Top farms performing twice as well as worst ones, report says

The top farms in the United Kingdom are performing nearly twice as well as the worst ones, according to a new report produced for AHDB.

The report is the latest in a series of studies produced for AHDB looking at the implications for UK agriculture in the wake to the referendum vote to leave the European Union.

AHDB previously published ‘Brexit scenarios: An impact assessment’, which was intended to help farmers and growers understand the potential impact of Brexit on their sectors.

The report modelled three scenarios for Brexit - one in which policy, regulatory framework and trading relations remained as close to the status quo as is possible; another involving increased competition from imports outside the EU; and a third in which the UK moved to WTO rules.

That earlier report suggested that, whilst the impact of Brexit varied, both by scenario and sector, one factor remained constant under all scenarios, regardless of sector or farm size - that the top 25 per cent of performers, in terms of their ability to turn inputs into outputs, remained profitable.

Its author, Phil Bicknell, suggested that high-performing farms would be in a far stronger position to cope with the changes associated with all three Brexit scenarios.

This, he said, should focus attention on farmers pursuing practical ways of improving their output and containing costs.

'Preparing for change'

The latest report, produced by Anderson’s Farm Business Consultants for AHDB, looks at the reasons behind the success of the best performing farms. The report is entitled 'Preparing for change: the characteristics of top performing farms.'

The report's authors, Sarah Baker and Graham Redman, say their study shows that the top 25 per cent of farms, across all farm types, perform 1.8 times better than the bottom 25 per cent.

"This means a great deal in terms of profit difference between farmers," they say in the report. "In 2014-15 to 2016-17, the bottom 25 per cent lost £34,600 per farm from agriculture and lost £11,200 overall after subsidies and diversification. Meanwhile, the top quartile farmers made £42,000 from farming and made over £115,000 in total," they say.

And they say that the biggest factors determining how farms perform are not in the lay of the land, but in how farmers run their agricultural units. "Less than five per cent of variation in farm performance is related to geographic factors, such as soil and climate," says the report.

"More than 70 per cent of the difference between top and bottom quartile farms is due to decisions made by the farmer. The factors a farmer cannot change are mostly of small importance to performance."

'Specialised farms'

The report's authors find that the difference in farm business income for most sectors seems to be about £100,000 per year. For grazing livestock, the difference is £50,000 per year.

"Both considerable numbers, considering the farms are matched and identified as similar," they say.

They say top performers tend to be more specialised. Total costs of the best farms are often similar to those of the bottom performers, but they generate greater output and are, therefore, considerably more effective in their choice and utilisation of inputs.

Overheads of the top performers account for a lower proportion of overall costs, reflecting a more efficient use of capital. And top performing farms focus their expenditure on items that directly contribute to production; other farmers spend too much on overheads, they say.

"While there are scenarios where farming could become more profitable after Brexit, we cannot depend on these outcomes and most farms will need to work to become more competitive to retain a viable long-term and sustainable business," say the authors. "It will be the decisions made on farm that will determine your future."

'Clarity of vision'

The report highlights a number ways of achieving outstanding performance. Clarity of a vision, it says, is critical to knowing which business route to take.

Best performing farms not only write their budgets each year but also undertake partial budgets to test new ideas or identify whether an activity is contributing to the farm accounts, say the authors. They use these figures to benchmark against others.

Top farms recognise the importance of good staff, they say. They pay above the odds and reward good practice. Appropriate training, motivation and clear leadership are all paramount, says the report.

The best farms have demonstrated thought and implemented novel ideas to fit with the environment, meet financial needs and also to stay commodity focused.

"When taking on high-risk situations (borrowing lots of land and money for example), financial clarity becomes increasingly paramount," says the report.

The authors point to examples of collaboration, saving costs, passing enterprises of no interest and sharing resources. Each of these makes a business more viable, they say.

Pace of productivity

Another previous AHDB report warned that British farming had failed to keep pace with other countries on productivity.

Tom Hind, chief strategy officer with AHDB, said that, when it comes to productivity, the British agricultural industry could be doing better.

"The UK agricultural industry has tremendous potential, with some of the world’s best farmers and growers," he said in the report entitled 'Driving Productivity Growth Together.'

But he said: "Productivity growth in agriculture and horticulture has failed to keep up with that of our major competitors. If our rate of growth had kept pace with the US since 2000, the contribution of UK farming to the rural economy would have been £4.3 billion higher by 2013."

The latest AHDB report emphasis the need for British farmers to become more efficient. "Brexit equates to change for UK agriculture and horticulture," it says.

"Potentially greater competition, the shifting dynamics in our traditional export markets and the significant change in agricultural policy. All of these emphasise the need for efficiency and effectiveness in producing those outputs and making informed decisions. In short, Brexit puts farm performance firmly in the spotlight."