Opportunities in a Changing Agriculture by Michael Bax

I attended the Andersons Spring Seminar on 25 March – excellent overview. Joined a focus group in the afternoon to consider the features of the agricultural industry that are not reflected in the general credit crunch scenario.

1. Finance is readily available, albeit at increased margins and with increased fee structures. Fixed rate borrowing is being looked at hard although a difficult decision for existing variable rate borrowers on the slender margins of two years ago.
2. The land market has boomed, once again showing the counter cyclical capability of the agricultural land market. There is still shortage of supply and excess demand, but low commodity prices must have an affect. Higher interest rates would also remove some of the heat. Nevertheless, one reported sale was to a Dutch farmer who had disposed of 500 acres in Holland for £20,000 per acre giving him £10M for a UK farm purchase. UK land prices are still well behind most of Northern Europe.
3. Everyone is noting increased attention from HMRC on capital taxation in the agricultural sector, particularly marginal APR cases.
4. Diversification – views vary from region to region and many consider diversification to be a diversion for farmers who should be focused on food production. Farmers are very “hands-on” in the management of business lettings and tourism has benefited from the weak pound. Development for diversification will continue to make use of redundant assets in the right location.
5. There are concerns over the tenanted sector where a significant disparity is arising as between tenants paying rent on every acre occupied, versus owner occupiers, who have significant collateral in property and lower servicing charges for their business. After rent, the tenant farmer is not generating sufficient cash for reinvestment, and reduced availability of unsecured credit in the industry could create significant problems. A representative from a major feed producer indicated that, whilst the industry is able to provide unsecured credit facilities, it has to be increasingly discerning as to who those facilities are available to. Any new business is now on direct debit terms only.
6. In the machinery sector, it is a fact that UK equipment is now the cheapest in Europe. In many European countries, particularly the Eastern Bloc, there is simply no finance available and whilst there is significant demand, there are virtually no sales in those countries.
7. On marketing, many farmers are seeking to spread risk by selling to a range of market outlets rather than sticking to old favourites. The industry is let down in many sectors by too great a number of selling desks. It was noted that the dairy sector probably only needs three and that effectively New Zealand now only has one, having been nearer 40.
8. In the pig sector, one major producer has a refined production system in place with highly effective input purchasing contracts. He has introduced franchising arrangements with other local producers, which are working well. Similarities with wine growing in France.