Farm forecasts predict decline in profitability
Defra's Farm Business Income forecasts for the year ending February 2013 predict a decline in the profitability of farming across the majority of farming sectors.
Weather-impacted output coupled with increased input costs have hit farming over the last year, and these figures are the first to indicate the financial impact on farmers.
The increasing costs serve as a 'timely reminder', farmers said, that single farm payments act as a lifeline for many businessess.
Livestock producers are among the hardest hit with feed prices and an increased feed use hitting margins.
The forecasts show profitability for the pig and dairy sectors falling by 50% and 42% respectively.
For beef and sheep producers, falls of 44 per cent are predicted for lowland producers, while their uplands counterparts have fared worse with income falling by 52 per cent. Only the poultry sector remains unchanged, according to the Defra forecast.
HSBC's Head of Agriculture Allan Wilkinson said the agriculture industry needed to focus 'on the basics' if it was to overcome prospective problems in 2013.
Wilkinson said farm incomes expected to plateau, which means 'farmers must place extra emphasis on costs of product and enterprise margins.'
"There are no secrets to being the best – the attributes have been well documented and include a strong desire to succeed, a clear strategy, maximising the deployment of all business resources, regular benchmarking and business planning. Last but not least, a thorough understanding of your main customers is essential" he said.
"Price volatility on both sides of the budget mean that the range in the final margin can be wider than ever, the margin for timing difference being shorter than ever."
National Farmers' Union Livestock board chairman Charles Sercombe said: "Beef and sheep producers have really felt the pinch with rising variable costs, and there are a number of challenges we face going into the winter months particularly in terms of the cost of feed and quality of forage" he said.
The UK beef sector, a supply chain that generates £2.8 billion for the economy and provides 440,000 jobs in England alone, faces 'significant challenges' to secure a sound future and needs a better vision.
Dairy farmers are also likely to face worrying tax bills, despite many producing milk at a loss following well-publicised price reductions by processors.
The new figures 'make sobering reading' said NFU chief economist Phil Bicknell but will be no surprise for many in the industry, he said.
"Wheat yield and quality were hit by the weather, while it’s been well documented that rising costs outstripped farmgate price changes for dairy and pork producers at times over the last year. More recently, we can add the plummeting lamb price to the list of challenges the industry faces."
"The weather caused chaos across the board and has laid bare the importance of CAP payments. With profits squeezed, a larger number of farmers will again be forced to rely on CAP’s direct payments to underpin their business in the year ahead."
"Falling farm income data shatters the myth that high commodity prices would mean high profits. Farmers cannot produce at little or no profit indefinitely; they need to turn a profit and they need to re-invest."
"The reality is that price volatility, low profitability and falling confidence does not provide a secure framework for a sustainable food industry. These figures should be a wake-up call for us all. Managing risk and volatility are key and that must be recognised by both the government in its CAP negotiations and in pricing decisions taken by the food chain."
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