19 February 2021: David Missen, a member of ICAEW’s Farming and Rural Business Community, provides insights into recent developments in the sector, including the impact of COVID-19, as well as outlining some of the fundamentals of farming accounts.

Farming has not been as negatively affected by the pandemic as some other sectors, according to David Missen, a consultant at MHA Larking Gowen who specialises in agriculture and associated private client work.

Nevertheless, some sub-sectors will have felt the impact more keenly and ways of working have had to be adapted.

The impact of COVID-19

On 23 February, Missen will delve deeper into the pandemic’s impact, chairing a webinar – Tales from the frontline – that will bring together three practitioners from different parts of the UK and span sub-sectors from arable to livestock and mixed farming. Ahead of the event, Missen, who has an arable and solar farm himself, shares some of his insights into the challenges that have arisen.

On a practical level, Missen says many of the day-to-day farming activities will not have changed but difficulties or delays may occur in getting products, supplies or services to or from the farm. In some instances, this could prove more expensive, adding to costs.

Contracting arrangements – such as when farmers are working for other farmers or sharing machinery – will be more restricted amid the pandemic, while some diversified income has dropped off altogether, Missen adds. “It’s quite common for a farm to have two or three holiday cottages, or a farmhouse bed and breakfast, but that has suffered,” he explains. Still, there are diversification projects that have made gains, particularly local farm shops.

An issue of ongoing concern is the availability of labour. “Anything involving casual workers is quite difficult, so I think that has impacted on fruit and vegetables particularly,” says Missen. Besides social distancing considerations, many casual or seasonal staff have been foreign workers employed, for example, as fruit pickers, but travel restrictions have impacted these roles.

In March 2020, as the UK’s headed into its first COVID-19 lockdown, there was a call for a “land army” to help get fruit and vegetable crops to market. In January 2021, the Association of Labour Providers has indicated that higher COVID-related absence rates were exacerbating labour challenges and that a recent labour supply survey had found that 92% of food growers and manufacturers thought there would not be enough critical workers to meet the 2021 food supply chain needs.

Campaigns aimed at promoting domestic recruitment of seasonal workers have been launched, such as Pick for Britain, but the government has also expanded the seasonal workers permit scheme for 2021 from 10,000 to 30,000 permits.

Farming can be a somewhat solitary occupation, but farmers are even more isolated now, says Missen, as agricultural shows and other regular events have had to be cancelled. Some meetings have moved online, including for example between farmers and accountants. “Whereas typically you would get the client into the office or you would see the client on the farm, that has disappeared. We’re losing some of the personal contact, but we’re managing,” says Missen. “Everyone has had a crash course in IT. Even people who would never have dreamt of coming to a meeting with a laptop are Zooming away.”

Post-COVID, such professional meetings may take on a hybrid form, but Missen also points to the benefits of visiting the farm to understand what’s happening on the land, and why it’s happening, to understand farming accounts.

Farming fundamentals and peculiarities

Missen, who will be delivering ICAEW’s Virtual Farming Fundamentals courses in March, explains that in most farming businesses, the owner and family live on site so accountants often have to unpick the personal consumption from the farm expenses.

The split of income and capital can also be challenging, and it is normal to conduct an analytical review, for example, of direct expenses, repairs and improvements. “With farms, they’re always buying a bit of steel, a bit of concrete, roofing sheets or a bit of timber, because there are lots of buildings and things that need repairing and they don’t always know how to record them, which is why it is a good idea to go to the farm as often as you can to see some of this – the last thing you want to find is a newly built barn which wasn’t there last time you looked.”

Farms also do not produce products at the rate a factory would. “You may spend all year growing a crop and then it goes to the store and you eventually sell it. By the time you sell the first crop, you’re halfway through growing the next crop, so everything is determined by the year-end valuation,” Missen explains. “When you take your snapshot, let’s say you’ve got crops that have just left the farm that haven’t been paid for, you may still have some of last harvest’s crop in the barn, and you have spent from August through to March growing next year’s crop so the cut-off is difficult.”

He adds: “You have to get it right as to what’s been delivered, what’s been paid for and what’s on the farm. It’s quite an art form doing that.”

One of the key issues facing the sector is how agricultural subsidies will be changing over the next seven years. The long-standing subsidies are being phased out after the Agriculture Act became law in November 2020. Missen says: “Subsidies will be replaced with environmental land management schemes, but we don’t quite know how they will work, the money going into them. We think they’re going to come in in 2024 but the subsidies will be halfway out by then, so it’s putting that in context.”

He adds: “A fundamental issue around the phasing out of subsidies is what impact it will have on-farm profitability and what we can be advising clients over that period.”

“Everything about farming is changing at the moment – the subsidy system, technology, environmental priorities and even public perceptions. There has never been a time when it is more important to help clients through the next decade – and of course to get the accounts right before they start the journey.”