The farming business quality gap can only widen
Warning comes from HSBC Head of Agriculture Allan Wilkinson on publication of Forward Planning 2015.
Pricing volatility is here to stay for the foreseeable future and the gap between the well-run and poorly operated farming businesses is going to widen as a result, HSBC’s Head of Agriculture Allan Wilkinson has warned.
Launching Forward Planning 2015, HSBC’s agricultural budgeting publication that is now in its 41st year, Wilkinson said that recent price decreases have been as a result of the good weather in most significant production areas globally, including the UK, resulting in supply outweighing demand.
He said that during the recent spell of high prices, many farming businesses had invested in their operations to drive efficiency and expansion, and this was exacerbating the widening gap between the best and worst farm performances.
Allan Wilkinson said: “This increase in supply has had the effect of depressing prices in the short term, even though the long-term demand for a number of key products is unchanged, and indeed is expected to grow.
“During the recent period of sustained high prices, many businesses invested in updating, rationalising, and even expanding their business, while also generating a positive cash margin. Even during this period, the variation in individual business performance across each sector has been considerable – and this difference between the best and worst will widen going forward.”
Wilkinson added: “Technical proficiency and well-organized resource allocation are essential to the success of UK Agriculture, and in this period of lower prices the efficiency of the individual business will come into sharp focus. The top performing businesses will continue to excel principally because they have a lower cost of production – it is a key difference between the best and even the average performer.
“We hope this guide helps farmers plan their future with the right degree of realism and confidence, not merely to cope with volatility but to thrive on it. Volatility is here to stay. In other words it is not just about the selling price, but the margin made, and in this respect each business is quite different.”
Produced in consultation with Andersons, the farm business consultants, Forward Planning 2015 analyses cereals and oil seed rape, dairying, beef and sheep production, as well as potatoes and sugar beet from a net margin and gross margin view point for the farming year 2014/2015. Each main enterprise contains costs of production and sensitivity analysis to allow farmers and growers to help plan their own business performance over the coming 12 months. The booklet adopts the same methodology as HSBC’s Agriculture team to calculate margins and returns.
This year’s Forward Planning 2015 publication includes an in-depth analysis of how rising affluence and continuing population growth in emerging markets will combine to drive faster growth of global milk exports, in addition to an economic outlook from HSBC Commercial Bank’s Head of Economics, Mark Berrisford-Smith.
Allan Wilkinson concluded: “Every week our Agriculture team meets with hundreds of farm businesses and the clear message we are getting is that confidence is on the increase. Our support across the agriculture sector remains unstinting, for individual businesses and groups alike. Our business is based on long-term relationships and sound business planning – just like these agriculture businesses and I hope that our Forward Planning publication will support them.”
HSBC was the first UK bank to introduce a team of specialist agriculture banking managers dedicated to supporting agriculture and farming related businesses in 1989. The bank’s agriculture managers spend much of their time with customers on farm premises and continue to provide a dedicated service specific to the financial needs of the industry.
Forward Planning 2015 is available to all HSBC customers and non-customers alike, and will be available online or available as a hard copy by emailing agriculture@hsbc.com.
