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Farming & Rural Business Community

The view from the Chair

Author: Will Nixey FCA CTA, Director, Martin and Company Chartered Accountants

Published: 25 Mar 2022

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Is it ALL doom and gloom in the farming industry?

The average reader of the heavier newspapers might be forgiven for thinking that the medium-term future for the UK farming industry is a pretty gloomy one. The findings of the post ‘Health and Harmony’ consultation are still regularly reported, showing that without subsidies 42% of farms would be operating at a loss, notwithstanding that this was based on data, which is now several years old, and excludes the impact of subsequent commodity movements and, indeed, the new generation of environmental payments. Reports of massive rises in the price for fertiliser and fuel are regular headline grabbers and of course are factually correct, but in the case of fuel, tend to compare current costs with spot prices from the past which were historically low. Commentary on the small number of post Brexit trade deals have tended to focus only on the potential for driving down food prices (rather than opening up export opportunities) and only a few months ago, Farmers Weekly ran the headline (commenting on the phasing out of BPS) ‘Farmer numbers expected to plunge’.

Yet two statistics released in late February do not quite bear out this picture of total disaster. A report from a well-known firm of land agents concluded that land prices had risen by a modest 1% in 2021, the amount of land changing hands was 25% below the five-year average and 2/3 of the farms marketed sold at or above the guide price. This snapshot of the owned sector was followed by a DEFRA report on the rental market for 2020, where average rents paid for both FBT and AHA tenancies rose by 5-8%. According to the report, the average annual rent across the whole of England now stands at £239/Ha (very nearly £100/acre) with FBT rents in the East of England some 25% above that level. Of course, these figures are based on a small sample and in the case of the rental figures are well over a year old and hence very much a ‘lagging’ indicator, but nonetheless, as straws in the wind, they suggest at least a modest level of optimism in parts of the sector, and certainly little evidence of a flight from the land.

When it comes to reconciling these two opposing views, three factors need to be considered. Firstly, bad news is always a headline grabber. When an East Anglian firm published a series of annual profit surveys in the early 2000s, the headline ‘Farmers earn less than the minimum wages’ hit regional front pages and columns in the broadsheets, even generating discussion in Parliament. In contrast, the report from a few years later that farm profits had doubled, barely made it to the local agricultural supplement. Secondly, to make a point, information is sometimes reported out of context so, for example, a doubling in the price of fertiliser is less of a headline if one also considers that cereal prices have also doubled, and the cost of fertiliser is only about 25% of the value of the crop. Finally, one needs to take account of the extent to which different parts of the market are interconnected – a bumper cereal price is good news for an arable enterprise, but the knock-on effect of feed prices will be less welcome in the livestock sector. High fuel costs have an impact on electricity prices which benefits the solar form.

In addition to the flood of bad news, we have seen some more welcome announcements, which have perhaps attracted less attention. The clarification of the tax treatments for the outgoers payments make this option somewhat more attractive for those already considering leaving the industry (though whether it will actually encourage many retirements which would not have taken place anyway is a good subject for discussion). The extension of a form of simplified SFI to many farms in 2022 could be a welcome and straightforward introduction to what will be a very important source of income in the future, and the uprating of stewardship payments for 2023 will also be gratefully received.

‘Follow the money’ is not a bad way of cutting through the wealth of different opinions, and currently the activity in the land market, coupled with anecdotal evidence from bankers (some claim to ‘never to have been so busy’ with new projects and diversifications) suggest that the industry may be rather more robust than some would have us believe. A new generation of young farmers are coming through and, to quote Charlie Flindt in Farmers Weekly, they “are the future of farming...on a mission to farm and…going to get on with the job, come what may”.

So, as accountants, we need to keep abreast of all these developments so that we can sometimes help our clients see the wood for the trees, cheering up the gloomy and perhaps also providing a dose of reality to the over-optimistic. We need to keep on top of the new subsidy structure so that we know how much is coming, when it might arrive and how it should be treated. In some cases, we will need to advise on succession and retirement whilst for others there will be input into plans for expansion and diversification. One way or another, the next few years should prove interesting.

*The views expressed are the author’s and not ICAEW’s.
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