It’s hard to believe that as I write this, we are fast approaching the mid-way point of yet another year, although looking out the window at the frost on the ground you wouldn’t think this was the case. Hopefully when you read this, spring may have finally sprung.
If we roll back 12 months, the agricultural sector along with many others were certainly feeling the effects of the war in Ukraine. The events had a significant impact on input costs with fertilizer, feed and fuel, to name just a few, increasing to unprecedented levels. Consequently this prompted much concern that many businesses would not even be able to continue with these levels of costs. Along with increased prices, the war also brought shortages of some commodities and a lack of European seasonal staff. The outlook at this point was very concerning for many, to say the least.
However, as we travelled through 2022 and into 2023, stock prices remained strong especially in the case of the beef market values that have continued to rise. This has resulted in a positive impact on the store cattle, calf and geld cow market which have all got to levels that many farmers would never have believed. This is also the case in the dairy sector, with many farmers receiving in excess of 50 pence per litre for their milk by the time Christmas arrived, which offset the increased input costs and gave many farmers the optimism and opportunity to invest, reduce some debt, or commit to some form of diversification.
Some people I spoke to were under the impression that the high milk price was a result of high costs, which was sadly a myth. Now, with supply catching up to demand due to increased production coupled with a decrease in demand, we have seen a sharp decrease in the farmgate price with many already seeing a 25% drop during the last couple of months, and the talk of further reductions being likely. For many, this will see a price being paid that is less than their breakeven and having to make difficult decisions once again.
Another factor having a significant impact on the agricultural sector, are the interest rate increases from the historic lows. These are greatly influencing the decisions being made, but as we go through 2023 the hope is that these measures will bring inflation under control and then interest rates may start to reduce.
During the last few months, we have been proactively working with our clients to help manage the tax consequences as a result of this mini boom. The rate changes could result in increased tax liabilities becoming due, during a time of lower prices and increased pressure on cashflows. I would advise everyone to review their position and plan for the potential of these increased liabilities.
Along with the volatility in prices, the agricultural community are feeling the effects of the continued reduction in the BPS. Many businesses are having to navigate a way through the impact this is having and review other schemes and opportunities to help future proof their business. This includes reviewing the ELMS scheme, which although this will not replace the BPS, it may well be an option or opportunity for your business. As well as ELMS, the Countryside Stewardship schemes are still available, which provide the opportunity for significant capital grants, including an annual revenue payment. Several of our customers have benefited from this and received help towards fencing, renewing hedgerows, replacing concrete yards and roofing over silage pits and muck middens, to name just a few projects.
2022 continued to see increased pressure on the agricultural sector from an environmental perspective, with much focus placed on how farming impacts climate change. It’s clear to see that the spotlight on our industry will remain, and there is going to be further pressures placed on farmers going forward to reduce this impact. This will ultimately be driven by processors, consumers and eventually further legislation. We are already seeing the impact of some current regulatory changes, often resulting in farmers having to make significant investment to remain compliant and continue trading.
To aid some of this investment, we have already had the first round of the Slurry Infrastructure Grant. If you were unsuccessful in applying for this grant, there will be two further opportunities to apply in both autumn 2023 and 2024. There was also the Farming, Equipment and Technology Fund (FEFT) which this year has been split into two elements. The first being Productivity and Slurry, for which the application window has now shut, and then the Animal Health and Welfare, which is still open until midday on the 15 June.
Agriculture has always been an innovative and progressive industry, and this coupled with the drive for change within the sector, means we have been working with many of our clients who trade as limited companies to complete Research and Development claims. Research and Development Tax Credits are a government tax incentive to support innovative farmers carrying out research into scientific and innovative improvements to their business.
Looking forward into the second half of 2023 it’s a case of taking the rough with the smooth. In one sense we will be faced with the challenge of volatility, increased legislation, and further expectations from consumers, which will no doubt have an impact on all of us within the farming community. However, stock prices seem to have firmed, there is an expectation that costs will continue to reduce, and we will hopefully see the milk price bottom out and then begin to recover.
With all this in mind, farmers are going to have to adapt and plan. I would urge all businesses within the agri-sector to review these challenges and to future proof your business against them, whilst also ensuring any opportunities which arise are fully taken advantage of and grabbed with both hands.
If you would like any guidance on future proofing your business, contact our agri team today on 01228 711888.
