Reading the farming press is often a sombre experience with lots of negative headlines and plenty of examples that demonstrate the challenges in the industry. In some ways, it has always been the same in an industry faced with so many variables, with farmers generally looking from the perspective of a glass half empty.
Whilst the challenges are certainly considerable, the last few years have seen a period of better profitability in most sectors, and the industry is utilising technology and data to improve performance through greater efficiency and productivity. That has provided the chance for many farmers to take a long hard look at the future and start to make medium to long term plans to future-proof their business.
Government policy will continue to develop and evolve, and many farmers will have to work with less support payments, which is another reason to zero in on business performance. There will continue to be an ongoing focus on sustainability and the Net Zero agenda, both through more targeted support payments and the legislative framework farmers work in.
The recent changes to IHT and agricultural property relief rules have brought many families around the table to consider succession planning, which, whilst often challenging, is no bad thing to think about. This has again focused farming businesses on what they want in the future and in many cases will have accelerated that succession process with a new generation holding the chequebook and making decisions.
In times of such fundamental change, good planning is more important than ever, and to plan properly you need to understand where you are now and how the business is performing. It is not just about comparing last year with this but also benchmarking against others so you can understand just how well your business is performing against its business peers.
Working with professionals is key to giving you that wider perspective of performance, both physical and financial, which is critically important to identifying a clear starting point for the journey, a realistic idea of what’s possible and a practical plan that will take you where you want to go.
That deep dive into a business is important and using those advisors as ‘critical friends’ will support future decision-making, clarifying where performance is not as good as it should be and providing scope for improvement.
Part of that process of review needs to look at farm sustainability and where it fits into the journey to reducing carbon, a focused part of Government policy. We are still seeing a relatively slow uptake of carbon audits, but, where they have been used, they are helping to highlight potential efficiencies and good access to benchmarking information. Carbon in farming often means costs, so identifying reductions can lead directly to benefits on the bottom line.
Looking at future plans for the farm will often reveal areas that require investment to support improvements in productivity, performance and future environmental requirements. Whilst every farm will be different, since COVID-19 we have seen a slowing in investment, and debt in UK agriculture has dropped back to levels last seen in 2016. Whilst less debt is not all bad, it does signify a slowing of new investment in the sector and potentially a backlog of investment to make in the future.
Banks continue to actively support the farming sector. We recognise its long-term nature and the need to have specialist teams to support customers. That commitment is always easier to make when a farm has a clear plan, backed by good data to show both historic and potential future performance. Again, involving professionals is key so farmers can have those discussions with the bank to support the necessary investment.
I think there are many reasons to be positive about the future of the farming sector at the present time. But farmers will need to keep improving productivity and efficiency against a wider sustainability challenge, so planning is key and those that will be successful in the future will be those who have a plan to help future proof their business.
For more information get in touch with Brian Richardson at brian.richardson@virginmoney.com.
*the views expressed are the author's and not ICAEW's