Monday, 17 December 2018
The second in a series of blogs looking at Brexit from different points of view across the industry
By Philip Dolbear, AHDB Arable Knowledge Exchange Manager
While there is no clear decision on Brexit overall, details have gradually emerged about the proposed Agriculture Bill and potential trade arrangements. One clear message is that direct payments will gradually reduce to nothing and this has focused business minds to look at how profit and loss accounts would look without them.
Some time ago Julian Gold, previous AHDB Monitor Farmer, started looking at how AHDB's three Brexit Scenarios would play out if he put his own business figures in each. This showed the business would suffer severely, despite good technical performance, given its large size and hence BPS payment, together with 100 per cent reliance on paid labour. This has driven Julian to look even harder at his soil management, to build on the maxim, 'healthy soils, healthy crops', then to translate this to lower inputs without impacting on yield. He has also been a regular member of the AHDB Farmbench Benchmarking Group and this, together with Monitor Farm meetings, has led him to review his machinery policy, keeping high-value machines longer and replacing items with second hand rather than new, even allowing for higher repair costs.
Across the country, all the AHDB Arable Monitor Farms have this year undertaken a detailed labour and machinery review looking at efficiency (capacity and work rates) and costs. This has revealed a massive range in figures. For example, there was a range of £119/hectare (between £341 and £460) in total labour, power and machinery costs in the middle 50 per cent of the group figures. The range between the top and bottom 25 per cent was even greater. Potentially this could identify areas where improvements could be made to negate loss of BPS. However caution is required. At the recent Truro Monitor Farm meeting, while Monitor Farmer Howard Emmett was shown to have well above-average horsepower per hectare and plenty of capacity for the farm, because of his machinery ownership strategy and reliance on family labour his overall costs were not out of line.
Benchmarking has identified other business areas where potential savings could be made in the business cost structure. The Bath Farmbench Benchmarking Group took members' agronomy costs to task because the variation wasn't always justified in a corresponding difference in performance, prompting further questions to be asked.
Elsewhere bigger strategic changes have been made including Farm Business Tenancies being given up in the realisation that, even with good technical performance, economies of scale were not necessarily being achieved that outweigh paying rent. At Taunton, Jeremy and Simon Walker used Farmbench to critically compare their beef and arable net margins. This identified their suckler cows were not generating the gross margins to cover the business' fixed costs. As a consequence, the suckler beef are being phased out, giving way to more arable.
These are just some examples. There are no magic fixes to negate the loss of the Basic Payment Scheme. However it does show, even now, business cost structures can be reviewed, action taken and strategy changed to start getting ready for when that cheque finally stops dropping through the letterbox.