Browns Farm 2015

Browns Farm is paying £200/acre for the rented land, or almost £500/ha. That produces an overall rental equivalent of over £200/ha, or £79,000. Finance costs, including bank charges and various loan interests, amount to almost £61,000.

This is by no means unusual. Farmers who are paying £200+/acre for arable land without fully assessing the impact on the existing business will struggle in the short term.

The obvious solution at Browns Farm is to negotiate a higher overdraft, but the bank manager may be reluctant to do this due to recent increases in working capital requirement. It might be better to secure the core £300,000 overdraft on a long-term loan.

This could be fixed at around 4% over 25 years depending upon existing gearing. That might be a slightly higher rate than the overdraft, but it would reduce projected peak borrowing from almost £490,000 at the 2016/17 year end to £190,000. This also reduces the apparent risk to the business, improving the liquidity ratio (current assets v current liabilities). A further consideration affecting cashflow is the anticipated receipt of the Basic Payment monies. Although we are buoyed by repeated press announcements of a December roll-out and recent confirmation of some entitlements transfers, Browns Farm remains cautious with BPS receipts budgeted for May – hopefully a worst case scenario.

A rent review is scheduled in September 2016, but there is unlikely to be much relief here, with the current £200/acre charge likely to reflect the market rate. Serving notice to quit is not a good option as the business is geared to farm almost 400ha.

It might be better to consider farming more land through a contracting enterprise. There might be an opportunity in some parts of the business where there is headroom in labour and machinery, for example combining.

The other alternative is to put the whole farm in a contract farming agreement, allowing the business to liquidate some assets while maintaining its trading status.

This would, however, be a wholescale change and must therefore be considered not as a knee-jerk reaction but as a more structural change, planned to include succession and longer-term aims of the family.

In summary, the overall position of the business is not in danger, but it is uncomfortable to be going backwards by £100,000 per year. A full analysis of the 2016/17 budget is needed to reveal the real picture and the steps required to help businesses weather the current commodity price downturn.

There are options available to farmers in this position, but it is vital to be proactive rather than reactive when it comes to managing cashflow.

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