Is your cash flow prepared to weather the storm?
So, we have an economy growing and general business and development beginning to pick up, but from a farming perspective things on the whole aren’t a pretty picture as has been broadcast over the press in the past few weeks. I would say that yields on arable crops, so far, look good and indeed I’ve heard of some astonishing barley yields, but then talk turns to price and the gloom sets in.
The farming community has to contend with many wide ranging factors that impact on the business bottom line, be that weather across the globe, exchange rates or foreign policy. UK agriculture is feeling the pressure of the weak Euro, not only impacting on Basic Payment Scheme payments but as clearly seen in the lamb trade, it is affecting our exports. At £20/head less than last year, a 500 ewe flock results in £17-£20k less income, the cost of a living wage. We are still feeling the effects of the sanctions on Russia; it is clearly forcing produce that would go east to stay in our markets and the summer of discontent in agriculture is not just limited to the UK, but across Europe. The French are just better at protesting and causing chaos and properly getting their voice heard.
Yes there is always the supply and demand factor and at present, for example with milk, lamb and cereals, global supplies are on the high and demand low or not keeping up with increased output globally. That simply leads to price pressure. Of course it is not aided by supermarket price wars and clearly the influence of Aldi and Lidl in the marketplace looks like the farmer is paying the price; but I think we also have to realise that perhaps we are producing too much and need to work on increasing consumption and promoting UK farming better. We are too disjointed and need to work together much better as, for example, our Kiwi counterparts have learnt to their advantage since the mid 80’s. We need strong leadership and direction, and I’m sorry to say that I can’t see that either been driven by our government (because we don’t really have an agricultural ministry) or by the industry as its too busy competing internally for market share.
Across our firm, we have great concerns about cash flows for our farming clients; some will weather the storm due to diversified enterprises but for many we fear that the poor exchange rate, reduction in subsidies and stewardships, along with low commodity prices will mean many will run out of cash to operate. The banks are well aware of this situation and where businesses have a good grip on cash flow and approach the lenders in a positive way, the banks are being very supportive. So we would just stress how important getting your figures together now is going to be for the next 12 months. My advice is to be prepared; you’ll be surprised with the support that you’ll be given in these challenging times.
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