It is common to meet a farmer who will proudly tell you just how many generations the farm had been in the family or just how long ago they had taken control meanwhile many, particularly those with livestock or in hill areas, will be found working alone and in difficult weather conditions with few comforts. This demonstrates that we can be rightly proud to suggest that the industry is inherently a resilient one and this resilience is one of its’ character and its’ business’s capabilities. Before we consider improving businesses resilience it is worth considering what has made them resilient until now.
The answers can be multi faceted and unique to individual businesses but regularly include the following: high and increasing capital value of major assets like land and buildings enabling borrowing and increasing borrowing, managers are often willing to receive a lower income to retain their business, the fact that agricultural production cycles are slow means they can often even out the volatility of commodity markets.
These attributes may not be sufficient to guarantee continued future prosperity. When we consider possible future reductions in support payments or changes in trading relationships the reasons businesses have been resilient in the past might not be sufficient to ensure it continues to be so. These potential substantial macro economic changes are likely to be those which will pose challenges to many businesses.
A transitional deal followed by an equivalent trading relationship to the present might be considered to be the best case scenario for farmers and would mean that the major impacts are likely to be in direct support policy decisions rather than market conditions. In which case the majority of farmers have to focus on the key economic principal, that they are commodity producers and price takers and not price makers.
This being the case operating from a lower cost base is crucial. Almost exclusively, studies looking at whole farm profitability identify the most common attribute of those businesses in the top quartile of profitability is that they have a lower cost base than their competitors
In addition to looking at costs within their current system farmers should go on to ask themselves whether by changing or reducing the number of enterprises they operate would they be able to sustain better profit levels? Do they continue with the beef finishing or vegetable enterprise or would a simpler system based on specialising in producing store cattle or combinable crops be more profitable?
It is repetitive but important that the industry often talks about but getting cost structure right as it is one of those major factors which will determine whether a business can get through this next period successfully or not. It gives a business the ability to make profits when there is increased output while ensuring that in period of low output they do not have to draw on capital reserves.
If there were to be no trade agreement covering Europe and associated markets far larger changes may occur and the single key impact and question would be over the marketplace. Where the UK is currently a net importer, beef, pigs, milk, poultry, prices may rise as the domestic sector is protected by tariffs. However, where the UK is a net exporter, lamb and to an extent cereals, prices are likely to fall. Whilst superficially potentially good news for UK farming (excepting sheep producers), this ignores the likely subsequent effects. Increased prices will affect consumers, high food prices are unlikely to be politically acceptable and over time and perhaps within a relatively short time scale, free trade agreements with other countries (New Zealand, Australia, Brazil etc) are likely to immerge, opening up the UK market to lower priced competition.
In this scenario as well as yet further pressure to address cost structure and cut costs of production many farmers may need to make much more radical change, farming systems which were once economic may simply no longer work.
Understanding the marketplace and forging direct links with retailers or consumers for a specific product at a price at which they can make a profit may be an opportunity for some. This along with other diversifying options may provide a more resilient business environment for some producers.
Farmers might also take other actions to be more resilient such as; spreading their selling contracts – sell forward/ use different strategies. Spreading their purchasing risk – buying groups, buying early. Investment – can they invest in expansion or new technology now while interest rates are low and there might be most to gain. These options will be less transformational than other whole business options, however when done in combination can have a positive impact.
Farmers are an inherently resilient bunch and no matter what the future throws at them the majority will still be there to tell us their story, but if some thought on the items above, they may well find that they are substantially better off than they might have been.