DEFRA released its provisional figures for the 2012/13 farm incomes which make sobering, although not altogether surprising reading. They demonstrate that despite relatively high commodity prices, the bad weather and high input prices have had a negative impact on farm incomes across the board.
The least badly affected have been arable farmers, who despite the wet weather, difficult harvest, low yields and poor quality crop, have only seen incomes fall by an estimated 11% in England. The reason they have fared relatively well is because of the high commodity prices on the world markets; it could have been an altogether different story if the rest of the world had had a good harvest.
The dairy sector had another difficult year with profits estimated to be down by approximately 42% while the livestock sector fared even worse with profits down 44%. This latter drop is probably in part due to the recent crash in lamb prices which means many farmers are receiving between £20 and £30 less per head for lambs this year as compared to last. This is a reflection of the increased level of New Zealand lamb imports as well as falling exports to continental Europe. However, with the pound weakening against the Euro in recent weeks there may be some hope for our export trade.
If one turns these percentages in to pounds and pence this means the average income of arable, dairy and livestock farmers throughout England was £84,000, £50,000 and £18,000 respectively. These figures are averages and I suspect the arable income in this area will be lower than the average because farms here in mid Somerset are generally smaller than they are as one goes east.
However, the figures for the dairy and livestock sectors are probably more representative of what is happening in this area and although at £50,000, the income for a dairy farm may look reasonable one has to remember this very often has to support at least two households, cutting the income to around the average wage. This of course then does not leave much spare income for re-investment which will be a big problem in the long term. In the case of the livestock sector the average income is significantly lower than the average wage which brings in to focus the importance of the support payments that livestock farmers in particular receive from Europe via the Common Agricultural Policy (CAP).
The whole of the CAP is under review at present and our politicians in general favour the abolition of such support payments but they should pay heed of the fact that without them, many livestock farmers simply could not exist. That is perhaps not a reason to maintain the payments in their current format but before politicians call for their complete withdrawal they must also assess the impact such an action would have one certain sectors of the UK farming industry.
James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk
Will Mooney Carter Jonas partner and head of its commercial agency and professional services in the eastern region, is on tank patrol
Think tanks parked on the lawn
Will Mooney, Carter Jonas partner and head of its commercial agency and professional services in the eastern region, is on tank patrol
Two recent reports have reinforced the value of think tanks to those of us charged with the day-to-day nitty gritty of bringing-in the deals.
The first, published at the end of last year, is Lord Heseltine’s 'No stone unturned in the pursuit of growth' which, in as much as one person who is a former defence secretary can be a ‘think tank’, looks at the crucial role the UK regions and our metropolitan cities - other than London -could play in kick starting nationwide growth.
The second was published just at the end of January by the Centre for Cities, which is an independent think tank, although is does have the support of the Local Government Association.
Now, at the risk of sounding like an A-level essay question: Using your regional business experience, compare and contrast these two reports.
To take Lord Heseltine’s first, then. It’s got gravitas. It’s published under the auspices of the Department for Business, Innovation & Skills and Lord Heseltine has got form for getting things done in the regions. Those of us interested in such matters back in the 1980s are unlikely to forget the image of Tarzan – Lord’ Heseltine’s sobriquet at that time- striding across the abandoned post-industrial landscape and docksides of Liverpool ahead of national policies which help revitalise those and other deeply-urban areas of the country, including London’s docklands.
However, even at the time of its publication, there was word that the report might get kicked in to the long grass, politically. And Lord Heseltine admitted that he was unsure as to how many of his 89 points, laid out over 228 pages would be picked up and acted upon by central government.
Getting things done is what we all want. Who, in business, wouldn’t wish for a handbook in which 89 ideas were clearly mapped out in a compelling vision of how to make things better and give us more of a leg-up than the good kicking we might feel we’ve had for, coming up to, five years?
While not a handbook, I see the Centre for Cities annual report, Cities Outlook 2013 as being of much more use, operationally.
In drawing together and examining data for English cities, it highlights elements and trends which are of particular interest to those in business in the development and property-related sectors. And it’s no surprise that you don’t have to drill too far down in to the data to see the significance of this region of the country to the growth agenda.
For instance, in the decade between 2001 and 2011, the top five fastest-growing cities by population were, in rank order from first to fifth, Milton Keynes, Peterborough, Swindon, Ipswich and Cambridge.
Cambridge features frequently in the report and not always in the way you might think.
It has, as a city, by far and away the most number of patents approved per 100,000 residents – with Oxford in fourth position, by the way, below Edinburgh.
In the league table of 10 cities with the highest business stock per 10,000 population – here, business ‘stocks’ means the number of businesses as opposed to property units – Cambridge is in eighth position.
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Yet, it is in the lower tier – position 61 – when it comes to cities with the lowest proportion of private sector employment, sandwiched between Swansea and Dundee. Pardon?
On face value, this seems at odds with the orthodox thinking about Cambridge but when I thought about it for a moment, it became apparent. Two of the biggest employers in the city are in the public sector: the University and Addenbrooke’s Hospital.
Thinking is not only for those in think tanks.
Lord Heseltine is one of the political jungle’s big beasts with big, sweeping policy ideas in the report on which we are relying on the jungle’s other inhabitants to act before it’s of use to us.
The Centre for Cities report is rigorous and useful. Driven by data, the Cities Outlook 2013’s authors put housebuilding at the centre of national recovery and tips the cities that can bring in growth quickly. Cambridge is one of these.
Will Mooney MRICS
Partner
Commercial, Cambridge
I have recently read a thought provoking booklet entitled “Farming’s Value to Society” which was published with the support of Bristol based solicitors, Burges Salmon, the RSPB and Volac, a dairy nutrition and supply company. The report was produced to provide information for this year’s Oxford Farming Conference which took place in early January and was themed “Confident Farmers Delivering for Society”.
The booklet covers a reasonably complex subject although what was clear to me was that farmers and “society” are probably better placed now than at any time in the last 50 years to work together positively to achieve benefits for all.
To understand how the relationship between farmers and society has developed in recent times one probably has to look back to the end of the Second World War when large parts of Europe were literally starving. At that stage society was acutely aware of the importance of farming and the need to produce as much food as possible. Farmers responded to the financial incentives put in place by politicians and massively increased food production but at a cost.
As a result, by the 1970s and 1980s, society began to question whether the benefits of increased food production were worth the cost of disappearing hedgerows, falling bird populations, increasing pollution and animal welfare issues. Many also began to question the need for subsidies being paid to farmers via the Common Agricultural Policy which reached the ultimate in madness when farmers were paid to take land out of production in order to reduce overproduction.
However, in the last decade or so, the growing concern about climate change and population growth has brought the importance of food production back in to focus. Also, politicians, particularly in this country, have realised that if society is to continue supporting farmers financially, then they need to see a return that goes beyond just producing more food. As a consequence there has been and will continue to be an increasing shift in the emphasis of subsidy away from food production towards the delivery of environmental benefits.
Thus after a period of outright hostility in parts of society towards farming I believe we are witnessing a shift in thinking; society, although largely disconnected from the day to day activity of farming, now realises the importance of farming both for the food produced and the landscape we live in. Many conservation organisations realise that to preserve our wildlife, those working the land also need to be able to make a profit, but equally farmers need to realise they cannot ignore society’s concerns about some of the less palatable results of agricultural intensification.
What is clear to me is that now, more than any time in the last 40 years, there is an opportunity for farmers to re-connect with the wider general public. This may be done through a variety of means such as the provision of local provenance food through farm shops, hosting farm open days for the public, welcoming schools for educational visits, providing demonstrations at shows or embracing agri-environmental schemes. But what is important is that that these connections are made and strengthened because this will be to the benefit of farmers and the society in the long term.
James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk
Having had a few reasonably good years, it seems that the last 12 months have seen a bit of reversal in fortunes for farmers as evidenced by the fact that farm borrowing has increased by 9% in the year to last October. Latest figures released by the Bank of England show that total lending to agriculture rose to £13.5bn, which is £1bn higher than in October 2011.
This is no surprise in that although some of the increase will be for capital investment, a significant amount will simply be to fund working capital requirements as a result of increased input costs and in some cases the reduced value of outputs. The weather has obviously been a factor affecting the value of arable crops in particular while sheep farmers are suffering very low lamb prices at present which is something I touched upon in last week’s article.
However, what farmers need to appreciate is that although they have been looked upon reasonably favourably by banks since the banking crisis in 2008, this may not last forever. In general farmers have benefitted from a dramatic increase in the capital value of their land over the last 5 or 6 years and at the same time most have seen their profits rise, certainly as compared to the very difficult years they experienced in the early 2000s.
Consequently banks have looked upon agriculture as one of the safer places to lend money in recent years, but as the wider recession continues and banks are forced to hold higher cash reserves this will make them even more careful about who they lend money to. In this context farmers need to be aware that the next time they ask their bank to extend their overdraft or to take out a new loan, the answer may be “no”.
Thus, farmers who think they may need to borrow more money should examine their finances carefully to ensure their business plan stands up to scrutiny because it is better to approach the bank with a considered plan rather than just to assume that if more money is required it will be forthcoming.
There will of course be some cases where the bank will simply not support any more borrowing and in these circumstances farmers may need to seek professional advice to see whether the borrowing can be re-structured or assets sold to bring the borrowing down to acceptable levels without impacting too severely on the ongoing business. However in some circumstances the only answer may be to sell up altogether, taking advantage of the high value of agricultural land. This is obviously the last thing most farmers want to do but I fear this may become an increasingly common situation as profits are squeezed thereby leaving the more vulnerable businesses in a precarious position.
James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk
After a few good years, sheep farmers have come down to earth with a bang as prices have slumped. Last week lamb was worth 338p/kg as compared to 456p/kg a year ago and as a result it is estimated farmers are losing approximately £29/head.
In this area this is being made even worse by Schmallenberg disease about which I wrote a few weeks ago. The virus which causes the disease is carried by a midge which passes the virus on to the ewe which can then cause foetal abnormalities and abortions.
This seems to be affecting early lambing flocks in this area indicating infected midges were circulating in this area last summer. We now wait to see whether ewes which are about to lamb during the main lambing season over the next few weeks will also be infected. If so this, combined with the fall in market price will cause real problems for many sheep farmers.
What is so frustrating for farmers is that as the farmgate price of lamb has fallen, domestic demand for lamb in the year to November has risen by 3.8% while the percentage of the retail price received by farmers has fallen to 45%, the lowest proportion since 2009.
Despite the domestic demand the problem is that imports have increased; according to EBLEX, an organisation representing beef and lamb producers, by 27% in the year to October. Most of this lamb is from New Zealand and much of it is being sold in our supermarkets. As a consequence sheep farmers are calling for supermarkets to treat them fairly.
Both Tesco and Morrisons have confirmed they are committed to offering customers a range of options for all budgets which includes both British and New Zealand lamb. However, Sainsbury’s has announced that the 800 famers in its Lamb Development Group will receive a premium price of 380p/kg which is obviously good news for those in that group.
There is also concern that because of the bad weather there are still a lot more lambs from last year to come on to the market as farmers have struggled to fatten lambs over the autumn and early winter. Greg Mowbray who is the Managing Director of the livestock marketing group Meadow Quality commented, “There are a lot more lambs still on farm due to the poor weather, with slaughter numbers 600,000 behind the same time last year”
Thus it seems sheep farmers have a tough year ahead with little prospect of price rises in the short term and ongoing concern regarding the Schmallenberg virus; not a very auspicious start to 2013.
James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk
The Met office revealed this week that 2012 was the wettest year on record for England and the second wettest year on record for the UK. The question is whether this is a “one off” or whether it is part of a trend? Unfortunately there are indications that it may be part of a trend in that 4 out of the five wettest years on record have been since the year 2000 and statistics show that the frequency of extreme rainfall events is also increasing.
Many climate scientists will point to this as evidence that we are starting to experience the effects of man made climate change. You will note “global warming” has been dropped from the vocabulary in favour of “climate change” in that although the theory is that the earth will get warmer, the impact this will have on the weather in different parts of the world is far from predictable. Thus instead of the olive groves many had been hoping for in the UK as the globe became warmer, we may find ourselves exposed to more extreme and less predictable weather events.
Some of course are still sceptical as to whether we are experiencing man made climate change but whether or not that is the case does not really matter in the short term for those who have been affected by drought or floods in recent years.
In this context farmers have suffered significant losses across the board in 2012. Indeed the NFU have estimated UK farmers and growers have suffered losses of approximately £1.3bn as a consequence of the extreme weather last year. Here in Somerset the evidence of such losses is all around us – flooding on the levels on and off since April, un-harvested maize crops still in the fields and poor quality, low yielding of arable and forage crops.
These are all the things climate scientists have warned us will become increasingly common both at home and abroad if climate change does indeed become a reality. Perhaps we must all now take such warnings more seriously because it appears that for whatever reason, we will need to be prepared for more unpredictable and extreme conditions. However, recognition of the problem is one thing but taking effective action is quite another.
This requires serious consideration at a governmental level not only in respect of flood prevention schemes to protect homes and businesses but also to gain a clearer understanding as to the impact extreme weather conditions are likely to have on our farming businesses. In this respect I would be interested to know whether any farmers in this area are seriously considering changing their farming practices or whether it will be business as usual in hope of kinder conditions as we move on in to 2013.
James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk
As we enter 2013 there seems to be no end in sight to the incessant procession of depressions sweeping across the Atlantic to deposit their rain on the British Isles and here in the South West we appear to have been at the vanguard since the rain started last April.
This is not only tedious for us all but it is becoming an increasing concern to farmers. For example, many arable farmers were unable to sow cereal crops in the autumn and are now looking to source seed for crops that can be sown in the spring, which I can only imagine will soon be in short supply and consequently expensive.
Livestock farmers are also finding the weather hard work. They struggled all last summer to grow and harvest quality forage crops to feed cattle during the winter. Those forage crops which have been harvested are generally of limited quality and in some instances maize crops still remain un-harvested in the fields.
On the upside, commodity prices generally remain high but if the weather does not improve soon it will impact arable farmer’s ability to cultivate their land for spring sown crops and livestock farmers will hope that the winter is not too long because this will put pressure on fodder stocks.
So what are the prospects for the coming year? Well, it goes without saying that farmers will wish for “kinder” weather in 2013 than they saw in 2012 but they will also hope that commodity prices will remain firm. The latter will largely depend on production levels across the world which will again be influenced by the weather.
Another important matter on which farmers will be keeping an eye on this year are the ongoing talks in Europe concerning the next round of reforms of the Common Agricultural Policy (CAP). It seems that these will now not be introduced until 2015 but it is likely that the detail of what these reforms will entail will start to emerge next year; the expectation is that support payments for agriculture will fall and so farmers must prepare their businesses for this. This will be a particular challenge for livestock farmers, many of whom still rely on CAP support payments to make a profit.
So what can farmers do about any of these challenges? Well nothing directly because the weather, world commodity prices and EU policy are all out of their control and so they need to concentrate on what they can control themselves. They must understand their businesses, bench mark their performance against others, continuously improve their technical competence, optimise production, control costs and monitor their financial performance through budgets and cash flows.
The farmers who will survive and prosper in to the future are those that have a real grasp of their own business, a clear understanding of which enterprises are making money and which are not and a preparedness to adapt to whatever the weather or EU throws at them in 2013 and beyond.
James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk
