A new report from The Prince’s Countryside Fund attempts to quantify the cash flow pressures currently faced by farmers in England and Wales, and the knock on effects on the supply trades and wider rural economy.
The Fund commissioned the Andersons consultancy to carry out the work in March 2016, through a survey of 21 agricultural businesses in Cumbria, the South West and Wales. It found that levels of farm borrowing have almost doubled over the last decade to the present £11 billion, with a 15% increase in 2015 alone. This trend is set to continue as all farm sectors are affected by the continued decline in commodity prices, now in its third year. Nor is there any end in sight. Delayed Basic Payment Scheme funds are also a factor for many farms.
The worst affected sectors are cereals, milk and pigs where incomes are dropping sharply, but 17% of all farms do not have the ability to meet their short term debt. The study found that half of UK farms are no longer making a living from farming alone, with 20% generating a loss before family labour and capital.
The survey of businesses supplying inputs and services identified that on average, more than half of their farming customers were currently experiencing cash flow issues. Farm trade credit stood at £2.3bn at the end of 2014 (up from £1.4bn in 2005) and is expected to have increased in 2015 and through 2016, with a consequent impact upon suppliers own cash flows. The effects on these upstream companies include a reduction in available work, decreasing income and potential staff redundancies.
Suppliers report that farm customers are spending less, seeking to spread and delay payments, opting for credit and leaving their purchasing to the last minute. They are also negotiating harder to reduce prices. In turn, suppliers have to tighten their credit control and train staff in dealing with customers under pressure. Some are looking to diversify outside agriculture to limit their exposure.
In the longer term, the suppliers foresaw an increased profit risk from market volatility or lower profit and a threat to business viability. The crisis is likely to drive consolidation to fewer, larger farm customers, which could limit business scope and growth, require fewer staff and reduce the opportunities for training and new technology investment.
"The research presents a very bleak picture - not only for farmers but also for the wider rural economy,” comments Lord Curry who chairs The Prince’s Countryside Fund. “Volatile commodity markets are not just affecting farmers: decreased cash flow is affecting the industry as a whole, from vets to feed and machinery suppliers to auction marts. The full extent of the crisis is not yet fully understood.
"As a result we are witnessing a trend towards increased and sometimes risky borrowing by farmers. Distressingly the outlook does not look set to change in the short-term and the degree of uncertainty about the future is affecting everyone. This in turn is causing suppliers to consider making job redundancies and think about coming out of agriculture.
“It is essential that farm businesses seek professional advice, have all the support they need to cope and that they are equipped with risk and business management tools. Confidence, better cooperation and communication throughout the supply chain are needed if they are to survive."
The full report is available via: http://www.princescountrysidefund.org.uk/downloads/research/cash-flow-crisis-in-farming-report-april-2016.pdf