How regen ag stacks up in today's climate
As featured in Arable Farming Magazine
How regen ag stacks up in today's climate
by Arable Farming Magazine July 2022 issue
With grain prices at an all time high, but a push for more farms to go down the regenerative route, visitors to this years Groundswell event heard what impact a lower input system might have on the bottom line.
A well-run regenerative farm business can deliver cost savings and, depending on the season, higher margins than a conventional system.
According to four years worth of data assessed by rural adviser Land Family Business (LFB), farmers using regenerative practices on their arable farms were largely ending up in a similar place financially to those using more conventional practices.
However, when commodity prices are high, this might not always be the case.
This was the message from LFB director Gary Markham, who runs a Groundswell benchmark ing group of 20 regenerative farms and estates and announces the results each year at the show.
He said: From 2018 to 2021 the group has had variable costs that are £112/hectare less than a group of conventional farms farming 40,000ha.
Labour and machinery is £155/ha less and despite lower output of £244/ha, the average margin has been £23/ha more.
The figures were skewed by the 2021 harvest where higher yields and prices meant the margin for Groundswell growers was £169/ha less.
That gap might be wider this year because of the strength of commodity prices, Mr Markham said.
Yields Over the four years, Ground swell farmers saw lower yields for winter wheat, peas and linseed, but higher yields for winter barley, oilseed rape, beans and spring oats.
Total variable costs were £115/ha less at £355/ha, with machinery and labour £152/ha less at £350/ha.
With wheat at £300/tonne, the gap in productivity proves relatively less profitable for regenerative systems, with a £499/ha difference predicted for the 2022 harvest, Mr Markham said.
Margins However, farming is a long-term business and while margins may be higher in conventional systems this season, this is probably only likely to be a blip.
It is far better to have a sustainably profitable business than knee jerk reactions to a volatile market.
A pragmatic business-like approach that targets its fertiliser use and will use ploughing when it is justified appears to be the most profitable, with farmers still building soil quality.
LFB also compared the amount of nitrogen used between the two systems, with conventional farmers using on average 40kg/t more in oilseed rape and 9kg/t more in wheat crops.
Costs The hook of using fewer inputs at a time of high fertiliser, fuel and other costs will be tempting for many, said Richard King, partner at business consultants Andersons.
However, for all but a few farms, adopting these practices is likely to have a short-term cost, with a move away from a reliance on agrochemicals and synthetic fertilisers likely to lead to a reduction in output.
With fertiliser markets still rocky and gas prices set to further rise, Ian Watson, joint managing director of Elite Farmers Trading Company, gave visitors his advice on buying for next season.
He said: Do not be totally exposed by not buying, or by buying but not selling.
The most important market to follow is urea which is probably 60% of world nitrogen consumption.
Ukraine Prices will continue to be dependent on the situation in Ukraine he added.
With less Russian gas going into Europe, some plants might shut.
More gas means prices will go down, if there are more gas shortages the price will go up.
One product which is in short supply is sulphur, he said.
Talking black and white, buy your sulphur, get half your nitrogen bought and if you are buying nitrogen or havent already, offset it against some grain sales.
Use urea if you can I think it is the product going forward.
I like liquid nitrogen because it is much more accurate every drop gets exactly where it is meant to go.
I will be having discussions with our liquid suppliers about why there is a 25% premium for liquid over urea.
Profit foregone the biggest cost in transition
Growers thinking of adopting a regenerative farming approach should assess the business case in the same way they would any other investment.
That was the message from farm business consultants Andersons to visitors at the Groundswell event.
Some farmers will be looking at regenerative agriculture as way to boost returns, especially in a time of high costs for key arable inputs.
But even those who are looking to farm in a more sustainable way will need to make profits in the long term if they are to remain in business, said Sebastian Graff-Baker, a partner at Andersons.
Performance Farm businesses should be prepared for a dip in profits during the transition to a regenerative system, he warned.
Clients are saying to us that they want to improve the long-term performance of their farms.
There is going to be some deterioration of profits.
We dont know for how long, or how big it will be, but the likelihood is the biggest cost will be the foregone profit, said Mr Graff-Baker.
If a regenerative approach can be made to work successfully, then business performance may end up higher than continuing with established practices.
But equally there may never be a full recovery, although there may be other benefits not quantified in the bottom line, such as the shift to a more resilient business, less affected by volatility, he added.
Andersons launched an adaptation of its long-running arable Loam Farm Model at the event, designed to model the financial impact of transitioning to a regenerative farming system (see table).
The trajectory each farm takes will be down to individual circumstances.
Soil type will play a role, but the management ability of the operator is likely to be just as, if not more, important.
Regenerative systems usually require a higher level of management ability.
If you are not making a profit under the existing system, then ditching the plough is unlikely to be enough to turn things round, said Mr Graff-Baker.