The farm business challenges highlighted by free advice scheme

We asked two firms offering free farm business advice through the Future Farm Resilience Fund (FFRF) for some of the common themes emerging from their discussions with farmers.

The issues faced by farm businesses are wide-ranging, from practical questions about getting the right farming system in place, to structural, succession and tax considerations

See also: For more Farmers Weekly articles on grant schemes

Will Tongue and Guy Banham, Berrys

Cash

Understanding the flow of cash in the business is key to ensuring sustainability.

In a lot of farm businesses, the Basic Payment Scheme (BPS) has made up the vast majority of the profit margin so the loss of this subsidy will have a significant impact on the ability of the business to service its cash needs.

Many are looking at potentially significantly negative cash flows as BPS reduces. This is not universal, though – there are also some very successful and cash-positive businesses.

However, a common issue is high machinery costs – often £200-£250/ha greater than local top 25% benchmarks.

A solution is better management of machinery costs through longer replacement cycles, system simplification and/or joint ventures. 

Documentation

Farming businesses own valuable assets and are often managed by more than one individual, either in a partnership or limited company.

In a significant number of cases parties had neither wills nor agreements between the stakeholders.

Clearly documenting the intentions of the stakeholders in a business will save costly disputes in the future should the parties fall out or illness or a death happens.

Environmental payments

Environmental schemes have their place in terms of offsetting the loss of BPS, but they need to be commercial and well planned to fit in with the farm business.

Consider the workload they will create, especially at busy times, and the impact on returns.

The offer of free advice from environmental charities to submit applications can be attractive initially, but we find the schemes they suggest can sometimes be over-complicated and uncommercial.

Biodiversity net gain (BNG) has the potential to provide significant incomes to those farmers in the right place geographically and willing, business-wise, to commit to a 30-year management agreement.

Understanding and measuring what is on farm will enable a baseline to be formed from where gains can be traded.

However, advice should be sought on the commerciality and risk in agreements before signing over the rights to any environmental capital in the business.

Diversification

A successful diversification needs to be part of a successful core business, otherwise it can become a management distraction and make the underlying business weaker.

However, businesses should try to have a mixture of active (trading) and passive (investment) income streams across various sectors – for example, agriculture and property – in order to buffer significant volatility in the key agricultural markets.

Beware also of the planning and tax implications of making changes to the business.  

Ian Thompson and George Veltom, Laurence Gould Partnership

Grant confusion

A common theme is lots of confusion about what grant schemes are available and what farmers can apply for.

While there is plenty of information available, not all of it is applicable to everyone and as a result many people have been left feeling that they don’t know where to start.

The FFRF scheme is therefore proving helpful in terms of signposting farmers to schemes that are going to work for them and fit with their wider business objectives.

CSS and SFI

Where possible, farmers are looking to join environmental schemes to help offset the BPS shortfall in the short to medium term. Countryside Stewardship (CS) is seeing an uplift in interest, particularly following the recent rises in capital and revenue payments.

Despite the Sustainable Farming Incentive (SFI) not being what farmers had first anticipated, it is now starting to attract interest from businesses already following many of the actions required.

The SFI is proving particularly appealing for dairy businesses, as it fits in with their systems more easily than CSS.

Alternative sources of income

Diversification is of particular interest to farmers in the south-west of England due to the region’s popularity as a tourism destination.

When it comes to the provision of holiday accommodation in this region and others, there is already lots of competition, which means farmers do need to be careful of committing too much investment too quickly.

If looking at developing disused buildings into accommodation, it can be better to carry out the work in stages, so it is possible to assess demand.

Many farmers are also showing renewed interest in renewable energy such as solar and battery storage. However, diversification options are noticeably more restricted for tenant farmers than landowners.

Carbon

Farmers increasingly want to know what their net carbon position is, how they compare, and what they can do to improve the situation.

A carbon audit will help the business to understand where it sits on the journey to net zero, whether it might in time be able to sell carbon offsets or whether the farming strategy needs to change to reduce emissions through a combination of increased efficiency, changes to enterprise mix and possibly changes to land use.

For example, where there is an arable enterprise we might discuss the pros and cons of bringing cover crops or legumes into the rotation, the use of variable rate drilling/fertiliser application, nitrogen sensing and yield forecasting.

In some cases the FFRF will fund a carbon audit.