Flexibility ‘key’ in facing farm challenges

REFORM of the Common Agricultural Policy and rising input costs will require an increasingly flexible approach to farming, say rural consultants Grant Thornton.

East Anglian farmers are faring well from high arable prices, but pressure is mounting on the region’s agricultural community which contributes 22% to local GDP.

Challenges include increased working capital requirements due to fuel and input cost rises, and greater demand from lenders for business reporting to support borrowing requirements.

Ian Carr, agricultural partner at Grant Thornton East Anglia, said: “Rising input costs are continuing to hit margins for crop farmers and extremely dry weather affected many crops for the first half of 2011, with East Anglian farmers in the drier areas reporting one of the poorest harvests on record.

The region’s pig farmers were also being hit as the UK market continued to suffer with further decreasing prices, said Mr Carr. The requirement from lenders for increased business reporting was another demand on farmers’ time.

“The growing requirements under the CAP to meet environmental standards means many farmers are now having to employ consultancies to take this complex area off their hands – another demand on financial resources.”

Although proposed CAP reforms sought to make the system fairer and greener had generally been considered acceptable, there was concern that some changes would be counterproductive.

The European Union plans to split the support system into two element: a basic payment available to all ‘active farmers’ who comply with basic measures; and an environmental top-up, a 30% premium for those who adopt enhanced environmental measures.

There is also a proposal to progressively cap basic payments of £140 per ha between €150,000 and €300,000, although salaried staff payments can be deducted from payment before capping.

“Most responsible farmers broadly accept these changes but many are worried that as the capping of payments will be linked to employment of labour, it will unfairly hit large, proficient farms, said Mr Carr.”

“Many farming businesses have restructured over the past few years for efficient food production and being forced to employ more people would be a backward step.”

However, the proposals were good news for farmers under the age of 40, who would receive 25% over and above the flat rate of the Single Farm Payment in their first five years of business.

“Although the East Anglian farming community is in a relatively strong position, there will undoubtedly be a number of challenges to contend with during 2012,” said Mr Carr.

“It would be advisable for all farming businesses to watch the CAP reforms carefully as they unfold and to ensure they have a structure in place which is flexible enough to adapt to these changes and an unpredictable market.”