Cash flow crisis on UK family farms
Half of farms in the UK are no longer making a living from farming itself, and 20% generated a loss even before accounting for family labour and capital, according to a survey by the University of Exeter.
Commissioned by The Prince’s Countryside Fund the survey explores the change that has been experienced by small family farms in recent years and asked which looked to ask ‘Is there a future for the small family farm in the UK?’
With the UK agricultural industry experiencing its third year of declining farm gate prices the decline in prices is likely to continue for most commodities in 2016 and potentially beyond.
The worst affected sectors are cereals, milk and pigs where incomes are dropping sharply.
In the past decade, alone levels of borrowing have almost doubled. A large proportion of farms across most sectors will see a widening gap between required and actual profit in 2015/16 and most likely in 2016/17 according to the survey.
17% of farms face major financial problems as their liquidity ratio demonstrates they do not have the ability to pay off their short term debt.
Current extreme cash flow pressure has driven a sharp increase in levels of farm trade credit which will increase through 2016 and negatively affect the whole agricultural and rural sector.
The businesses surveyed identified that on average more than half the proportion of their farming customers were currently experiencing cash flow issues.
Nearly all stated the low farm gate prices, especially milk, and their drop from the high 2013/14 levels, as the main driver of cash flow challenges at farm level.
The other most commonly quoted driver, 10 out of 21 interviews, was the delay in the Basic Payment Scheme (BPS) payment to farmers.
The unstable output prices does not just negatively affect farming businesses but the decreased cash flow filters through the wider agricultural sector.
Cash flow problems at farm level negatively impacts other businesses from input suppliers, vets, auction marts to consultants.
Its effects include a reduction in available work, decreasing income and potential staff redundancies although the full extent is not completely understood.
The financial pressures now being experienced require farmers to have a higher level of business skills than has been necessary in the past.
According the survey recommendations, more must be done to encourage more farm businesses to take advantage of opportunities to improve their skills in business planning and financial management.
Improved communication and collaboration between suppliers, banks and farm businesses focusing on the immediate needs to help with budgeting and managing repayments.
Timely distribution of payments to farm businesses with clear communication of projected timescales. This will not only help to ease cash flow difficulties but also boost morale in the sector.
The short to mid-term prognosis for commodity prices looks set to continue with farm businesses receiving depressed prices across most commodities.
The knock on effect of cash flow difficulties for farm businesses on the wider sector should be an issue of major concern for the future of farming and the rural economy.