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The DEFRA farm business income provisional results for 2020/2021 highlight the volatility which affects UK agriculture and which has become a key feature for farmers over the last few years. Unfortunately, we expect this volatility to continue, due to weather-related issues, which will inevitability occur, and commodity price fluctuations for both outputs and inputs.
Whilst we hope and expect, there will be some upturn in 2021/2022 for most sectors, the long-term prospects for UK farmers are changing, particularly with the implementation of the Government’s Agricultural Transition Plan and declining Basic Payment support.
Now more than ever, farm businesses need to plan for the future to understand the expected financial outcome for their business going forward. In our opinion, all farming businesses should prepare a financial plan (budget) to understand the expected future financial performance of the business and identify if any changes are required now, to take account of reducing support implications and ongoing volatility. All budget projections we now prepare include sensitivity analysis to identify the potential impact of output yield and price fluctuations and input cost changes.
Whilst this may not be a popular opinion, we anticipate some farming operations could even make a loss in certain years due to volatility (perhaps one or two years out of ten), however successful and effective businesses will be sufficiently profitable in the better years to offset that volatility and absorb the losses if and when they occur. This is the reality of running a farm business in the current economic climate.
One of our questions at present to clients and prospective clients therefore, is “Do you know where you stand now and can you cope with ongoing volatility in the light of declining support?”
For support with your Farm Business contact a member of our team.