The South West agricultural sector has, on the whole, been relatively unscathed from the Covid-19 crisis – at least compared to the region’s other key sectors, including tourism and hospitality.
However, every business always faces risk and for those who run farms and rural businesses, that means continually adapting to meet economic, technical, environmental and political challenges. While the Covid-19 pandemic is still causing disruption to some, there are a number of other challenges facing the sector over the coming months.
1. Government Policy - raising public money by removing reliefs
It is clear that the Government will have to raise significant amounts of money to help the economy recover from the impact of Covid-19. That is bound to involve a review of taxation policy and the potential removal of some reliefs. It seems, relatively inevitable that Agricultural Property Relief, which currently allows landowners to pass on assets to the next generation without paying Inheritance Tax, will be reduced.
Farmers should not assume they will be able to continue to move assets around as freely in the future. They should review their land property holding and seek advice on succession at the earliest opportunity.
2. Brexit and uncertainty around free trade
Although there has recently been less discussion around Brexit, because of the focus on Covid-19, it still poses a significant risk to the agricultural sector because there are many unknowns.
Many farmers have relied on free trade within the EU and we do not yet know what trade agreements will be drawn up. There may be new opportunities on the horizon, but farmers should expect less protected trade, which could have an impact on profits.
In the face of so much uncertainty, it is more important than ever for a farm business to remain well funded and well structured. That means ensuring any investments offer a good return, including building some variability analysis into new projects.
3. Changing consumer habits
Farmers always adapt to changing consumer preferences. A recent major trend facing the sector is the decline in red meat consumption, particularly lamb, and the increase in sales of chicken. Adjusting to these trends could involve diversifying, moving to an entirely new area of farming or finding a new route to market.
Any new enterprise will be relatively risky so needs to be very well thought out, with rigorous financial planning in place, including enough leeway to cover the risks.
4. Challenges securing funding
For a new business, capital funding is vital but it may become more difficult to secure that funding in the future.
The banks’ appetite for risk changes all the time but the pandemic has made them more particular in assessing risk. Banks have had to move money out to businesses across industry through loan schemes put in place by Government. Whilst from a cashflow perspective this has been a big help, banks will build in the repayment plans into their assessments of business lending. A five-year payback period is quite short and therefore cash demanding in agriculture.
Farming has traditionally been considered a good risk, but the economic impact of Covid-19 could mean banks are less able to access funding and therefore less willing to lend.
For any agricultural business seeking to diversify or expand, more caution is now needed to ensure it has the right funding in place before embarking on a new venture. For any external funders, a detailed business plan is likely to be more important than ever.
5. The removal of farm subsidies
Direct Payments will be gradually phased out from 2021 and a new agriculture and land management policy framework is being drawn up in their place. This creates further uncertainty around how farms will be funded in future.
Any future grant aid will be provided more in line with providing ‘common good’ and not directly linked to commodity farming.
Farmers can still access a number of grants, including those for anti-pollution projects such as covering slurry stores for example. If you are considering applying for this type of funding, it is important to ensure you understand exactly what is involved and are clear on how it would benefit your business.
6. Climate change and extreme weather
In recent years, we have experienced more extreme weather events. Changeable climatic conditions will continue to impact on what farmers can grow and will increase the risk of some crops in some areas. Some farms are already adapting but others will need to make decisions over the coming months and years to ensure they are not facing unsustainable risks.
The agricultural sector is currently facing significant change but I believe there is a good future ahead for innovators and clear thinking businesses. In any market place and environment the people who do well are the ones that adapt. That involves having
- A good professional team supporting the business
- A properly capitalised business
- A clear vision
- An adaptable mind
- A flexible approach to problems
- A well thought out plan
We are here to support you during these unprecedented times. If you have any queries or need any advice, please do not hesitate our Agriculture team or your local Thomas Westcott representative.
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