Monday, July 15, 2019

Downturn ‘not to blame’ for fall in income

February 16, 2010 by  
Filed under News & Business

Farmers must avoid the temptation to blame falling profits on the recession, one of the region’s top agricultural bankers has warned.

Farm incomes are set to fall on the back of lower cereal returns, forecasts Karl Simper, NatWest agriculture director for the East of England. But it would be too easy to blame recession for this reduction in profitability, he said.

“Although consumers are known to have traded down in certain commodities as a result of the recession, it is widely acknowledged that expenditure on food is non-discretionary.

“This means that the overall levels of consumption of agricultural products, destined for the food market, are less likely to be affected by an economic slowdown. In agricultural markets, it is the level of supply which has a much greater influence.”

Simper: too easy to blame recession

Provisional data for the final quarter of 2009 suggests the UK economy has moved out of recession – but only just. Growth for the economy as a whole was estimated at 0.1%.

Behind this there were mixed results for individual sectors. Agriculture, fisheries and forestry combined is one of the poorer performing sectors, where ‘growth’ was still negative at 0.6%.

As if to reinforce this, national statistics published by Defra in January, estimate that farm “profits” for 2009 have also fallen. The latest projections suggest Total Income from Farming (TIFF) has fallen across the UK by 7 percent, to £4.1bn.

A fall in farm output of £621m was only partially offset by a fall in input costs and an increase in single payments. The value of beef and sheep production increased by 10%, while the value of cereal and oilseeds production fell by 20%.

Mr Simper said: “In the cereals market, increased levels of supply have clearly had a negative impact on price and overall output. Global wheat production, for example, was estimated to be 678m tonnes in 2009.”

This was only marginally lower than the record 2008 harvest, which reached 684 million tonnes. Production at these levels is exceeding demand, even though underlying demand itself is also rising.

“Stocks are forecast to reach their highest level for eight years, which is also likely to have a negative impact on next year’s market. Tighter supplies in the beef, sheep and pig sectors have had the opposite effect, with price and overall output increasing.”

Meanwhile, the weakness of sterling has had an impact on both input costs and output prices and was the principal reason for a near 14% increase in single payments last year.

On a more positive note – although the level of TIFF has fallen, at £4.1bn it is still the second highest figure recorded over the past decade. Since 2000, the average level of TIFF (adjusted for inflation to 2009 prices) has been £2.9bn.

Mr Simper said: “Ultimately the challenges being faced by the industry have to be dealt with at an individual farm level. The volatility experienced in many agricultural sectors is likely to continue in future years.

He added: “It is, therefore, important that farmers continue to review their own businesses performance, and use the results to inform their own decision making process.”

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