The Andersons Outlook publication is widely read by industry pundits, and the 2019 publication offers a valuable insight into farm profitability prospects for the coming year, which it describes as a “watershed” period for UK agriculture. Wendy Short provides an overview of the report, with comments from head of business research, Richard King.
“THERE are many uncertainties over Brexit, but we do know that the current Basic Payment Scheme format is to be phased out by 2028,” says Richard King. “Therefore, there are huge changes ahead for farmers.
“In the face of an unpredictable future, I would urge farmers to reflect on their business models and identify any areas where profitability might be improved. There are many variable factors associated with the running of a farm, including the weather, the market, government policy and currency issues.
“Most of these are out of the farmer’s control, but he or she does have control of their own business, so steps should be taken to make sure that it is being run as efficiently and as effectively as possible.”
Beef Sector
SINCE the early 1970s, beef consumption per head has fallen in the UK.
However, the increase in the human population has contributed towards an overall increase in the overall volume of beef consumed.
The UK remains reliant on imports, especially from Ireland, in order to meet demand. In the long term, the main competition for the UK beef industry is likely to come from Brazil and Argentina and plans to develop a hormone-free beef rearing system would increase the competition for domestic production.
The prospect of laboratory-produced beef might also threaten conventional rearing and finishing enterprises of the future.
Another influence on the market for beef is the growing lobby to reduce greenhouse gas emissions, with the beef sector cited as one of the contributors to this environmental concern. Nevertheless, UK beef producers could respond by adjusting management systems and producing environmental audits on their farms; this could attract a potential price premium for their meat.
Sheep Sector
MORE than 30 per cent of UK sheep meat production is exported, with the majority of transactions made within Europe, the report notes.
Whatever the outcome of Brexit, producers with the lowest costs of production and a high reliance on grazed grass looked set to survive what is predicted to be a difficult trading scenario for the next few years.
Other measures that producers could take to improve performance include a focus on genetic selection for superior production traits and the rigorous culling of under-performing sheep.
Business profitability analyses had shown that many sheep producers were unable to return a profit without the provision of farm income support. The phasing out of support funding could lead to a reduction in the size of the UK flock, according to Andersons experts.
Combinable Crops
HIGH fertiliser and fuel prices are expected to dominate growers’ thoughts for the coming harvest, according to the report.
These factors highlighted the risk associated with “high input high output” ‘ strategies, which had fallen foul of the weather in recent years.
A study of the Farm Business Survey results indicated that the average spend on fertiliser and chemical inputs had increased by £79/ha and £90/ha respectively over the past nine years.
Assuming a wheat price of £150/tonne, this equated to an additional 1.1 tonnes/ha of yield required, in order to stand still in financial terms.
The rising scale of the average arable unit had brought with it a lack of attention to detail in some cases, with the rising workload promoting a “blanket approach” to crop production.
This had in some cases prevented the targeting of inputs, a system which offered potential savings.
“The variations can be significant,” noted the report.
“Neighbouring farmers with the same yield under similar conditions and weed burdens can produce a variation of up to £100/ha in spend on chemicals.
“Inflation, relative to output prices, is expected to force a change in the general approach.”
The Outlook report acknowledges that the forecasting of future farm profitability was rendered “almost impossible” by the uncertainty surrounding Brexit.
Mr King also points to the Agriculture Bill, which is set to become law this year.
“Although the changes it will bring will not be implemented for several years, it will signal a fundamental shift in the way that farm support is paid in England,” he says.
“In place of ‘income support’ land managers will be paid for delivering benefits to wider society; so-called ‘public goods’.
“The devolved administrations will be making their own choices on farm policy.
“This highlights that outside the structure of the Common Agricultural Policy, there will be far more divergence between the different parts of the UK.
“The lack of ambition in the Agriculture Bill is disappointing,” adds the report.
“It compares unfavourably with the 1947 Agriculture Act, which had a clear vision for the whole of the farming sector and a comprehensive suite of policies for delivery.
“Current Government policy in England seems set on leaving agriculture to its own devices, in terms of food production.”
