Poor profitability prompts Fen Tiger to question the wisdom of farmers who buy more land using money from outside agriculture.
We all like to think we are successful. But success means different things to different people. Is it about money? Happiness? Or a mixture of both? And who decides whether you are a successful farmer anyway?
In today’s climate, many of us are struggling to survive, let alone thrive – unless we have some sort of off-farm income. I can think of only one near neighbour who has not diversified and yet still maintains the appearance of a successful farm business.
This is my conundrum. Are appearances deceptive? The farming family in question has been around for generations. They are well known and have expanded from a few hundred acres to around nearly 2000 hectares.
Going back in time, I remember other local farmers turning their noses up at such a rapid expansion, declaring that it was all very well but “all their machinery is held together with baler twine or wire.” I wonder what they think now?
The family eventually fell out – as many families do. So the brothers divided the farm between themselves and one even reached out to local farmers to see if financial assistance could be provided.
The request fell on stony ground. After all, there are no cash cows in farming. But this business has since progressed from an uncertain start to become a major player – in agricultural terms at least.
Ask them how they achieved this and they will tell you: any money earned is classed as farm profit. But dig closer to home and all is not what it seems. Ask further down the age barometer and you get a different answer.
If you listen to the younger generation, it is all about benchmarking. The farm always out performs benchmark yields. In this family’s world, their crops are never poor and the average 10t/ha wheat yield is always rounded up to 11t/ha.
It’s a big business that includes crop storage, a decent in-hand operation, lots of contract work and paying above average rents to take on more land. It makes my eyes water. In fact, I don’t really understand how it works because it doesn’t seem to add up.
Any business is only as good as its staff. Good employees must be kept happy, otherwise they leave. In this business, staff turnover is high – with seasoned employees leaving to be replaced by youngsters who are moulded to fit the company profile.
An old friend still works there. In his later farming years, he is content to take a good wage and accept lower standards. He says he has tried to improve the standard of workmanship but the farm management believe their standards are the highest already.
There are many big farms like this – and of course there are also many that are not. As in any industry, some people are good at their job and some are not. And while one generation may be successful, the next might be much less so.
Financial advisors like to tell us that past performance is no guarantee of future results. But I believe the past can sometimes be a very good indicator of what is round the corner – especially when it comes to farming.
This farm once struggled to settle invoices on time. In fact they often challenged invoices. Accounts were frequently stopped or put on hold. Nowadays things seem as though they might be going the same way.
Expansion is all very well. But only if the underlying business is sound. In this case, the farm appears to be expanding by using outside money, rather than by using profits generated from within the business.
It’s no surprise, I guess. There is hardly any money to be made from broadacre agriculture these days. No matter what the farmed area, it’s hard enough to cultivate a decent crop, let alone a decent profit margin.
Rather than through farmed profits, expansion is being funded by gravel extraction, pension fund investments and bricks and mortar – in other words planning consent and permitted development rights.
It looks impressive to the outsider. But I wonder how long it can last. It is a brave farmer who expands using money already in the bank – especially when this money could be invested elsewhere for lot less risk.
To my mind, if you cannot make money, you should save money. I await to see what happens when the cash runs out and farm profits alone dictate future expansion.