Challenges Ahead for Agri-businesses and Rural Landowners
H&H Land & Estates looks to the future post-Brexit and encourages rural landowners to be prepared.
How well do you know your business and are you ready for challenges ahead? This is a question that Tim Parsons, Director of Professional Compliance, H&H Land & Estates, one of the North's leading Chartered Surveyors, Agricultural Land Agents and Valuers across the North of England and Southern Scotland, is posing to agricultural landowners.
There is inevitably going to be increasing pressure on farm businesses following Brexit. Changes in the trading environment and domestic policies after the Common Agricultural Policy (CAP) including the reduction in BPS (in England certainly) and the move to a policy of “public money for public goods” means that farm businesses have not faced so much political and policy change since the period after the Second World War.
Coupled with this is the rapidly increasing global awareness of climate change and challenges that flow from those issues and the ambitious timelines set by the government for tackling those issues.
The draft Agriculture and Environment Bills set the course for the future of British agriculture and environmental management and is the first time in several generations that the UK has had control over the direction that agricultural and environmental policy goes.
At some level, all farm businesses will experience economic, as well as practical pressures and issues, so having a detailed understanding of your business in all respects is going to be key. That way, proactive, well-judged and thought out decisions can be made as the policy and political decisions unfold into the need for practical action to be taken.
With this in mind, what are some of the key questions to be addressed? Areas to consider may include some, or all the following:
- History & future objectives – where has the business come from? Where is it now? And where do the key parties involved wish to see it go? Do they all agree on the objectives?
- Business structure – is the current business structure right to go forward? Is the structure reflective of the real position? Are the right people involved in the business to take it forward? Are there issues around succession and land and asset ownership that need to be addressed? Is actively farming still the best answer or is there an alternative or is getting out an option?
- Financial performance – how is the business currently performing? How is it performing against other businesses? Do you really understand your accounts? Have you analysed the accounts to see how much are you are actually making in cash terms from the business? How are each of your enterprises individually performing? Have you stress-tested the financial performance against changes in commodity prices, costs, reductions and ultimate removal of BPS payments or additional environmental liabilities? Do you budget regularly to help manage the way forward? Are the right borrowing facilities in place at the right cost?
- Practical performance – how are your individual enterprises comparing to others, do you benchmark? Are you maximising income whilst reducing costs to maximise margin? Are your animal welfare obligations being fulfilled – can you do more? Have you got the right labour employed or family? Are you engaging with the most up-to-date technology or genetics in order to maximise efficiency?
- Property – is all your property, land buildings or dwellings being used as efficiently as possible? Are buildings, pollution control facilities, land quality up to the increasing standards? Have you carried out a property audit? Are there other land uses that might release value – development, diversification? Will changes to agricultural tenancy legislation affect the way you occupy land? Will increasing residential tenancy reform affect non-farming incomes or have cost implications due to increasing property standards?
- Environmental management – what have you already got on farm and what are you already delivering? Can you deliver additional environmental benefit alongside the core farming business? Are your management practices for soil, water and air quality as good as they can be? Do you have environmental assets (natural capital) that offer opportunities for securing income or value for example from carbon storage, flood alleviation, schemes or historic features?
Tim is keen to emphasise that this is not a list that should prompt fear, but one that should help prepare those it could impact. He explains:
“Yes, this is a long list and there will inevitably be more questions as the conversations develop. Some of the answers will only become clearer as policy and practical implementation of government decisions come forward over the coming years BUT starting to think about and discuss these issues now will not be time wasted. Some of the conversations that need to happen in many businesses might be uncomfortable and then some of the answers may be difficult to accept, but the process should prove ultimately positive. “Sticking your head in the sand” with so much change coming along cannot be an option. If you do not manage the changes and take control, then they will inevitably manage you.”
Family conversations can be potentially particularly difficult, especially between generations, so having a 'trusted advisor' involved in the process might help. That advisor might be the land agent, consultant, accountant or lawyer but they will in many cases know the business and family and be able to act both as a facilitator in the discussions as well as provide advice on a particular issue. A third party from outside the business or family brings a fresh perspective and view that may be useful.
One thing is certain that the pace of change in agriculture and environmental management has not been faster for many years and the sooner a business starts the evaluation process and plans ahead, the stronger position they will be in.