Budget for a drop of up to 10% in 2013 SFP
Farmers should be budgeting for a single farm payment of about 10% lower than last year following EU budget cuts.
“Support makes up a large element of profitability, so the key thing is that farmers need to start budgeting now,” said Richard King, head of research at the Andersons Centre.
While the EU budget cuts will affect farmers for the next seven years, they will see the results sooner than many will be expecting, he said.
“The biggest story of this is the 2013 payment. If farmers budget the same as for 2012, they may be in for a nasty surprise.”
February saw heads of state agree a smaller EU budget for the seven years from 2014 to the end of 2020. This is the first time the EU budget has shrunk and the CAP element has taken the biggest hit.
The €34.4bn (£29bn) cut to the EU budget includes a 9% cut to CAP funding, bringing the total to €278bn (£235) for 2014-20.
Due to a quirk of the system, this year’s single farm payment will be paid based on the new CAP budget, but under the current SFP regime.
After a year where margins suffered in all sectors, farmers may look to make efficiency savings or try to absorb the SFP cut, but in a minority of cases this could be the change that pushes a business over the edge, said Mr King.
January saw the biggest year-on-year increase in borrowing in at least the past two years, when monthly records began.
Bank of England agricultural lending figures show farmer borrowing increased to almost £13.5bn for January 2013. This compares to £12.2bn in January 2012 and £11.7bn in February 2011.
The increase was largely expected, according to Mr King, and was due mostly to farmers having less available working capital rather than to higher capital investment requirements.
“There have been a lot of cashflow pressures on businesses,” he said. “Businesses will have been burning through their SFP this winter.”
Andersons has recently revised its total income from farming (TIFF) estimates down by £350m for 2013, to £4.35bn, mostly reflecting problems in the arable sector.
The TIFF figure for 2013 is just a small improvement on 2012’s estimate of £4.25bn, but significantly less than the £4.7bn the firm originally forecast back in December.
The revised figures are based on:
- A better 2013 for dairy producers, but with milk output down overall
- Improved sheep prices, with a better overall income if lambing problems subside
- An improved pig sector
- Poultry faring no worse than 2012
- Beef performing similar to 2012
- Cashflow problems in arable sector
- Livestock finishing problems due to forage quality.
It would be 12-14 months before farmers see an improvement in profit, with things starting to pick up after the 2013 harvest, he said.
| Consider hedging SFP |
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Farmers should consider hedging at least part of their single farm payment to protect against exchange rate fluctuations. Fixing a rate through a forward contract could make thousands of pounds of difference to a farm’s accounts, said Alick Jones, Lloyds TSB agriculture policy director. “This is the time to think about whether to protect this part of your income before you get tied into essential farming work over the summer and either forget or are rushed into a decision,” he said. Mr King said hedging could be a good risk management tool for larger farmers, and advised producers to consider whether locking in even a portion of this income would suit their business. |