Over the next few years farming businesses will come under increasing pressure to look to their costs – by 2028 they will have lost £80 per acre as support from the Basic Payment Scheme is reduced.
So just to stand still, farmers need to find ways to replace the shortfall and that means increasing output, finding additional income and cost cutting.
The former is challenging given the vagaries of weather and commodity price fluctuations while new income streams don’t remove the need for each aspect of the business to stand on its own two feet.
But there may well be ways to reduce costs by collaborating, especially when it comes to pooling machinery and labour.
Key to a successful arrangement are communication, clear, realistic goals and ensuring that the aspirations of each party are understood and aligned. A comprehensive written agreement that includes termination provisions is also crucial.
Often complementary characters work best: for example, one who is keen to run the office side and the other who is happy to get their hands dirty. Bringing a third party on board can also help pull everyone together.
We have one collaborative agreement in place that was sparked when the businesses’ mutual bank manager saw both were overcapitalised and suggested they work together. That agreement has seen savings of up to £100 per acre, but it is important to recognise that while scale is beneficial to reducing fixed costs there is a limit to this and overall profitability must be kept in mind.
The potential for collaboration is broad, and thinking laterally can often help identify opportunities. For example, farmers could work with a local feed mill so they are protected from the risk of import and export tariffs and there’s no need to haul grain over long distances.
Similarly, oilseed rape producers could work in tandem with a crusher to shorten the supply chain. Or an arable farmer could work with a neighbouring livestock farmer to take organic manure for the land.
In a world of shrinking margins, a step change in collaboration could make a big difference.
Alex Bragg will be speaking at Cereals on 13 June 2019 at 13.40 in the Innovation & Technology theatre. Savills is exhibiting on stand 355 on Second Avenue.