Report summarising farm business data compiled in The Prince s Farm Resilience Programme s Business Health Check tool 2017

Transcription

1 Report summarising farm business data compiled in The Prince s Farm Resilience Programme s Business Health Check tool 2017

2 Report summarising farm business data compiled in The Prince s Farm Resilience Programme s Business Health Check tool 2017 Karolina Klaskova, The Andersons Centre September 2017

3 Contents Executive Summary... 3 Introduction... 5 Benchmarking Aim and objectives... 5 The Benchmarking Process... 5 Participating farms demographics... 6 The Average Farm... 7 Farm Types... 9 Analysis of Top and Bottom 10% of farms Summary

4 Executive Summary 172 farms participated in the benchmarking part of the first year of Prince s Farm Resilience Programme in The benchmarking process consisted of farms recording their information using the specially developed Business Health Check tool. This is then followed by regional feedback meetings where the groups data on the performance of individual enterprises have been compared. Information on dairy, beef, sheep, crops, pigs and poultry as well as on diversification enterprises have been collected. The average farm participating in the benchmarking part of the Programme farmed 138 hectares and employed on average 1.7 total labour units. With 1.4 full time family labour units as well as employing 8,191 worth of paid labour. The average farm has achieved a total business profit of 11,697 in the benchmarked year with a loss of - 20,488 from farming activities. Only 16% of participating farms made profit from farming in the analysed period. On most farms, the difference between the total farm business profit and the loss from core farming activities was bridged by the income from Basic Payment Scheme, Agri-environmental payment, non-farming income and diversification. On the average farm, the share of the different sources of income in the total business profit were as follows: Income Contribution of income to total business profit (%) Basic Payment Scheme 169 Agri-environmental scheme 60 Non-farming income 26 Diversification 20 The 172 farms in the Programme were classified into the following main farming types: Farm types Share of the participating farms (%) Grazing livestock (beef and/or sheep) 60 Dairy farms 23 Mixed farms 12 General cropping 3 Contract heifer rearing 1 New entrants (no established enterprise) 1 Grazing livestock farms had the largest average farm area split between the beef and sheep enterprises with only a small area for crops grown to feed the livestock on farm. Dairy farms had on average the smallest farm area, however made a more intensive use of it through higher stocking rates of the main dairy enterprise as well as the smaller beef and sheep enterprises. Mixed farms have on average grown crops on a half of their farm area and used the other half to rear beef and sheep, with few having also pigs and poultry. Mixed farms were on average the least profitable with the largest loss from farming activities, equal to - 241/ha. Dairy has on average achieved the largest per hectare profit, mainly due to the large Basic Payment Scheme income. Mixed farms have on the other hand recorded the lowest total business profit resulting from the large farming loss. The Basic Payment Scheme formed the biggest source of income on all 3 farm types. The income from Agri-environmental scheme was relatively similar between the 3 farm types. 3

5 Mixed farms achieved on average the largest diversification and non-farming income equal to 37/ha and 32/ha respectively. The extent of diversification varied amongst the main farm types: Main farm types Share of farms with 1 or more diversification enterprises (%) Grazing livestock 45 Dairy 25 Mixed 70 The analysis of the Top 10% and Bottom 10% of farms (ranked on Farm profit) identified a large difference in farm profitability, representing a significant opportunity for improvement in the group of participating farms. 4

6 Introduction The first year of The Prince s Farm Resilience Programme in 2017 saw 200 farms participating in a series of five workshops delivered by five 1 different industry consultancy companies across 15 regions across England, Wales, Scotland and Northern Ireland. The Programme was aimed at increasing the resilience of small family farming businesses. The main objectives were to improve participating farmers business management skills, providing them with key tools to help effectively manage their business as well as facilitating a sense of belonging to a like-minded group of people and encouraging knowledge exchange within the region groups. Benchmarking using specially developed Business Health Check tool formed the key part of the Programme. Business Health Check is an entry level benchmarking tool allowing users to compare the performance of different enterprises (dairy, beef, sheep, crops, pigs and poultry) to each other as well as to other similar businesses. The tool also provides information on outputs and costs of diversification activities together with income from subsidies and presents their contribution to the total business profit/loss. The benchmarking programme was delivered by Karolina Klaskova from The Andersons Centre who has also built the Business Health Check tool. Benchmarking aim and objectives The benchmarking part of the Programme was aimed at introducing participants to benchmarking and its benefits as well as explaining how to use the results to inform decision making on farms and monitor performance. The main objectives were as follows: Introduce farmers to benchmarking. Provide results on individual farm enterprises and comparison to the rest of the group. Explain the results and how these can be used to manage farms. Help identify strengths and weaknesses of individual enterprises, identifying where to change and improve. Improve understanding of the need for cost control. Motivate farmers to take back control of their businesses! The Benchmarking Process The Feedback Meeting was the first workshop in the series of 5. The 5 workshops included: 1. Business Health Check Feedback Meeting 2. Practical Cost Management 3. Financial Planning 4. Making the Most of Your Business Part 1: Business Management 5. Making the Most of Your Business Part 2: New Opportunities and Change Management The feedback meeting was followed by a workshop on Practical cost savings which directly built on the benchmarking results. The delivery of the benchmarking process was supported by a team of local mentors, who provided guidance and support to the participating farmers. 1 In year one workshops were delivered by The Andersons Centre, Kite Consulting, Promar International, Savills and Rural Futures. 5

7 The first step in the benchmarking process was data collection. Information on individual enterprises outputs, costs as well as some key physical performance and general farm information had to be inputted into the Business Health Check tool. In the first year of the Prince s Farm Resilience Programme data has been collected on farms by mentors working with the participating farmers. All mentors have been trained using the Business Health Check tool prior to data collections to ensure consistency in the collected data. After the data was collected it was validated and processed by Karolina and the individual farm results showing performance by enterprise were sent to the respective farmers prior to the feedback meeting. Only the key results were presented in a clear format to prevent overloading farmers with data. The feedback meeting was delivered by Karolina and facilitated by the region coordinator (a person coordinating the delivery of the whole Programme in a region). The first part of the meeting was aimed at introducing benchmarking and how it can be used in effective farm business management. The group comparison results showing the overall farm results, individual enterprises results from different farms compared to each other were handed out at the beginning of the second half of the meeting. Participants were given some time to familiarize themselves with the information and then Karolina has explained what the comparisons are showing. A break-out session then followed with participants being split in pairs and asked to discuss performance of 2 farming businesses and identify the key strengths and weaknesses as well as opportunities where efficiencies can be gained and any relevant threats for the main enterprises of the compared businesses. At the end of the break-out session, each pair was asked to briefly present their main findings. This break-out session was aimed at farmers getting used to actively using the benchmarking information. They were encouraged to use their own farm results and the group comparison to analyse their farm business performance in more detail after the workshop. Resources with the latest available national benchmarking results were provided to the participating farmers to facilitate a further source of comparison. Participants were also encouraged to prepare a list of their farm s strengths and weaknesses for the following workshop. Participants were encouraged to continue benchmarking using either the Business Health Check tool, the AHDB FarmBench service, the Farm Business Survey or other available benchmarking services. 5 farms so far have out of their own initiative inputted updated figures into the Business Health Check tool for a subsequent year to the one benchmarked originally, which is encouraging. Participating farms demographics Out of the 200 farms participating in the first year of the Prince s Farm Resilience Programme, 172 completed the Business Health Check tool. 72% of the participating farms year ends were in 2016, 16% in 2015, 12% in The resulting information has provided participating farmers with an improved understanding of the financial performance of the individual farm s enterprises and how these contribute to the overall business performance. It has also generated valuable information on the type of farms participating in the Programme, the level of diversification and reliance on subsidies. 6

8 Number of farms The Average Farm The average farm participating in the 2017 Programme occupied 138 hectares of land. The total farm size ranged from 2 to 1,735 hectares with 60% of farms areas below 100 hectares. In respect of labour requirement, the average farm used 1.4 full time labour units of family/unpaid labour and also 8,191 worth of employed labour, which represents around 0.3 full time labour units. This equates approximately to a total of 1.7 full time labour units 2 which fits in with the characterization of Small family farm using less than 2 full time labour equivalents (Defra, 2014) 3. The majority of farms in the sample (77%) had used between 0.6 and 2.0 full time family labour units. Figure 1 Number of farms in the sample using different levels of family labour units Family labour units 2 A full time labour unit simply means 1 person working full time, no specific calculations were used. 3 DEFRA (2014) Farm Classification in the United Kingdom, Available: 7

9 Number of farms Over half of the participating farms (55%) did not hire any outside labour (except for the use of specialist contractors) with only 20% of farms spending more than 10,000 on paid labour. Figure 2 Number of farms in different categories of paid labour expenditure ,000 10,500-20,000 20,000 + Paid employed labour In respect of profitability, we have obtained information on profit (or loss) from 81% of the sample with 33 farms (19%) choosing not to fill in the Income part of the tool. The average farm has achieved a total business profit of 11,697 in the benchmarked year with a loss of - 20,488 from farming activities. The difference between the total farm business profit and the loss from core farming activities was bridged by the income from Basic Payment Scheme, Agri-environmental payment and to a lesser extent from non-farming income and diversification. Table 1 Key average farm information (172 farms in the Prince's Farm Resilience Programme 2017). Average farm Total farm area 138 Imputed value of unpaid labour 27,347 Unpaid labour units 1.4 Paid labour cost 8,191 Total profit/loss 11,697 Farming profit -20,488 Basic Payment Scheme 19,734 Agri-environmental scheme 6,993 Diversification profit 2,317 Non-farming income 3,046 8

10 The main contributor to the farm business profit was the Basic Payment Scheme which contributed 169% of the total profit. Figure 3 Share of different sources of income in the average farm s total business profit. Average farm -200% -150% -100% -50% 0% 50% 100% 150% 200% Total business profit Share of Basic Payment Scheme Share of agri-env. scheme Share of non-farm income Share of diversification Share of farming Agri-environmental payments, non-farming income and diversification contributed 60%, 26% and 20% to the total profit respectively. Farming made on average a loss equal to -175% of the total business profit. These results for the average farm in the Prince s Farm Resilience Programme 2017 are very similar to those observed by Wilson, and quoted in Is there a future for the small family farm in the UK? (Winter & Lobley, 2016) 5. Their findings for small mixed farms in the Farm Business Survey 2014/15 sample show around 160% 6 of profit coming from Single Payment Scheme (a predecessor to Basic Payment Scheme), 62% 7 from Agri-environmental scheme, 45% 8 from diversification and around -170% 9 from farming. Farm Types The Business Health Check tool compares the performance of dairy, beef, sheep, crops, pigs and poultry enterprises. 80% of the 172 farms participating in the benchmarking part of the Prince s Farm Resilience Programme 2017 had more than 1 enterprise. 4 Wilson, P. (2016) The Viability of the UK Small Farm: Analysis of Farm Business Survey Data for England and Wales, Specially Commissioned Report for Prince s Countryside Fund Small Farm Research, available at 5 Winter, M. and Lobley, M. (2016) Is there a future for the small family farm in the UK? Report to The Prince s Countryside Fund, London: Prince s Countryside Fund. ISBN Approximated from chart presented in the quoted report 7 Approximated from chart presented in the quoted report 8 Diversification here included non-farm income. Approximated from chart presented in the quoted report 9 Approximated from chart presented in the quoted report 9

11 Figure 4 Share of farm types in the sample of 172 participating farms. Crops 3% Start ups 1% Heifer rearing 1% Mixed 12% Dairy 23% Grazing livestock 60% There was a large variation in the mix of enterprises amongst these 172 farms. Based on individual enterprises share in total farm area and output, then 60% of the participating farms were Grazing livestock farms (having beef and/or sheep enterprises). Grazing livestock farms included farms in both lowland as well as less favoured areas. 23% were Dairy farms with 16 specialist dairy farms (having no other farming enterprise). 12% were Mixed farms having grazing livestock as well as crops with some also farming pigs and poultry. 3% were predominantly General cropping farms, where cropping was the main enterprise. 2 farms were only just starting up their farming business and didn t yet have an established enterprise. 2 farms were rearing dairy heifers on a contract. 96% of the participating farms were farming using conventional systems. The number of organic farms across the different farm types were: Table 2 Number of organic farms across the different farm types in the sample. Farm types Total number of farms Number of organic farms Grazing livestock Dairy 40 0 Mixed 20 1 Cropping

12 The main 3 types of farms were Grazing livestock, Dairy and Mixed. Table 3 Characteristics of the main 3 farm types. Grazing livestock Dairy Mixed Number of farms Number of organic farms Total area Family labour units Beef area Suckler herd size Beef stocking rate (LU/ha) Sheep area Flock size Sheep stocking rate (LU/ha) Dairy area Dairy herd size Dairy stocking rate (LU/ha) Crop area The Grazing livestock farms were farming the largest average area, however a significant proportion of this land would be of lower productivity potential (Less Favoured Areas) due to the location of many of the 2017 Programme s regions. Out of the 152ha of the average farm area of the Grazing livestock farms, around 40% was used by the beef enterprise and 60% by sheep with only a negligible area for crops grown to feed the farm livestock. Dairy farmed on average the smallest area, however made the most intensive use of it with higher stocking rates. The dairy enterprise occupied on average around 70% of the dairy farms area, with on average 10% of the farms area allocated to beef, sheep and crops each. Similar to Grazing livestock farms, the dairy s crop enterprise was growing crops to feed to the farm s livestock rather than to sell off farm. Beef enterprises on dairy farms mainly constituted of dairy bull and beef cross calves kept to be reared 10 and sold as stores. Mixed farms farmed on average 135 hectares, half of this area was cropped and the other half used by beef and sheep. 4 mixed farms also had pigs and poultry enterprises. All 3 farm types had a similar family labour input of around 1.5 labour units per farm. 10 Inter farm enterprise transfers were accounted for throughout. Calves were appropriately valued at weaning and this value included as an income to the dairy enterprise and a cost to the beef enterprise. 11

13 To evaluate financial performance, the Business Health Check tool uses the concept of Comparable Enterprise Profit (CEP) to assess the relative profitability of individual enterprises. Comparable Enterprise Profit is calculated as enterprise specific output minus costs allocated to the individual enterprise. Costs exclude rent and finance charges but include imputed value of family (unpaid) labour 11. Comparable enterprise profit allows comparing individual enterprises to each other on a per hectare basis within a farming business and also across similar businesses, without the need to calculate opportunity cost of owned land and capital. In terms of the CEP of the individual enterprises within the main farm types, the beef enterprise on dairy farms was the only one to recover a positive profit, partially offsetting the negative income from milk production in a time of low milk prices. Dairy has made a loss on milk production as well as from its sheep and crop enterprises. Majority of the dairy farming income is from milk production which has a higher turnover compared to other enterprises. Dairy farms were therefore highly exposed to the volatility of both the output (milk) and input (feed, fertilizer, fuel) prices. Figure 4 Comparable Enterprise Profit for the main farm types. ( /hectare) 200 Comparable Enterprise Profit Grazing livestock Dairy Mixed Beef Sheep Dairy Crops Mixed farms recorded on average the biggest loss (on a Comparable Enterprise Profit basis) for their beef and sheep enterprises with a loss of - 490/ha and - 311/ha for beef and sheep enterprises respectively. They also made a loss on their crop enterprise. Mixed farms tend to have a large number of enterprises with some farms operating in excess of 5 enterprises including beef, sheep, crops, pigs, poultry and diversification. Whilst this strategy does help spreading the risk over a number of enterprises, especially in terms of the volatility in commodity prices. It does however, increase the overall requirement for specialist skills and management time and capital which is often lacking on these farms, resulting in the underperformance of the involved enterprises. 11 The value of family (unpaid) labour is valued at 20,000 for a full time labour unit. 1 person working full time is simply 1 full time labour unit. 12

14 Grazing livestock farms also made a loss on all 3 of their enterprises of a magnitude lower than the Mixed farms enterprise loss but higher than the average dairy farm s loss. There was a wide range in the Grazing farms in the sample with some extensive beef suckler systems and sheep farms in a Less Favoured Areas to intensive rearing and finishing systems. However, the common thread amongst all of these farms was poor cost control and a lack of management time. Considering the performance of the farming business as a whole, farms across all 3 main farm types have on average achieved a profit on a total farm business basis. Figure 5 below shows the total farm business profit 12 (from the financial accounts) and its individual constituents on a per hectare basis. Figure 5 Total business profit and its constituents across the main farm types. ( /hectare) Grazing livestock Dairy Mixed Total business profit Farming profit Basic Payment Scheme Agri-envir. scheme Diversification profit Non-farming income Although on average all 3 farm types have made a profit on a total business basis, they have also all recorded a loss from their farming activities at the same time. The figure 5 above shows how the gap between the loss from farming and total business profit has been bridged by the main farm types. Mixed farms recorded the largest average loss from farming activities, equal to - 241/ha. Across the whole sample of 172 farms, only 16% of farms made profit from farming in the analysed period. Table 4 Percentage share of farms making profit from farming. Main farm types Share of farms making profit from farming (%) Grazing livestock 17 Dairy 18 Mixed Total business profit taken from the P&L part of the most recent available financial accounts, mostly 20/16. 13

15 This illustrates the extent to which farm businesses are relying on Basic Payment and Agrienvironmental schemes to recover a positive total business margin. Dairy has achieved on average the largest per hectare profit, mainly due to a large Basic Payment Scheme income, on an overall per hectare basis. The Basic Payment Scheme formed the biggest source of income on all 3 farm types. The income from Agri-environmental scheme was relatively similar between these farm types, equal to 53/ha, 42/ha and 64/ha for the Grazing livestock, Dairy and Mixed farm types respectively. Mixed farms achieved on average the largest diversification and non-farming income equal to 37/ha and 32/ha. There was a large range amongst the 172 farms in the extent to which diversification have contributed towards total business profit. Table 5 % share of farms with different incomes from diversification (Prince's Farm Resilience Programme 2017) Diversification Grazing livestock (%) Dairy (%) Mixed (%) No diversification Diversification loss Profit < 10, Profit > 10, Overall, across the 172 farms, diversification profit has contributed more than 25% of the total business profit/loss on 21% of farms. The difference between the overall total business profit and a loss from farming activities across the 3 main farm types has been made up of income from mainly Basic Payment and Agri-environmental schemes, supplemented by diversification and off-farm incomes. 14

16 Analysis of Top and Bottom 10% of farms The variation in farm profitability amongst farms within the region groups was much larger than the variation of average farm profit between regions. Ranked on Farming Bottom Differenc Top 10% profit 10% e Total area Total unpaid labour value 35,824 27,059 8,765 Unpaid labour units Comparable Enterprise Profit ( ) Dairy 11, ,862 Beef -1,856-21,500 19,644 Sheep -7,199-23,068 15,870 Crops ,125 3,454 Income ( ) Total profit/loss 39,809-5,591 45,400 Farming profit/loss 21,540-74,657 96,197 Basic Payment Scheme 16,436 38,521-22,084 Agri-environmental scheme 2,848 18,582-15,734 Diversification profit -2,070 7,114-9,184 Non-farming income 1,055 4,849-3,794 The 17 farms in the Top 10% (ranked on Farming profit) were from all regions except Ayrshire, Hexham and Settle. The Top 10% farmed on average smaller area, but generally used more labour, both family and paid labour. The Top 10% of farms achieved significantly improved performance in all of the main farming enterprises, making on average 21,540 profit from farming compared to a loss of 74,657 recorded by the Bottom 10% of farms. This equals to a gap of 96,197 which represents the significant opportunity for improvement in the group of participating farms. 15

17 Summary The first year of The Prince s Farm Resilience Programme saw 172 farms benchmarking their enterprise results in 15 region groups. The participating farms were predominantly small family livestock farms. Only 16% of participating farms generated a profit from farming with most relying on Basic Payment and Agri-environmental scheme incomes and to a lesser extent diversification and off-farm incomes to recover a positive total business margin. The reliance of the participating farms on subsidies to make a profit is putting these farms at risk. The current changing policy environment is likely going to put an end to the Basic Payment Scheme as we know it. Farms therefore need to become less reliant on subsidies by decreasing the subsidies share in total business profit through increasing the share of the other sources of income. For the average farm participating in The Prince s Farm Resilience Programme in 2017, a loss of the Basic Payment Scheme would leave a gap of 19,734. Going forward there should be more opportunities for farmers to recoup some of the forgone Basic Payment Scheme from increased environmental subsidies by increasing different environmental friendly measures on farm, however this requires careful planning to evaluate any potential negative impact on farming productivity. The biggest opportunity is to improve the performance of the core farming enterprises. The analysis of the performance of the Top and Bottom 10% of farms (ranked on Farming profit) identified a large difference in the profit achieved by the Top 10% and the loss recorded by the Bottom 10%. The performance of the Top 10% shows what can be achieved and presents the opportunity for the rest of the farms in the Programme to improve their performance. It does not matter whether the farms strategy is to utilise a larger area of a Less Favoured Land and budget for lower output whilst minimising costs and maximising subsidy payments or concentrating on an a more intensive system optimising a level of output which is most costs effective for the farm s circumstances. The aim is to maximise the difference between the value generated (output) and the costs used to generate this value. In order for the family farming business to be sustainable longer term, the resulting profit needs to meet the family requirements and overall the business needs to achieve the family s values and objectives. The Prince s Farm Resilience Programme is aimed at equipping farmers through a series of business-focused workshops and local support with the necessary tools to effectively manage their businesses to do just that. 16