Business Update

From AF CEO Jon Duffy

Farm businesses must focus on income shock proofing in 2018

Risk management and protecting businesses from political uncertainty should be the focus for every farmer in 2018.

The principle challenge for UK farming is how to drive certainty in an uncertain world. 2018 is the last full year that we will be in the EU and the single market. It is, I believe, the year that all farmers should be getting to grips with risk management.

The agricultural world is changing rapidly and some of the changes that we will see post-Brexit could be seismic. By taking action now, agricultural businesses will be able to withstand, and even thrive, through such changes.

Therefore, this year should be seen as the year to plan and to take control; to put the farming business into a shape that can withstand any income shock; and be able to take full advantage of the better times that will come.

Doing a thorough benchmarking exercise should be a must. Asking the simple questions of ‘how do I compare to others?’ and ‘what do I need to do to improve?’

Getting costs under control is normally a good place to start when looking at control and risk management. Non-vital costs should be removed. This is normally excess labour and machinery. Variable cost spend also needs to be rigorously examined.

I do not know a farm business that can justify a procurement resource. Buying through a professional buying group that is doing the procurement work for you has to be right.

The macro-agricultural world we live in is not changing because of Brexit. The world’s population will still hit 10 billion and the trend to consuming more calories globally will continue.

We have had four years now of relatively benign world weather and therefore production has kept up with demand. However, global stocks of the main agricultural commodities are not immune to major production issues. We will get bad years, stocks will decline, and prices will increase. The only difficulty is no-one knows when.

Jon
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