Property & Professional

Challenging weather sees 18% fall in farm incomes

• Difficult year sees decline in profits • Performance better than expected • Partial recovery may be on the way

Net farm income during the latest harvest season fell by 18% in the East Midlands, according to a survey by accountants and business advisers Duncan & Toplis.

The survey – which covered 8000ha of farmland – found that average net farm income for the 2020 harvest fell to £109/ha, down from £133/ha the year before. But the 18% fall was still better than the 30% drop predicted a year ago.

The main cause of the income reduction was the wet winter and flooding of 2019/20 which was followed by a very dry spring. This caused difficulties establishing crops, with challenging growing conditions further limiting yields at harvest.

Flooding across parts of the East Midlands – including Lincolnshire and north Nottinghamshire – in late 2019 meant farmers were unable to

Profit margins have tightened three years in a row, says Mark Chatterton

drill much of their winter wheat, leaving large areas of land unused until spring crops could be planted.

Tighter profits

Increases in commodity prices helped to offset the cost of the reduced yields, but gross margins still reduced from £665 to £627 per hectare, making this the third year in a row in which profit margins have tightened.

Mark Chatterton, head of agriculture at Duncan & Toplis, said: “Every year, we survey farms in our region with year ends between September and January to identify the overall trends across the sector in the East Midlands.

“After 2016 saw one of the worst arable harvests in a decade, farms in our region saw net incomes rising over the following two years, reaching a peak of £163 per hectare in 2018. Since then however, incomes have decreased again.

“While net income is still far better than the low-point in 2016, it has been a difficult year for many. Fuel saw

2021 harvest yields set to fall below five year average

Study claims farmland can help UK reach Net Zero target

Farmed landscapes can contribute to carbon management while also offering opportunities for wildlife, says a study.

Peatlands and native woodlands are among the habitats with the greatest capacity to store carbon, says the Natural England report. But other habitats – including including grasslands – could have a significant role too, it suggests.

Hedgerows can increase carbon storage while benefiting wildlife and biodiversity as part of the farmed countryside, says the document. Future environmental land management schemes will reward farmers for doing this work.

The report says the landscape recovery tier of the forthcoming environmental Land Management scheme will incentivise major land management changes and habitat restoration across England.

Natural England climate change specialist Ruth Gregg said: “To achieve [our] full potential in helping the UK achieve net zero by 2050 we need to act now, basing decisions on robust science and taking a strategic approach.”

Land agents Strutt & Parker say increased demand from green investors looking at alternatives to food production is one of the most notable developments in the farmland over recent months.

“They still represent a very small subset of the market, but it does look as if that proportion is set to grow,” it says. Plans include tree planting, rewilding and other conservation and carbon-offset projects.

National Sheep Association chief Executive Phil Stocker said future land management schemes would provide the opportunity for the vast majority of the UK’s farmland to be managed in ways that enhance soil and nature.

This would be achieved through the forthcoming Sustainable Farming Incentive – but also go further with local nature recovery and landscape recovery to create and maintain habitats with related net zero benefits.

In the study, woodlands are noted as having high rates of carbon sequestration – depending on the species, age and location of trees. Old woodland can become substantial carbon stores, it adds.

Mr Stocker said protecting these habitats was important for biodiversity too. But he cautioned against a headlong rush to meet tree planting targets – saying it was crucial to remember the importance of suitable site selection.

“The right tree in the right place is what is crucial and that future needs will be a mix of climate control, nature recovery and a need to feed ourselves healthily and not ‘offshore’ our footprint to somewhere that is simply out of sight.”

Trees and shrubs – alongside sheep and grazing animal systems – could support food production while providing wider environmental and nature benefits, helping to contribute to the UK meeting its carbon targets.

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Fortunately, crop prices remain high

a considerable fall due to a price reduction and a change in cropping mix to more spring crops and fallow. Machinery repairs and contract and hire costs also fell.

“Meanwhile, depreciation increased slightly. This fi gure is net of profi t on sale and this had a greater impact in 2019 when there were more trade-ins. Property repairs also reduced back to 2018 levels as farmers did not carry out as many planned projects.

Other overheads remained consistent, but rent and fi nance costs increased as the fall in profi ts increased overdrafts.

Harvest forecast

Looking ahead to the 2021 harvest, Mr Chatterton said he expected average yields to be below the fi ve year average once again because weather patBeen promised a nest egg for your agricultural land? Been promised a nest egg for your agricultural land? terns had not been favourable. “More winter crops were sown last

autumn than in the previous year, but many farmers report having bare patches in their fi elds as a result of poor drainage. Fortunately, crop prices remain high.

“Most farmers budgeted realistic prices for wheat of £155 per tonne and £375 per tonne for oilseed rape. Forward prices are now a lot higher, but many have locked into a selling strategy already and so they will not reach these higher prices on average.

“On average, farms will also experience the effects of an 15% drop in the basic payment subsidy. I expect that farm gross margins for the upcoming harvest could be £50 per hectare higher at £677 per hectare.”

That said, Mr Chatterton cautioned that net profi ts would depend on the ability for farms to control costs, particularly labour and machinery costs which should be kept below the ‘magic fi gure’ of £370 per hectare.

“This might be more diffi cult to achieve this year, because many investments will have been postponed due to the poor harvests of recent years and there may be new challenges in securing seasonal workers due to Covid-19 and Brexit.”

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