Savills News

Unlocking a productive future through structural change

Today, at Cereals Savills publishes its latest research into the arable sector Delivering Future Arable Performance. The report suggests that to ensure future productivity the sector needs to review working practices, its structure and be alive to new opportunities.

Since 1964 productivity growth in UK agriculture has averaged 0.9% per year, lagging behind other developed nations including France and the US. Indications show Defra sees structural change within the industry as part of the route to unlock sustainable productivity improvements in the future. This change could be triggered by a combination of reforms including the withdrawal of direct support payments from 2021 and through reforming agricultural tenancies in England and Wales ‘so that the sector has the skills and talent needed to thrive in the future.’

A survey at the beginning of this year of Savills professionals responsible for managing over 800,000 hectares of land. It found that 84% of those surveyed thought that retirement and surrender from Agricultural Holdings Act (AHA) tenancies would become more common due to the withdrawal of direct payments.

Likewise, increased owner-occupier retirement is expected too, with 55% of respondents to the survey thinking it would become more common. Use of Contract Farming Agreements (CFAs), share farming, stubble-to-stubble contracting and Farm Business Tenancies (FBTs) were all anticipated to increase in the future.

Immediate and future options for arable farming businesses

As support is withdrawn reducing costs becomes increasingly important. At present, average wheat and oilseed rape crops generate approximately £1,500 per hectare of income, which includes £225 of Basic Payment Scheme (BPS) support. When this support is removed if every other variable remains unchanged the crop would lose £105 per hectare. An 18% yield increase would compensate for this, however yields vary each season so can only be part of the solution. Cutting costs is a more resilient solution and farmers should explore all opportunities to reduce costs such as collaboration, reduced cultivations, basic fuel and engine efficiency and precision farming technology and techniques to improve input use efficiency.

According to Defra, (Farm Accounts in England 2017/18) machinery depreciation accounts for 20% of the fixed costs of an average arable farm with many machines not used to their full capacity.

Significant savings can be made by sharing a piece of machinery such as a seed drill with a neighbour; but the success of this depends upon the relationship between the individuals. Planning and communication each season will be essential.

Stronger collaboration can deliver more significant savings. There are successful whole farm sharing agreements and groups of farmers who have formed a joint venture farming company to undertake the field operations on their farms. Planning and structuring these joint ventures is just as important as implementing them.

Collaboration can also take the form of knowledge sharing or working together to trial and develop establishment and husbandry practices suited to their soil and conditions for ‘new’ or novel crops.

At its most substantial producers can join co-operatives or farmer-owned companies, such as buying groups, to benefit from collective negotiation or to add value to produce. Interestingly, there are over 400 agricultural co-operatives operating in the UK whereas in France there are some 2,850 with a collective turnover of £72 billion, compared to £7.7 billion in the UK during 2018.

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