Saturday, August 24, 2019

Survival of the fittest?

August 8, 2019 by  
Filed under Fen Tiger

Family farms are an endangered species – and a Corbyn government could wipe them out, says Fen Tiger.

What’s this farming lark about? If you listen and read about the prospect of a Labour-led Corbyn government, land ownership may not be that advantageous in the near future. Inheritance tax relief when it comes to passing on family assets – particularly land – may be cut dramatically.

It’s hard to say what this will include. It may include over-sized gardens that come with a large rambling farm house – which, despite Mr Corbyn’s family history, he seems to dislike. Farmers and landowners should be banging their heads together to think ahead in these uncertain times.

With direct payments likely to be cut at best or removed altogether, it concentrates the mind to think that land prices may have peaked and landlord rents could be about to tumble. With rent reviews due and tenanted land to bid for, no one can be sure of the level to start at.

Tough decisions

A figure including and excluding the basic payment should be a factor in any tenancy agreement. But a flexible agreement is needed to satisfy both sides. The question to ask is: are farmers able to make these tough decisions at arms length?

What I mean is this: The days of the father/son/daughter relationship regarding succession on the right to farm may be coming to an end. The successor wants to farm but is he or she able to make these decisions with a clear head? Perhaps. At least I hope so.

Farming has always changed but today it faces great upheaval. The days of growing a standard rotation are gone. Farms will increasingly become under the ownership of a limited few – with a small percentage of small family farms left to specialise in niche crops.

Why? Because even though the small family farm may grow their crops just as diligently and as well as their larger neighbour, their profit margin is unlikely to be the same.

Farmers or managers?

The family farm may have the attitude that everything is thrown at their crops to achieve maximum yield – whereas the larger scale farmers may not even see themselves themselves as farmers but perhaps as growers or land managers.

Do they look into the maths more deeply? Do they work out to the nearest pence the projected selling price of the crop verses the growing costs? If the crop has already been sold forward, they already the amount to spend to achieve a profit making margin.

This conflicts with the family farm which often spends what the crop needs and assesses the margin only after the crop has been harvested and sold. Even if they sell forward, they may not tailor those figures against the money spent to achieve that yield.

Who is right and wrong? This can be worked out only after the crop has gone. Larger farms may not achieve the highest yields but they often achieve the best overall gross margin. And it is becoming increasingly obvious that most family farms need off-farm income to survive.

More concerning is the fact that most farms coming on to the market are snapped up by well-off business owners or the Church, colleges or roll-over money. These farms are then sub-let to preferred tenants who happen to be larger farming companies.

Room to expand

While they do not directly own land, these farming companies become bigger – at the expense of the smaller family farm. Even though these smaller family farms may like to expand by purchasing an extra 10-20ha (40-50 acres) that border their land, they are unable to do so.

Of course, this happens whichever colour government is in power. But as the UK’s political fortunes swing back and forward, the uncertain times we face as farmers look even more precarious with the prospect that farming families may no longer benefit from inheritance tax relief.

Forward-planning is difficult. With borrowings based on strong land prices and rents aligned to the basic payment, it is hard to know the best course to take. Larger farms seem unafraid to borrow big while smaller farms appear cautious or simply unable to convince banks to lend.

If you cannot make money, then you must try to save money by whatever means works for you. Maybe renting  your land to a large neighbour that frees up farm buildings may seem wrong and a decision of last resort – but it may also be the saviour of the farm business.

Perhaps, in years to come, farming will go back to smaller land holdings. Big farm ownership may be exciting but is not always best. The ideas of yesterday may shape today’s future – and all these decisions need to be taken and cannot be put off for much longer.

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