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2016 Basic Payment Scheme exchange rate announced

September 30th marks the last day of the annual month-long exchange rate fixing mechanism and affects farmers who elected to be paid in pounds sterling in May this year.

This year’s average to be applied is €1 = £0.85228, representing a 16.5% increase on the 2015 rate. This could equate to around £30/hectare more than last year, although the value of entitlements will not be confirmed by the RPA until later this autumn. For example, last year’s rate of £0.73129 was the lowest since 2008, however there was some comfort with an increased value to €248.02/hectare against the €239.00 initially indicated and planned for in the new schemes first year.

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Split Stumps, Ripped Trousers and Pink Shorts

Sudbury CC was the setting for the inaugural cricket match between Wilson Wraight and the Veg Brigade. What unfolded was one of the most dramatic 20:20 games ever seen.

 

Captain of the opposition R. Parry won the toss and put Wilson Wraight into bat. First up was captain fantastic E. Pissarro and man of the series A. Peebles. The consultants immediately took the initiative with some quick scoring in the first three overs.

 

The run rate was immediately interrupted when up-stepped N. Kingston who proceeded to deliver line and length with relentless accuracy.

 

So called captain fantastic was first to go and N. Kingston continued to pepper the batsman. The next casualty was in fact the bowler’s trousers and the game was certainly hotting up. Batsmen A. Peebles, W. Barton, P. Mahony and J. Gwatkin all racked up maximums to the appreciation of the travelling supporters.

 

The first innings ebbed and flowed with bowlers R. Parry and S. Williams at times bamboozling batsman with pace and spin. In the end the consultants managed to ‘tick all the boxes’ with a couple of run outs and even a duck. 20 overs up Wilson Wraight had set a target of 162.

 

In came to bat the maverick pair of J. Klug and T. Pratt for the Veg Brigade. J. Klug wasn’t deterred by the first ball rattling the stumps it was time to start the run chase. All the spectators could see was a streak of pink as T. Pratt darted between the wickets with his ‘south of France’ shorts in tow.

 

The bowling attack spearheaded by J. Webb and ably assisted by G. Cooper and B. Skinner continued to ask questions and wickets began to tumble.

 

There were notable batting contributions from J. Smith, E. Whitehead and N. Kingston who must have faced in excess of 120 deliveries!

 

It all came down to the last over with the two captains locking horns. R. Parry standing his ground like a Pedigree Suffolk Ram facing the unorthodox technique of E. Pissarro.

 

In the end the consultants managed to hold on and took the match by a modest 8 runs thereby becoming the first winners of the Vegetable Cup.

 

A big thank you should go to Sudbury CC for providing friendly surroundings and a first class wicket.

 

Bring on Next Year!

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Contract Farming Challenges

Returns from Contract Farming Agreements (CFA’s) have reduced significantly in 2015 with no significant improvement expected for 2016.  Contributing factors are commodity prices, support payments and crop husbandry/rotations.

Wilson Wraight manages approximately 80 CFA’s across 43,000 acres.  The average result from harvest 2015 has fallen by approximately £100 per acre compared to 2014 – see below.

 

Combined Total Returns to Contractor and Farmer – £/acre

2014 harvest 2015 Harvest
Average 343.6 260.7
Interquartile Range 285.5 – 388.7 216.2 – 290.0

 

The impact on both parties is very clear – lower returns – and for the majority of our CFA’s this reduction is being borne equally between the parties.  This is damaging the Farmer’s income and potentially is below the cost of production for the Contractor.

The 2015 survey of CFA results did indicate that a small number did not produce sufficient income to cover the Farmers Basic.  With expectations for 2016 returns to perhaps be lower the likelihood of deficits occurring in 2016 are greater.  How a deficit is treated within the CFA should be covered by the legal agreement.  Points to consider are:

  1. Who incurs the deficit? Some CFA’s stipulate this is the Farmer as the sharing of losses could constitute a partnership, rather than a contract, is in place.  Others allow for the deficit to be carried forward into the following year but with no prospect of better returns in 2016, and 2017 too far away to judge, this could compound the problem.
  2. Equitable division of returns and risk. In the event of a deficit, the Contractor is only going to earn his Basic Fee which typically is not designed to cover costs.  Could this have an adverse effect on the Contractor’s attention to detail?  This goes against the ethos of the CFA structure which should incentivise the Contractor to produce as much income as possible.  Although a review of the contract terms may not be due, it could be prudent to implement one early to reflect the current economics.
  3. Working capital. If deficits are deemed the Farmer’s, these have to be repaid to the Contract Agreement bank account, otherwise the CFA working capital requirement increases.  With First Charges typically due at the end of this month for 2016, this is particularly relevant.  Also, if the expectation is for a deficit from the 2016 harvest, is it correct to withdraw the Farmers 2016 Basic Return in full, as this will add further pressure to CFA cashflows?

Most CFA’s become long-standing arrangements and there is generally a willingness from both sides to see the Contract continue.  There is no doubt the current economics are challenging but a well-structured agreement and medium-term planning can overcome some of the current difficulties.