Preparing to Meet a Perfect Storm?

14th August 2018

Agriculture is caught between the consequences of the climate and the decision to leave the EU.

 
Craig Brough, Associate Director & Chartered Surveyor of H&H Land & Property, takes a look at today, and discusses what is waiting in 2019.

 

Collaboratively, the weather and politics have produced a condition of tension and uncertainty in agriculture that is unprecedented. Whatever the future holds, both in the short and long term, big changes are afoot. It is impossible to predict where we will be in twelve months’ time. Only one thing is certain – it will not be like today!

 

As we look to winter, following one of the most unprecedented summers in recent years, rising costs look to challenge the agricultural industry. The late spring, followed by quickly rising temperatures, has left many producers short of forage and crop. The situation is so concerning that it has spurred meetings to address the issue at the highest level within Government.

 

This is having an immediate knock on effect on input prices, with wheat and barley prices rising as a result of reduced harvest and rising demand, as producers look to plug the shortfall in their crop stocks. The further demand for forage and moist feeds stocks from the digester industry has added further pain to livestock producers.

 

It is not just variable input costs which are set to rise however, as following the announcement last week by the Monetary Policy Committee, interest rates are to rise by 0.25%. to 0.75%. We have had almost 10 years of low interest rates following a reduction in base rate from 5% in August 2008, finally reaching 0.5% in March 2009. For many businesses this has made borrowing costs during this time very lucrative. However, as the base rate begins to rise increases in overdrafts and other non-fixed borrowing will begin to impact on the fixed costs of many businesses.

 

So going forward, my advice to businesses is this; you need to assess your cost structures through the autumn of 2018, to ensure that you are well-placed to deal with the winter period.

 

Of course, for many, the key time will be spring 2019 when some of the biggest changes that UK agriculture has experienced take place, as on the 29th March we leave the EU.

 

At the present time there is very little information with regards to future trade deals with the EU which may exist on exit. During the time it takes for prices to settle and find their level in a new trading environment, farmers need to prepare themselves for fluctuating markets.

 

Although there is some certainty over continuing Basic Farm Payment through the initial transition period, levels of capping or digression have still to be announced. Businesses therefore need to start planning now for possible changes in cash flow, through both reduced subsidy and changing stock and commodity prices.

 

Those businesses which have the most streamlined costs, in terms of production, will be prepared and able to weather this period of fluctuation most efficiently. For those which haven’t, they really should complete a full review of their business practices as soon as possible, as this will allow time to implement changes should they be required.

 

So to conclude, whatever is just round the corner, whether it is in the hands of Brexit negotiators or weather-driven, the best advice is to be prepared. Review your business and its practices now.

 

For more information, please contact the Carlisle Office of H&H Land and Property on 01228 406260, Durham Office on 0191 370 8530, Kendal Office on 01539 721375, Thornhill Office on 01848 260395 or Newtown St Boswells Office on 01835 344860.