Future proof your business
UK farmers have seen combinable crop prices fall since the peak in the 2012/13 marketing season, with world stocks at record levels. It is clear that crop producers should continue to expect price volatility, given we are in a global market place driven by supply and demand. Just waiting for commodity prices to rise is in my opinion not an option.
With this in mind, many farmers will need to make some radical changes if they wish to remain profitable, particularly with further pressures on farming incomes post-Brexit. Although the Treasury have indicated it would continue with support payments through to 2020, many industry experts have predicted these could be cut by at least 20% to 30%; given the state of the economy and the financial constraints on other government departments (e.g. Health and Education).
It is essential for farmers to act now to future proof their businesses against the following key threats:
- Continued volatility in commodity prices.
- Potential cuts in support payments.
- Inflation increases in fertiliser and chemical cost.
- Increases in the cost of machinery.
- Export tariffs.
A change in mind-set is needed by some in the industry to improve the return from the wealth of resources and skills available to them. In many cases there are opportunities to diversify, collaborate, reduce costs or improve the performance of existing enterprises. If there was ever a time to appraise your business activities and question what you are doing, this is it.
Often benchmarking your business performance against others is a very useful way of measuring success; are your enterprise results consistently in the top 25% and do your fixed costs compare favourably against others? If the answer is no, you should ask yourself why not and how do I improve what I am doing? If the answer is simply you don’t know, there is plenty of technical and financial support available to assist you to assess the performance of your business.
I regularly see farmers not making the most of the resources available to them, including building, yards, labour and machinery whilst they concentrate on crop or livestock production. Opportunities to enhance sundry income and farm profitability should not be dismissed. This could be the difference between business survival and failure, particularly when commodity prices are below the cost of production.
Whilst there are further challenges ahead, farmers should seek to ensure their businesses have the financial structure and strength to take advantage of the opportunities which will undoubtedly arise. For others it might be time to consider a fundamental change in direction.