UK farmers are, on average, spending too much money on equipment, according to farm business consultancy Andersons.
Using its 600ha ‘Loam Farm Model’ based on a rotation of milling wheat, oilseed rape, feed wheat and spring beans, business margin is £314/ha (£127/acre) for 2017 including BPS and forecast to be £235/ha (£95/acre) for 2018.
Farm profits in 2017 look set to be relatively good in many sectors with prospects for 2018 also looking favourable despite some cost inflation, according to Andersons consultant James Severn. “The temptation is often to use these better returns to re-equip, especially after a period of low profitability. But investment in machinery and equipment is often not as well thought through as it needs to be.
“Purchase decisions are often driven by the desire to avoid tax or the health of the bank balance rather than the fundamental requirements of what the business needs.”
Analysis done by the company shows UK agriculture had a depreciation charge on machinery and equipment of £154 on every productive hectare in 2016 (£62/acre), says Mr Severn. “This is a 23 per cent real-terms increase over the figure a decade previously. Although prices of agricultural equipment have risen in that period, the level of spending is too high.”
Land acquisition has also added to business costs, he says. “Very high rents, or rent-equivalents under contract farming arrangements have been tendered over the last few years. The justification for some of the figures paid is often highly dubious, based on illusory economies of scale.”
Collaboration is an under-utilised way to bring overhead costs down, suggests Mr Severn. “The savings from working together can be massive. Unfortunately, without the external pressure of low returns, the industry does not tend to embrace such arrangements.”