Farming: Meet Farmer Brown ? CEO of UK Agriculture plc

Harvest Sky in Polstead

Harvest Sky in Polstead - Credit: citizenside.com

A report from this month’s Oxford Farming Conference attempts to predict the shape of farming in 10 years’ time. SARAH CHAMBERS looks at Opportunity Agriculture to see where we will be in 2024.

Could farming in 10 years’ time be populated by CEOs and corporate investors?

A report compiled for the Oxford Farming Conference earlier this month provides a thought-provoking glimpse into the future which indicates that a cultural shift is under way, and that structures on farms will change in response to external pressures.

It predicts a world in which well-equipped, professional and entrepreneurial “operators” will challenge the accepted definition of farmers as the industry itself and, to a degree, society currently understands it.

“This report sees a further ‘decoupling’ of farm ownership from farm operation - investors from outside farming bringing new sources of capital and creating opportunities for the most professional, well-equipped and entrepreneurial farmers as operators,” it says.

“By 2024, there will be a growing divergence between those owning land and those operating (farming) it. An increase in the activity of ‘external’ investors, attracted to investment in land through the continuation of Agricultural Property Relief from Inheritance Tax and an expectation of continued capital growth, will require a new generation of equipped operators to farm for, and often with, them.”

Bidwells’ agribusiness consultant Ian Ashbridge, supported by Dr Alison Bailey, Nick Tapp and Jan England, was asked by conference co-chairmen Julian Gairdner and Adrian Ivory to look at the structural change and investment needed to ensure UK agriculture is sustainably competitive in a decade’s time.

Most Read

They interviewed more than 100 farmers, including owner-occupiers, tenants, professional managers and contractors, and nearly 50 industry professionals, such as lawyers, grain traders, food processors and consultants, to find out what they thought about the future of the industry, and how it would develop in terms of structure and investment.

Each were interviewed for about an hour in July and August of last year, but were not presented with a questionnaire.

The team found that farmers’ own views on the future shape of agriculture was one of a continuing move away from owner-occupier farmers, who will be increasingly replaced by operator/managers working for investors.

It is a landscape in which farms will be fewer and bigger, in an industry which they predict will become more corporate and more business-like as the trend towards consolidation continues.

Contract farming is seen as an increasingly popular model for the future, as the split between farm owners and operators becomes more pronounced.

But other concepts, such as share farming, a shared risk and reward farm business model used in countries such as New Zealand, were found to be poorly understood

A more ‘business-like’ approach would, one imagines, mean greater profitability.

But farmers were divided over whether they saw subsidy continuing to 2024, with a significant number of those interviewed viewing farming without support as a worthy aim, but others expressing the view that it was their profit, or that farming needed to be subsidised.

“A significant number of farmers expressed a respect for farmers in New Zealand who saw direct support payments withdrawn between 1984 and 1987 and have since seen businesses recover to a similar position before the reforms,” the report states.

“However, they regarded with horror the prospect of UK agriculture enduring a similar period of adjustment and believed such an action would leave UK agriculture at a competitive disadvantage to the rest of Europe.”

However, most industry professionals interviewed for the report predicted that direct support payment to producers would dwindle or disappear altogether by 2024, while continuing for environmental management.

“Most of those interviewed considered that farming without support was preferable to a continuing subsidy system and agreed that New Zealand’s experience had left its farming industry in a better position 25 years later.”

So how will this brave new world be financed?

Farmers, researchers found in the interviews they conducted, are “very wary” of suggestions that new sources of capital might be attracted to agriculture, with most agreeing there was no need for agriculture to seek it out.

“Generally, farmers were suspicious of ‘investors’. Many asserted the view that investing in land and investing in farming were different objectives and that tax reliefs from inheritance tax attracted wealthy individuals to the former but not the latter.” said the report’s authors.

Responses included fears that investors “don’t understand farming”, or that they will “take over” from farmers.

But, as the report warns, while the UK is well placed for a number of political and climate reasons, to be sustainably competitive in a decade’s time, “it must invest, and be prepared to change, if it is to seize the full opportunity ahead”.

“British agriculture has relatively few operating structures in which the requisite land, capital and operational expertise come together,” the report states. “Owner-occupation ought to present the perfect alignment, as all three elements come together in one famring business.

“A market return on capital deployed is not necessary, as the original capital was deployed so long ago, possibly many generations, that an adequate cash flow is all that is needed, and, of course, the ability to pass it on to the next generation. Subsidy, of course, plays a role in this ‘return complacency’, hiding modest performance on farm.”

The report predicts that within the next decade, there will be a “significant” opportunity for the most flexible, professional and well-organised farming businesses to meet demand for professional operators from investors committing capital to land and farming.

The growing divergence between ownership and operation will provide “a significant opportunity” for existing farmers and new entrants as contract farmers, share farmers and professional managers, it says.

“An emerging picture of farm businesses ‘operating’ for each other and for others owning land will lead to businesses becoming increasingly corporate, professional, technically advanced, well-invested and more efficient operators. this is likely to significantly enhance the UK’s position as ‘sustainably competitive’,” it adds.

These much larger farm concerns will provide opportunities for a “higher level of business management and leadership”.

“An increasingly corporate complexion to the appearance of UK agriculture will lead to a greater degree of professionalism in leadership and management,” it states. “Those committing capital will need to engage professional, commercially astute business managers to maximise returns from the trading element of their agricultural investments.

“This, again, provides opportunites for talented individuals to enter agriculture. It is likely that farm business managers (more like company chief executives) with responsibility for significant working capital and assets will be rewarded in new and innovative ways, possibly by accruing share equity in the business.”

However, the study does sound a warning note: there is a “significant” risk to UK agriculture that this talent would be exported overseas.

New, dynamic structures to combine land, labour and capital wil be needed in farming’s future, it says, and these must align interests more closely than traditional models like farm tenancies. Farmers must also be less wary of new sources of capital if they are to be successful.

The landlord-tenant system as it stands does not represent a reasonable avenue for new entrants to farming as too much capital is required and there is no land to borrow against, the report says.

Contract farming can be extremely successful, but is not perfect, and contract farmers only benefit from a portion of trading returns.

However, share farming represents “a largely overlooked opportunity” for UK agriculture to develop successful new farming businesses.

“A new generation of professional share farmers, willing to engage with each other in new ways, will be more sustainably competitive in the long term,” say the report’s authors.