How Should NI Farmers Prepare for the Future?
What are the business implications for farmers, post-Brexit? The biggest change promises to be an overhaul to subsidies. Now that the Brexit transition period has ended, UK farmers no longer will receive subsidies under the EU’s Common Agricultural Policy.
Northern Ireland can set its own agricultural policies, separate from England, Scotland and Wales, because agriculture is a devolved competence in the UK.
The Department of Agriculture, Environment and Rural Affairs (DAERA) will continue to make payments to farmers, but for farmers in Northern Ireland, there is a lingering sense of uncertainty.
This is because currently in Northern Ireland there is no devolved government, but neither is there direct rule from Westminster. Following Brexit, farming in Northern Ireland is in a state of limbo.
In England, the government is planning for its new subsidies for farmers to be tied to environmental policies. Farmers in England will be able to access cash, but only if it’s to help their businesses become more productive and sustainable.
But what does the future hold for farmers in Northern Ireland?
In 2018, Common Agricultural Policy (CAP) subsidies represented a large share of UK farmers’ incomes, on average 70%. Any phasing out of income support measures could, therefore, affect farmers in Northern Ireland.
Also, many of Northern Ireland’s farms are small businesses, and are vulnerable to shifts in the wider economy.
Smaller Farm Businesses
According to a DAERA statistical review of NI agriculture, farm businesses in Northern Ireland tend to be much smaller than in the rest of the UK.
77% of farms are classed as very small and unlikely to provide an income solely from farming activities. The average size of farms in the rest of the UK is 81 hectares. In Northern Ireland it’s 41.
70% of farmers in Northern Ireland are owner-occupiers, rather than tenants, and 90% of farms are focused on grazing livestock.
For these small farms, cashflow challenges can be especially acute.
Why Farmers Face Cashflow Challenges
The farming industry has suffered successive years of declining farm gate prices (the pricing point of products at the farm), with large numbers of farms no longer making a living from farming by itself.
Market disruptions are putting pressure on prices for beef and dairy products, feed prices are on the increase, and Covid-19 has meant interruptions to the livestock market trade.
For farmers, planning cashflow is becoming increasingly complicated and challenging.
And even without current disruptions and post-Brexit uncertainties, cashflow for farmers can be very seasonal. Farmers may need to make large expenditures on machinery, maintenance or other improvements at the beginning of the farming season. This concentrates all their costs in one period of time.
Financing for Farmers
The question then becomes one of the best ways for farmers to source the financing they need to run their businesses.
There are various forms of agriculture finance available, and the one piece of good news for farmers is that they can tailor these to suit their particular circumstances.
One example is asset finance. A farmer can use existing farm machinery itself as asset finance to buy new equipment, such as a tractor. The machinery is used as security for the new purchase. This type of financing can apply to different types of asset.
There is also the possibility that Farmers could raise capital by offering land that is unencumbered for a charge, this would allow the release of capital to help purchase non asset based equipment such as building renovations, purchasing additional live stock and feed. These products are normally quite difficult to raise finance but via a land loan they become much easier to obtain.
It enables farmers to move their planned purchases forward, taking advantage of their annual investment allowance to give them tax relief within the year of purchase.
Explore the Alternatives
With the economic landscape for farmers in a state of flux, it’s important for them to explore different options when it comes to securing funds, seeking financing and protecting their businesses.
We provide a range of innovative and alternative financing solutions, tailored to meet specific business needs.