UK Farming - creating certainty in uncertain times09 July 2018
By Charlotte Davies, Head of Agricultural Finance, Shawbrook Bank Limited
Brexit and beyond
Since the referendum in the summer of 2016, speculation has been rife as to what Brexit will mean to the agricultural community. Not least because the EU is the UK's single largest trading partner in agri-food products, accounting for 60% of exports and 70% of imports.
Since the early 1970s, The Common Agricultural Policy (CAP) has provided the essential framework for agriculture as we know it today, including the ways in which farmers are remunerated under the provisions of the Basic Payments Scheme (BPS). While the UK government has committed to maintain the current levels of subsidy funding to the end of this parliament in 2022, the distribution of those funds may be subject to change.
So with the full impact of the UK's exit plan from the EU and Brexit trade negotiations far from fully defined and the mid-term future of subsidies unclear, it’s no wonder that we’re seeing growing levels of uncertainty across the industry.
Trying to predict the likely outcome of Brexit may have already become a national sport. But when you’re running a farm, there are probably better things to do – including practical measures that could insulate your clients’ business from whatever the eventual impacts might be. Fortunately, many of these measures are simply a means to make your business stronger, which means no regrets regardless of your political leaning and the eventual fallout of us leaving the EU.
Three common themes are already emerging as I speak to farmers, land owners and experienced brokers from across the industry about the plans they’re putting in place ahead of 29 March 2019 – and each applies whether you’re optimistic or pessimistic about the road ahead:
1. Diversification - ploughing a new furrow
Explore new revenue streams above and beyond your core business to supplement existing revenues and spread risk. About half of all UK farms have already implemented some form of diversified activity in their businesses according to the latest figures released by DEFRA. Land is being used for a wide variety of leisure activities, such as ‘glamping’, stables and riding schools, clay pigeon shooting and paintballing zones; the rising demand for artisan foodstuffs and fresh produce continue to improve the viability of farm shops more viable; and generating income from renewable energy is now a more practical reality given advances in technology and related specialist finance.
2. Efficiency - embracing the agri-tech revolution
The pursuit of productivity gains is endless, but some are now taking bigger steps to create greater efficiencies – whether to improve productivity, to reduce costs or both. Agri-tech is now beginning to transform the landscape of modern farming, including GPS software products, robotic milking and picking machines, rechargeable electric tractors equipped with telematics, as well as farming drones and artificial intelligence (AI). To quote just one example of how advanced some of these technologies are now becoming from the Farming UK website: “drones will use advanced scanning technology to detect crop disease before it is visible to the human eye and assist in the intelligent use of pesticides, dramatically reducing our exposure to them and increasing crop yields.”
3. Growth – sustainable investment
One approach to dealing with uncertainty is to pause, take stock and to wait for it to pass. Another is to consider whether the current circumstances are an opportunity to activate growth plans and to invest in sustainable growth, which could provide insulation in the face of future headwinds. Whilst interest rates remain low and the economic environment relatively benign, now could be the time to invest in more capacity, additional livestock or even to acquire a complementary business.
So whilst no one can predict the future of our relationship with the EU (any more than they can the weather with any accuracy!), there are positive steps many farmers are taking to prepare their business for whatever lies ahead.
Whether investing to generate long-term productivity gains, diversifying into special breeds, food production or renewables, or simply seeking to protect cash flow whilst renewing critical equipment, at Shawbrook we could help your clients. We believe that the UK’s agricultural sector has a bright future, whatever the political weather, and I believe our role in funding the assets that power diversification, productivity and growth has never been more relevant or more essential.
To discuss your agricultural finance requirements, get in touch with Charlotte.