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LAMMA 2021

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Understanding merchants' financial strengths more important than ever

Uncertainty means farmers need to assess merchants’ financial strength carefully before making selling decisions this year.

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Understanding merchants' financial strengths more important than ever

Agribusiness consultant Richard Whitlock warned it is more important than ever to understand merchants’ financial positions, with merchants’ margins likely to be squeezed as they face trade uncertainties, the impact of Brexit and currency fluctuations this year.

 

Mr Whitlock highlighted the problems farmers had faced after the administration of Wellgrain in 2017, saying the ‘writing was on the wall’ 18 months beforehand.

 

“It is a high-risk environment and it is not easy for merchants to earn decent money,” he said.

 

Mr Whitlock said with uncertainty surrounding trade, Brexit and agricultural policy, as well as Covid-19, there could be some ‘upset’ in the sector.

 

Farm safety and fears of virus transmission also raised challenges this year, with farmers needing to take fair and representative samples to avoid rejections and penalties.

 

He added: “Many are going to be scrambling around to buy their share. In a competitive market, the first thing which gets eradicated is margins.”


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Assets

 

Frontier, who recently signed a deal with Warburtons, is the biggest player in the market, reporting net assets of £258.2 million, ahead of Wynnstay Group which has net assets of Simpsons Malt with £94.4m, according to figures from Companies House.

Mr Whitlock said the important things to consider were whether they were financially sound, part of a larger group and had diversified earnings. But it was also important to consider whether they provided a good service to farmers.

 

He said there were pros and cons to supplying larger and smaller suppliers, with smaller suppliers often able to offer a more personalised service.

 

“Bigger usually means you are more controlled by their processes,” he said.

 

“They usually have a process which follows a certain line, but that does not mean it is not a good line.”

 

But he said bigger merchants could still be flexible and the best time to negotiate was before agreeing a price.

 

“It may mean you do not get the best price but may work better for your business,” he added.

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