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Managing price volatility with good financial understanding

Of the 75 respondents who took part in the Fieldcast survey by agricultural consultancy firm Wilson Wraight at LAMMA 2015; 28 per cent marked ‘price volatility’ as one of their greatest challenges on farm.


Georgina   Haigh

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Georgina   Haigh
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Visitors to the Wilson Wraight stand at LAMMA were asked to indicate their two greatest challenges on farm from: compliance and legislation, price volatility, cost of production, cash flow pressures, labour/skills shortage, rental/land values , crop husbandry or yield stagnation.

 

Respondents included farmers, landowners and farm workers. Of those who took part, the majority marked compliance and legislation or price volatility as one of their two main challenges.

 

The highlighting of compliance and legislation came as no surprise to partner of the firm William Mitcham, because the survey coincided with rising concerns on the new Basic Payment Scheme (BPS). But he says other responses were surprising.

 

“We cannot change Defra and EU regulations but we can do something about price volatility, crop yield and husbandry.

 

“It is all too easy to look at the challenges we face and think we cannot do anything about them, but I think we can.

 

“A lot of people feel they cannot manage price volatility but they can with a good understanding of the tools which are available to market crops, and knowing your cost of production."

 

Fieldcast survey results

Fieldcast survey results

Mr Mitcham believes other farm challenges can be managed by assessing farm finances regularly and thoroughly.

 

He says: “To some extent a lot of the challenges come back to good financial management. A forward budget and cash flow assessment of the farm would highlight any immediate concerns.

 

“All of that forges an understanding of marketing ability which will help manage price volatility. It comes back to having a good understanding of business and marketing decisions."

 

Understanding costs of production would allow a better comprehension of when cash flow pressures are likely to occur in the farming year, which would enable growers to sell crops and ensure there is cash flow at these times, he says. 

 

Growers should also consider their local and global crop or variety requirements in order to achieve the best price.  

 

He adds: “But it is not just growing a variety or crop for the market; farmers need to speak to their agronomist because there may be a very logical reason why they should not grow it.”

 

In addition Mr Mitcham says there needs to be a better understanding of the challenge crop husbandry and yield stagnation presents to the industry, as he believes it will heavily impact on agricultural businesses, now and in the future. 

 

Only 8 per cent  of respondents marked labour/skills shortage as a concern, but Mr Mitcham believes the figure does not reflect the industry’s appreciation of the labour shortage in agriculture.

 

For those businesses which are currently not performing, Mr Mitcham says a ‘frank appraisal’ is often the best option.

 

He adds: “Having someone in to help is often thought of as a sign of failure but it is quite the opposite; I cannot think of any professional business, agricultural or other which do not [have expert advice]. Farmers cannot expect to be good at everything.”

Top tips to keep your business on track:

  1. Set a budget and monitor it regularly
  2. Know your markets- grow crops or varieties depending on location
  3. Manage risks by understanding the market and fixing variable costs
  4. Understand the importance of administration work and have a good team of advisors
  5. Entrust and empower employees to incentivise them
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