining close to today's levels, as any strengthening of sterling would have a detrimental effect on farm incomes.
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However, Richard King, one of the contributors to the report, said the prospects for the industry may well be deteriorating by 2018.
'The coming year looks set to be a reasonable one in many sectors of farming,' he said. 'But there are significant clouds on the horizon. Farm businesses should use this period of better returns to set themselves up for the more difficult times ahead.
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'The decline in the pound is in?ationary — so the many goods that the UK imports become more expensive. This will start to feed into farm costs through 2017 and perhaps take the edge off any uplift in profits. The process is likely to continue into 2018 – by then we may also see some cyclical weakening in markets. Therefore, a very tentative forecast for 2018 suggests that TIFF will reduce compared to 2017.
'Beyond 2018 we start to enter the realm of Brexit. Forecasts on how this might affect UK agriculture are, at present, highly speculative. Much will depend on the future trading relationships with Europe and the rest of the world. At the moment, even the government does not seem to have a clear idea of what they might be.'
The report says the departure of the UK from the EU's Common Agricultural Policy (CAP) offers an opportunity to design a 'bold and imaginative' farming policy for Britain. But Mr King said the money made available by the government for this new independent policy was likely to be lower than the sum currently distributed via the CAP – which would present a challenge for businesses which rely on subsidy support for profitability.
He said: 'Farming businesses need to use the current period of better profits to prepare for the future. They should ensure the future business strategy is 'bullet-proof' to weather any future downturn. This includes reducing debt in times of strong output prices and taking greater care over investment decisions to ensure that the are productive, worthwhile, and genuinely contribute to improved future profitability.'
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