Transition Live: Taking the risk out of farming
© David Forster/Alamy Live News Global instability, market volatility, political uncertainty, changing farm support, cost inflation, labour shortages, climate change, the “green agenda” – the list of challenges facing the farming industry is a long one.
And with farmer confidence at an all-time low in line with recent surveys, taking the right actions to mitigate the risks is of vital importance, according to an expert panel led by Nick Down, head of sustainability for farming company Velcourt.
See also: ‘Halt BPS cuts’ says NFU as farmer confidence plummets
Addressing a Farmers Weekly Transition Live seminar on “How to take risk out of your business”, he outlined a number of key steps his company takes in order to maintain profitability.
The ‘risk register’
For a start, Velcourt prepares a “risk register” every year, setting out the principle factors that could impact the business – for example, commodity market swings, health and safety incidents, or contract risks.
It then weighs them up according to the likelihood of them happening, the impact if they do happen, how they might be reduced, whether they are insurable, and who is responsible for overseeing them.
“Every year we run that same process and note how the risks have changed – do they go up, do they go down, and what measures we should put in place,” said Mr Down.
“It enables us to pick out the top 10 or 15 risks that will ultimately define our business outcomes for that year.”
What is the greatest risk we face?
- Freddie Braithwaite-Exley, Howden: “Public liability. The potential size of a liability claim has drastically increased in the past 10 years. But over the past three years, storm claims have gone though the roof. So farm insurers are being more scrupulous in what they are insuring. If you can’t evidence good risk management, there is a chance you will be heavily penalised.”
- Kate Bell, Albert Goodman: “Taxation, especially with a potential change of government this year. At the moment there are a lot of things available to farmers, whether it is averaging, inheritance tax, or capital gains tax that we can plan to mitigate. Whether those things last, we’ll have to wait and see.”
- Jonathan Armitage, Strutt & Parker: “Water – some specialist businesses in some parts of the country are entirely dependent on the continuing availability of water. What we’re seeing in the eastern part of England is a real challenge with that continued availability. I don’t think many of those businesses have really looked hard at their exposure to that particular risk.”
- Nick Down, Velcourt: “Managing the volatile marketplace is the key one for us. That is what dictates a good year against a bad year, not the selling strategy over 12 months, but mitigating those peaks and troughs as things change rapidly around the world.”
Market risk
The biggest risk after the weather comes from the market, says Mr Down, noting that the milk price has seen a 50% swing over the past four years, while feed wheat has moved by 125% and lamb by 75%.
As such, knowing the cost of production on a monthly basis is essential so farmers can plan their marketing better.
It is also necessary to predict when the key cash requirements will be, so sales can be planned appropriately, and to understand the dynamics of the marketplace. “Knowing what is driving change then allows you to make informed decisions,” he said.
There may also be opportunities to add value to farm produce, and farmers should look at trading tools, such as pools, market trackers and option contracts.
“There are lots of ways to help manage the peaks and troughs we see, and having a suite of those helps us to mitigate some of the risks,” said Mr Down, who also urged farmers to read the small print carefully when it comes to signing contracts.
Recruitment
Finding the right staff is another key element of risk management, said Mr Down, and something that is getting tougher every year.
His advice is to focus on attitude rather than skill set in the first instance, as the first is innate while the second can be taught. “We’re starting to see apprenticeships becoming more attractive, and we have had success at bringing in college leavers at 18 or 19. If they’ve got the right attitude, we can develop the skill sets.”
Having regular reviews, listening to employee feedback and providing career progression opportunities can reduce the risk of staff then leaving, as does providing a little more than minimum wage.
Health and safety
Avoiding farm accidents is also crucial as the risk to a business is massive if things do go wrong.
Farm fatality figures speak for themselves, but declining mental health is also a growing risk in agriculture, as evidenced by sobering suicide figures from the Office of National Statistics.
“We have to make health and safety part of our routine – not something we pick up once a year, but something that becomes part of our day-by-day routine.”
Keeping processes simple and having a planned approach with good communication will all help.
Succession
This is one of the trickiest things farmers ever talk about, especially for those with family farms.
“It’s not about life, death, retirement or ill health. It’s about having a long-term business strategy and how that changes from one generation to the next,” said Mr Down.
Good planning involves defining the role of everyone in the business, as well as non-farming partners, and understanding their hopes and expectations.
“When it comes to issues like inheritance tax and capital gains tax, the key is to get the right advice early,” said Mr Down. “It’s never too early to start a conversation.”
What the rest of the panel said about risk
Insurance
Freddie Braithwaite-Exley, Howden insurers: “Risk management and having risk registers are going to become a bigger part of driving premiums the right way.
“If we’re going to drive premiums down in the coming years, it’s going to be about evidencing how you’re managing those risks. A lot of what you do in risk management will already be in your head. You need to put it on paper and evidence it to insurers, because ultimately, it is a data driven business.”
Health insurance
Jonathan Armitage, Strutt & Parker: “We’ve seen more and more farming businesses start providing health insurance for their employees, which makes fantastic business sense, especially given the situation that the NHS is in.
“We can’t afford for people to be out of action for long periods of time.”
Farm size
Kate Bell, Albert Goodman accountants: “With smaller farms, you do increase the reliance on individuals within the business, and that reliance on key individuals is where the risk comes from.
“Generally the smaller farms are quite robust with lower borrowing, tight costs of production, and often more efficient, but the risk is if someone goes out of the business.”
Other points from Transition Live
Edward Vipond, Troston Farms on Environmental Land Management (ELM): With taxpayer support expected to halve by 2027, the aim is to use ELM schemes to top-up income on less productive parts of the farm.
But they should not change the structure of farming and it must be reversible, in case that land is needed for full food production in future. We’ll be avoiding rewilding.
Dick Neale, Hutchinsons on regenerative farming: Farmers are too obsessed with yields. If they grow a blend of varieties and yield is down a bit, they view it as a failure. But if there has been less disease and costs have been lower, it may deliver more margin.
Jim Eagan, Frontier Agriculture on farm cluster groups: The key to success is getting farmer buy-in at the start, but also stakeholder buy-in, so talk to the whole supply chain and find out what they want.
Having the right people and a close-knit group is also key. The right leaders are not always the obvious leaders.
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