Income growth is the key link to farming success

Farming business post-CAP reform has to have income generation at its heart.

The rule of thumb is simple – find ways to generate sufficient income or make plans to get out.

CAP reform and the introduction of the single farm payment signals the step change from having a subsidy-bolstered income to achieving income and profit only by meeting the volume and value demands of the market.

Experts are already forecasting that unless commodity farmers’ performance is in the top third of financial and technical efficiency then the business may not survive in its current form.

That’s why, this autumn, Lloyds TSB, together with a range of professional partners and the media support of Farmers Weekly, launches a series of farmer meetings – the Developing Income Programme.

On most farms, individual decisions have been taken about cropping and stocking policy; about markets, expansion, specialisation or contraction.

But those decisions should be put to the acid test – do they generate profit and cash for the business?

Of course, cost control is still key but most farms have stripped out excess spending.

Variable costs and most so-called fixed costs have been under the microscope and, in the main, businesses are running lean and fit.

But cost-control is not an end in itself. It creates the platform on which to build income and maximise cash flow.

As we see it, there are three main routes to income growth:

• Commercial, commodity farming

Farmers who, because of their management ability and business efficiency are in the top third of technical and economic performance, will have a future as meat, milk or arable producers.

They are the best general managers in farming.

They budget their business, know their production costs and target their markets.

They have factored in CAP reform and are confident their business is both profitable and sustainable.

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  New business opportunities

Many have already taken opportunities to exploit either their geographic situation, their skills in marketing, and their use of other farm assets – including buildings, road-side fields, camping/caravan sites, or storage, farmers markets, website marketing and/or contracting.

In short they add value to their traditional farming business by exploiting other income-generating opportunities.

• Environment

For many the Entry Level Scheme is the “starter for ten” and as experience is gained they will move on to develop resources which qualify for the Higher Level Scheme.

A farm exploiting environmental options also becomes a better bet for boosting earning potential through sport and leisure development.

Some have decided not to farm (all or part of their holding).

Care is required when choosing this way forward as overhead costs are notoriously difficult to strip out of the business.

As a consequence, on many farms “not farming” is seldom the most profitable solution.

Where anything less than a comprehensive plan to grow income is being considered, all businesses should be actively considering other imaginative operating structures and/or exit routes.

Contract farming, share farming, joint ventures with neighbours or with new entrants should all be evaluated as realistic options.

Developing Income Programme

The Developing Income Programme is a package that has all the elements to provide decision support on farm strategy or enterprise development.

This is an open invitation to all to join the Developing Income Programme and work with us to exploit the opportunities that British agriculture will present.