Is your business profitable without Farm subsidies?
Whatever your political persuasion, on Thursday 12th December, the country spoke and it is now clear that the UK will be leaving the European Union on 31st January 2020. It is envisaged that the Withdrawal Agreement Bill will now go through Parliament before Christmas. The UK will now have the task of negotiating a post-Brexit trade deal with the EU by the end of 2020.
Without a doubt, the agricultural industry is about to see the biggest policy revolution in a generation, farmers must ask themselves, is their business currently in a position to remain successful, and ultimately profitable without support from agricultural subsidies. The UK Agricultural Bill proposes that direct subsidy payments, after a two-year transition period, will be phased out over a seven-year period, the biggest reduction happening in the first year.
What does this actually mean for farmers in England? To put this into some sort of perspective, according to the Farm Business Survey Data 2017/18, the average English farmer relies on BPS income for 66% of their profit.
We can see from the statistics above that the majority of farms are hugely reliant on subsidies but we at George F. White believe that with careful business planning and adopting the right strategy, the impact of the removal of agricultural support payments can be reduced. Farmers must have a sound understanding of their businesses, focus on management practices that will help them become a top performer in their sector. Farmers must review their business performance as soon as possible to ensure that they continue to be profitable and ultimately successful.
Unfortunately, we are seeing many farmers “burying their heads in the sand” and not having any real understanding as to how their business are performing and indeed if they are cash positive. Over the last three years we have been working very closely with our clients in order to prepare their businesses for the removal of direct agricultural support payments. Assessing the options for the future is crucially important, the earlier you start planning the better the outcome will be. Regular preparation of budgets, benchmarking businesses annually and comparing key performance indicators at every opportunity is what all businesses should be doing. Assessing and utilising the key assets of the business, including its people, will be extremely important. Furthermore, exploring potential new income streams, improving efficiency, investigating possible diversification opportunities and making the most of Grant opportunities as and when they arrive. It is the time for farmers to stop being just farmers and to become businessmen.
What have we been focusing on with Clients? We have been focusing on improving their performance and ultimately removing their reliance on farm subsidy as a provider of profit. The key areas have been cost control, preparation of budgets, benchmarking, attention to detail, innovation and staff engagement.
We have worked hard on the concept of the aggregation of marginal gains. The changing of 100 thingsby 1% not 1 thing by 100%. As an example, if the average English farmer changed their output by 1% and removed 1% from their overheads the marginal gain in uplift in profit would be approximately 9%.
It is important for farmers to understand the impact of what is on the horizon, we have plenty of time ahead of us to improve the performance of farming businesses and decrease their reliance on subsidy, but they must start now, do not delay!
To discuss the impact of subsidy removal on your rural business contact Simon Britton on 07866 721146 or firstname.lastname@example.org
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