Key comparisons between cereal top and bottom performing farms

There are eight key comparisons between top and bottom performing farms, with related case study examples from either quartile to provide real-life examples of actions farmers are taking. 

• Agricultural costs
• Contracting
• Debt
• Agri-environment schemes
• Agricultural diversity
• Wheat price and yield
• Agricultural output
• Attitude to change

Total costs are much lower per hectare and per unit of output on top performing farms. However, top performers spend more on fertilisers, seeds and crop protection products.

Top performers spend money where they can see a direct return for their investment, specifically the variable costs of producing each hectare of crop. Each pound spent is focussed on raising the yield, quality or chances of success of a growing crop. Expenditure stops when the likely return on that expenditure is no larger than the cost itself.

On the flip side, out of every pound spent on the farm, the lower-end performers spend over a third more on overheads. Overheads are necessary to operate a farm, but they rise quickly, to exceed economic optimum levels, instead producing surplus resources such as workforce or machines which are inherent costs that are then difficult to remove from a business when markets fall and profits are squeezed.

“All land is within a 4-mile radius of Oaktree farm. Philip and George have previously declined offers of work further away as the associated costs of travelling are deemed too large to be justifiable. Not only would this incur high direct costs of running tractors long distances, but the business is operating on nearly full capacity for its overheads at key times of the year. Taking on land further away would require additional tractors, trailers and staff members at peak season. These costs are deemed to be irrecoverable from the potential returns generated on the extra land.”

Oak Tree Farm, Top Performer

Levels of contracting are significantly higher amongst the top performers. This has become more noticeable since the 2018 report.

The headline cost of hiring another firm to bring their own machinery to do a job for you might appear expensive, but this is because the costs of that operation are all wrapped into the price asked by the contractor. Owning machinery, and leaving it in a shed (or nettles) for 51 weeks of a year, also incurs considerable cost, but is not as explicitly visible.

Some farmers claim that you take more care over your own fields, and contractors ‘just want to get done’, but they have more time with machinery to develop expertise each year.

Contractors may also have better machinery for the job, i.e. cultivators that suit the ground conditions that season, or the latest technology (GPS) that an individual farmer may not be able to afford. Thus, contractors have been able to offer better value services.

“Apart from Philip and George, the only labour comes from a local famer brought in at peak season on an ad-hoc basis. The business is lean on labour in summer and during drilling but is arguably overstaffed for the winter period. However, the pair believe this downtime is important as they spend time away from the farm with their families. It also allows them to have a greater focus on the technical details of their operation and to make plans for the next season.”

Oak Tree Farm, Top Performer

There was a high correlation between higher debt levels and poor performance.

People in business borrow money for two main reasons. The first is because they are losing money, the business cannot pay for the costs it is incurring and the business needs to borrow money to pay for them. The second reason is to finance expansion or considerable capital expenditure.

The last few years money has been very cheap to borrow. This is not the case now. Those farms with large levels of debt will find themselves paying increasingly more on their finance charges in the coming year. Poorer performers did not factor that into their sums when they borrowed money. Businesses with lower profits cannot repay their debts as quickly as those with healthy profit. Overall, there is no easy way to tell from data why farms have borrowed money, except we can see that a debt burden pulls down the overall farm performance.

“Under Peter’s control, machinery was worked hard but maintained well and David spent much of his youth operating older tractors and implements. Those days are long gone and with the chequebook in hand, David is a salesman’s dream. The business has an extensive list of hire purchase agreements with local dealerships. Tractors are regularly updated to ensure the farm has a good image in the local farming community. David is not one for fixing and maintaining machines so would rather pay for the convenience of newer kit.”

Manor Farm, Bottom Performer

Bottom performers have more agri-environment income per hectare, but the difference is not statistically significant after matching. The difference is much smaller than in the 2018 analysis.

Agricultural policy is changing and becoming a standard way to generate an income from Government funding. Whilst the agri-environmental income is still more attractive to lower performing farms, this trend is clearly changing as agri environmental schemes become more generous and attractive to all farm types.

Some of the (higher value) options that are becoming available in agricultural policy schemes offer a generous and guaranteed income in exchange for land use change for a minimum period. Other actions are simply to reward good practice. Many (good) farmers will be undertaking these actions already so will be able to receive the support with no change to their farming systems. This is the easiest way to make money from support. More of the better farmers will see this and start using the schemes more.

“Soil testing is carried out on a regular basis across all field parcels to provide an insight into nutritional demands and liming requirements. Conveniently, all land has been entered into the SAM1 SFI Standard as it covers the cost of the soil and organic matter testing. Recently, this data has been used in conjunction with plant tissue testing to develop crop nutrition plans on a field-by-field basis.”

Oak Tree Farm, Top Performer

Here, we consider the range and diversity of agricultural crops, rather than non-agricultural diversification. Top performers tend to be slightly more specialised, but the difference is not huge. Poor performers have significantly more enterprises from grassland. Top performers have more farming activity from other arable crops (peas, beans, potatoes, etc.).

Higher performing cereal farms are more specialised, with arable crops accounting for 89% of economic activity compared with 83% for lower performers. Thus, grassland is likely to be a secondary consideration for these businesses. It then follows that the farms with greater levels of income coming from this land use, are likely to have less of a focus on their primary business.

Lower performers are more likely to have some land used for grazing livestock. This reflects the problems of being a ‘jack of all trades’, but may also be related to land quality or accessibility, since livestock is less common on the best arable land.

The more things you have to concentrate on, the less time you can concentrate on each one.

“Crop rotation is based around first wheats, second wheats, winter/spring barley and winter beans. OSR was previously grown in the rotation but the risks associated with establishment were deemed too great so beans were brought in as the break crop. Spring Barley has been brought into the rotation as a means of control on some CFA land with blackgrass issues.”

Oak Tree Farm, Top Performer

Yield is markedly higher with the top performing farms, and the price difference is also significant after matching.

As mentioned under agricultural costs, farmers that spend money on improving yield and output make more money than those that spend more on overheads. The second part of that argument is that sensible spending on variable costs raises output per hectare. It is therefore not a surprise that the higher performing farms achieve higher yields, but with lower costs.

Cost control and careful spending on items that offer a genuine return on investment are critical to raising farming performance. This is perhaps the single most important point of this work.

This analysis also demonstrates that the top performing farms are also managing to achieve higher value from each tonne of grain. This might be because the quality is higher or because they market their grain in a smarter way. Unfortunately, the answer to this is not available from the data.

“The crop rotation is traditional and David is against spring cropping as he feels yields are too low and the land can lie wet in the spring. Access onto his undrained fields is becoming more challenging in wetter months. Current winter wheat yields are circa 7.5t/ha, with neighbouring businesses achieving up to 11t/ha on the same soils. Winter Barley has achieved yields as low as 6.1t/ha and winter beans struggle to achieve 3.7t/ha.”

Manor Farm, Bottom Performer

As expected, output is much higher amongst top performers

The fact that yields are higher, and prices are higher is going to mean that output is higher. But just because one farm generates more income than another does not mean it makes more profit; some farm systems simply incur more cost than others and the very highest yielders might in fact spend too much getting there.

There are sectors in farming where those with highest output are generally not the highest earners. Every increase in yield, should be based on being achieved with less cost than the value of the additional output. This might be difficult to identify precisely, but with practice, can be achieved.

“Philip and George pride themselves on the yields and the financial returns they generate not only for themselves but for their CFA partners.”

“The family has a very good reputation within the local community for their quality of work and attention to detail. This reputation has been paramount in acquiring additional land; often with landowners and neighbouring businesses approaching Oaktree with the proposition of taking on their farms.”

Oak Tree Farm, Top Performer

There is a difference in the proportion of farms considering major change, with the top performers more likely to consider change.

Whilst this is clearly not a variable that affects historic performance, it might correlate with actions and attitudes the farmer might have held in the past and therefore create relevance to this analysis. Indeed, on the basis that higher achieving farms are more willing to change their farm systems to embrace change, or improvements, suggests that is the case.

It takes bravery and a vision to make changes, but those operating at the top of their game, can see the changes that are required to improve. The top performing farmers have taken the time to look into the future. Whilst it is of course foggy and nothing is certain, some patterns and trends are appearing which those forward looking farms can align their businesses with. Those brave enough to move away from their old ways and renew their practices will be the first to benefit from the new directions of the future.

“Manor Farm consists of deep clay/loam soils, capable of generating good yields if managed correctly. Fields are average sized and all within a 3-mile drive of the farmyard. Due to a lack of field maintenance though, and with soils prone to waterlogging, drainage is becoming an increasing issue for the business. Wet winters often lead to poor establishment and bare patches on many of the field edges. David brushes this off, blaming climate change without reflecting on his field management. He has found an external explanation for his fall in yields in recent years so feels no incentive to tackle it further.”

Manor Farm, Bottom Performer