UK farming may well have ‘an incredibly strong balance sheet’, but that is unlikely to last when the subsidy budget for the industry looks set to come to an end in 2024.

Add to that the risk of a no trade agreement between the UK and the EU by December 31, and those in the industry will have to significantly improve levels of performance and productivity, if they are to survive the next decade.

That was the stark warning from Richard King, head of business research at The Andersons Centre – one of the UK’s leading farm business consultants – who told delegates attending a ‘Prospects for agriculture’ seminar in Perth, that businesses not in the top 25%, need to use their Basic Payment (BSP) money to increase levels of efficiency to ensure long-term sustainability.

“Ex-farm prices don’t tend to increase over the long-term, which added to rising costs means farmers have to become more efficient especially when the current payments are only guaranteed until 2024,” he said, adding that at least two-thirds of current industry profit comes from BSP.

“Farming families will have £¼ trillion worth of assets on their balance sheet, but land prices are expected to fall as much as 10% over the next decade, and with inflation set at 2% and falling farm output, farmers will in effect be getting poorer, after 2024 unless they improve.”

He added that, to date, financial assistance post 2024 in Scotland remains unclear. However, with the UK’s Agriculture Bill pointing to a shift from direct support to payments for public goods, and increased calls for additional land for housing, climate change to include the planting of up to 30,000ha of trees per year and renewables, could mean that only the best land is used for food production.

On a more positive note, Mr King admitted that the best 25% of producers in most sectors are making money. The problem is unless individual businesses work out their costs of production, every farmer believes they are in the top bracket.

According to the farm business consultants, beef and sheep farmers are making the least amount of money, and many, whether they realise it or not, are lifestyle farmers and not making anymore money than their BPS provides.

And, with the risk of beef imports from both Brazil and America, being cheaper than those in the UK after December 31, there would be another source of competition if there is a US-UK free-trade agreement, thereby putting more pressure on the market.

“Demand for beef is not great. Consumers are feeling the pinch and cow numbers will fall further if we get the wrong trade deal. If we get the wrong trade deal, we could see far less beef being produced in this country as we would be importing more. There could be big changes ahead,” warned Mr King.

He pointed to a typical 380-acre, Scottish ‘Meadow Farm’ comprising mostly grassland with barley grown for livestock feed. The farm is home to 60 sucklers, a dairy bull beef enterprise and 500 breeding ewes with all progeny finished on farm.

Due to increasing costs of production, margin per ha was -£122 in 2018-2019 without Basic Payment and Scottish Suckler Beef Support Scheme money, but +£140 if included.

He added that prices for this coming year are, nevertheless, expected to rise back into the five-year average range due to an increase in demand for meat protein on the back of the African swine fever.

The sheep trade is also dependant on a good trade deal when four out of 10 lambs finished in the UK end up on the continent. However, Mr King was confident prices for 2020 will remain above the five-year average for the remainder of the year, though dependent on currency.

Dairy farms in Scotland are likely to struggle more too compared to their rivals south of the Border, post-December 31, 2020. This is due to increased costs, with a longer winter and slightly lower milk price which Mr King believes will come under pressure later this year.

Figures from company’s typical Friesian Farm, a 130 ha unit in central Scotland with 200 milking cows, point to total costs of production rising from 29.3p per litre in 2019/2020 to 29.9p in 2020/21, which with average milk prices of 27.6p and 26.8p, respectively, reveal margins of 0.6p and -0.4p per litre, without BPS.

Meadow Farm – Scotland

154ha mixed lowland (114ha owned and 40ha SLDT)

Beef suckler cows plus finishers, finished bulls, sheep and arable

Proprietor, family worker and casual labourer

£/ha 17/18 18/19 19/20 20/21

Livestock GM 739 686 633 703

Crop area GM 521 774 629 583

Total GM 694 704 632 678

Overheads 502 512 518 512

Rent, finance

and drawings 313 315 322 323

Margin from

production -122 -122 -208 -157

BPS and SSBSS 269 262 282 254

Business surplus 148 140 74 97

Friesian Farm – Scotland

200+cows plus followers on 130ha (part rented)

Year round calving, constituent contract.

Owner and worker

ppl 17/18 18/19 19/20 20/21

Milk 28.7 28.5 27.6 26.8

Total output 31.6 31.2 29.9 29.4

Variable costs 13.1 13.3 13.0 12.9

Overheads 9.4 9.7 10.1 10.5

Rent, finance

and drawings 6.3 6.3 6.2 6.4

Total costs of

production 28.8 29.3 29.3 29.9

Margin from

production 2.7 1.9 0.6 -0.4

BSP 1.9 1.9 1.9 1.8

Business surplus 4.7 3.8 2.5 1.4