In today’s challenging times farmers can feel locked in a very lonely place. As the losses mount there may seem to be no obvious route out of the situation and discussing this with close family or friends might not be easy.
But it is often worth discussing your worries with someone you trust who also has an understanding of the farming industry. Whether that is your accountant, farm consultant or land agent doesn’t really matter. The important thing is to get a fresh perspective on your business because the answers may be staring you in the face but for one reason or other are difficult to address.
Probably the first thing you need is to get a clear understanding of your fixed and variable costs so you can start to benchmark yourself against industry standards and this may help to identify where the issues lie.
You might for example identify that you have high machinery costs which may indicate you need to consider running the farm in a different way, perhaps selling some machinery and employing contractors to carry out work you have traditionally done yourself. This could also lead to the possibility of reducing your labour requirements which could either release family labour to earn money off the farm or simply cut your employed labour.
Or you may identify high finance costs are a problem and restructuring your debt may be a possibility. If this is the case don’t be afraid of speaking to your bank manager. Most of them are pleased to hear from borrowers looking to take proactive action to address difficult times. Extending the length of a loan to reduce the level of capital repayments or paying interest only for a couple of years may help the farm through a short term cash flow problem.
These are just a few examples of things that you may identify if you take the time to look at your business closely and it often needs a trusted third party to ask you those difficult questions that will make a difference.
The easiest thing to do is nothing, but if you want your business to prosper in the long term, carrying on doing the same as you have done for decades is rarely the answer.
James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk
A property blog written and authored by our specialist blogging team, discussing all and any matter relating to the residential, rural and commercial property markets.
Showing posts with label farm investment. Show all posts
Showing posts with label farm investment. Show all posts
Thursday, 3 March 2016
Monday, 23 June 2014
Farm borrowings increase by almost 9%
Latest figures released by the Bank of England indicate that Farm borrowings have increased by almost 9% in the year to April 2014, reaching a new record high of £15.2bn. Farm borrowing has also risen in the last two year; by 10% to April 2012 and 9% to April 2013.
The question is whether this is a sign of a sector under pressure causing cash flow difficulties or whether it is a sign of confidence giving rise to new investment; my guess is that it is a bit of both.
Livestock farmers, particularly beef fattening units, will be struggling at present and they may well find their finances are being stretched as beef prices have plummeted in recent months. These farmers will be increasing their level of indebtedness because of the difficult market.
On the other hand many dairy farmers, who have seen good milk prices over the last year, may be investing in their farms with cautious confidence in the future.
There is no doubt we are seeing a lot of interest from farmers who are looking to borrow money to purchase land. However, the problem is that land is changing hands at prices of up to £10,000 per acre or more and even at historically low interest rates, the annual cost per acre of this borrowing can be eye-watering and it is significantly higher than the rental value of the land.
As a general rule banks are keen to lend money to farmers, not least because the value of agricultural land has more than doubled since 2007. However they are also very conscious that borrowings must be affordable and this is often the stumbling block for some farmers who may be capital asset rich but whose profits may be very modest indeed.
Having said that, there are some very good lending rates available in the market at present. For example the specialist “farmer’s” bank, the Agricultural Mortgage Corporation (AMC) is currently offering 0.8% off their standard lending rates for certain qualifying capital investments on farms.
The AMC is able to fund this discount because of money they have secured from the European Investment Bank. The idea is to encourage farmers to develop farm improvement projects, examples of which include new or improved crop storage and processing facilities, livestock housing, parlours, farm shops and other diversifications as well as wind turbines and solar panels.
If anyone is interested in looking at the availability of this funding for a project they may have in mind they are invited to contact me for free initial advice.
The question is whether this is a sign of a sector under pressure causing cash flow difficulties or whether it is a sign of confidence giving rise to new investment; my guess is that it is a bit of both.
Livestock farmers, particularly beef fattening units, will be struggling at present and they may well find their finances are being stretched as beef prices have plummeted in recent months. These farmers will be increasing their level of indebtedness because of the difficult market.
On the other hand many dairy farmers, who have seen good milk prices over the last year, may be investing in their farms with cautious confidence in the future.
There is no doubt we are seeing a lot of interest from farmers who are looking to borrow money to purchase land. However, the problem is that land is changing hands at prices of up to £10,000 per acre or more and even at historically low interest rates, the annual cost per acre of this borrowing can be eye-watering and it is significantly higher than the rental value of the land.
As a general rule banks are keen to lend money to farmers, not least because the value of agricultural land has more than doubled since 2007. However they are also very conscious that borrowings must be affordable and this is often the stumbling block for some farmers who may be capital asset rich but whose profits may be very modest indeed.
Having said that, there are some very good lending rates available in the market at present. For example the specialist “farmer’s” bank, the Agricultural Mortgage Corporation (AMC) is currently offering 0.8% off their standard lending rates for certain qualifying capital investments on farms.
The AMC is able to fund this discount because of money they have secured from the European Investment Bank. The idea is to encourage farmers to develop farm improvement projects, examples of which include new or improved crop storage and processing facilities, livestock housing, parlours, farm shops and other diversifications as well as wind turbines and solar panels.
If anyone is interested in looking at the availability of this funding for a project they may have in mind they are invited to contact me for free initial advice.
James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk
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