Navigating change in the arable sector
As featured in Arable Farming Magazine
Navigating change in the arable sector
by Arable Farming Feb 2021 Issue
The coming year will see a step change for UK agriculture and farms will have to adjust quickly to a new business environment. Cedric Porter finds out more.
The changes facing arable farmers can sometimes feel bewildering.
In 2020 they harvested the smallest British wheat crop in 40 years, while oilseed rape, a mainstay of rotations for decades, failed again on many farms, with sugar yields also damaged.
On the political front, Brexit means the UK has its own farm policy for the first time in 45 years and new customs rules have been introduced for trade between the UK and EU.
On top of that, Covid-19 has altered consumption, changed the way business is done and impacted on the economy.
Consultants Andersons was established in 1973 when the UK entered the predecessor to the European Union.
Since then, it has analysed and assessed the prospects for British agriculture.
It highlights the change facing farmers in its Outlook 2021 report.
The failure to plant winter wheat in late 2019 had a major impact on many combinable crop businesses, but growers who were able to harvest a good crop and did not sell early are enjoying high prices.
Another failure of OSR for many growers means the crop will now be absent from their rotations.
A decade ago 750,000 hectares of oilseed rape was grown; the 2020/ 21 area is only a little more than a half of that.
The absence of OSR not only leaves a hole in rotations but in bank accounts too.
It has been the main break crop for more than 30 years and most alternatives deliver gross margins that are £250 to £245/ ha less, according to Andersons.
Oats, pulses and linseed may fill the gap in some rotations, but others will grow cereals for longer.
On heavy land, a break crop, two wheat crops followed by barley may become a new standard, while others may be tempted to grow continuous wheat or other cereals, something they can now do because they are no longer subject to the EUs three-crop rule.
The problems with winter crops over the last few years have lead more growers to spring cropping.
For some, the inclusion of more spring crops in rotations could be beneficial, helping to flatten work peaks and reduce machinery and labour costs.
For growers with poor land an even more radical approach may be worth considering, says Andersons.
Whole-field stewardship options as part of the English Countryside Stewardship scheme give support to introduce a two-year legume fallow into the rotation.
Growers need to commit to the strategy for five years, but it will potentially be rolled over into the Environmental Land Management scheme.
Matching machinery costs to the needs of such a new enterprise is essential if the option is to be a financial success.
Other crop challenges and opportunities
On other crops, Andersons highlights the impact of Covid-19 on potato demand higher for packing potatoes and lower for processing potatoes where the closure of restaurants and other foodservice outlets has had an effect.
Growers are also having to get used to life without crop protection products with the loss of Mocap (ethoprophos), for example, exacerbating wireworm damage and the banning of sprout suppressant CIPC resulting in significant changes and costs to storage systems.
The loss of neonicotinoid seed treatments meant significant losses for sugar growers in 2020 and has led to permission for restricted use of the products in 2021.
A £12 million British Sugar compensation scheme may help but growing the crop may be marginal for growers this year.
An annual tariff-free import allowance of 260,000 tonnes of non-EU raw sugar by the UK may also have an impact on the future sugar market.
The biggest challenge for the horticulture sector, says Andersons, is the availability of labour, which can account for 70% of the cost of producing some fruit and vegetable crops.
The sector needs about 80,000 seasonal workers a year, with three-quarters of that number coming from EU countries when the UK was still a member.
A new scheme to allow 30,000 migrant seasonal workers from all over the world has been announced, but that is unlikely to meet the demand for labour.
One area of crop production that continues to show potential and may have benefited from Covid-19 and greater consumer interest in local food is vertical farming.
Andersons says that industry is forecast to grow by 21% by 2025 with significant interest from investors.
The lack of external factors to damage yields and the reliable income stream make it an attractive option.
However, most vertical farms are in urban areas, which could limit opportunities.
Plugging the support hole
The cutting of direct payments from this year and the introduction of âpublic cash for public goods payments over the next few years will have a major impact on arable farmers.
Many arable holdings currently receive support of between £50,000 a year and £150,000 a year.
That is due to be cut by 20% this year, with payments above £150,000 a year seeing a 25% reduction.
Those growers will receive no direct payments by 2027.
So, a 400-hectare farm will have to make up around £200/ha of lost income by 2027 and £40/ ha of lost income in 2021.
Improved financial performance is perhaps the most important strategy for compensating for the loss of direct payments.
Andersons calculations, based on results from the Defra-supported Farm Business Survey, show that the top 20% of cereal farmers are likely to have total costs of production of £110/tonne, which compares to £170/t for the bottom 20%.
The top fifth excel in all areas when it comes to cost management; the labour bill for the top 20% is half that of the bottom and spray, fertiliser, seed and rent and finance are about a third lower.
Machinery depreciation is 30%, with other machinery costs, including repairs, insurance and contract costs 40% lower.
More effective cost management is only likely to go some of the way to making up for lost support income and now is the time to look at other opportunities, either nonfarming ones or those offered by the evolving environmental support system.
Less productive land, which has only been viably farmed because of support, may be better used for non-productive uses, says Andersons.
Support is already targeted at land uses, such as growing food for wildlife and the permanent removal of carbon dioxide from the atmosphere.
It is expected that support will be further targeted at such land uses. Andersons expects combinable cropping to remain the key enterprise on most arable farms, but matching the resources needed for productive/environmental systems will be essential, especially for labour and machinery.