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Agriculture:
an area causing concern
Whilst the government battles
with the matter of the EU rebate, and eventually with the reform
of the CAP, the
agriculture industry in the UK is struggling with the Single Farm
Payment (SFP) – not the easiest set of forms to complete, but
should be lodged by now with the Rural Payments Agency.
The SFP system is radically different from previous support schemes
and which were linked to production - farmers in future will receive
the SFP irrespective of what they produce - indeed they need not produce
anything at all! Whilst on the face of it payment by way farm size
rather than head of stock might seem a sensible simplification, it
is quite clear that it will radically impact on farm income, causing
more frustration for farmers and advisers alike. The current worry
is about 'how much and when'.
Our best understanding is that payments will
be set in October with the payment sometime between February and June
2006. That means the
2006 inputs for the arable sector will have to be financed without
the benefit of the usual IAC'c receipts this autumn, leading to an
inevitable impact on cash flow. Market distortions will undoubtedly
arise if larger numbers sell at harvest – and lower prices than
norm can be expected.
Major losers will be those intensive livestock
producers on smaller units – especially in the Severely Disadvantaged Areas and who
have received high levels of subsidy in the past. We learn of one farmer,
rearing beef intensively on a small acreage, who expects his subsidy
income to drop from £120,000 in 2005 to £50,000 in 2006 – he
is currently reducing the size of his herd! Settlement of taxation
accounts in 2006 based on previous years profits, with reduced cash
flow, will press heavily on some farmers for the first time.
The impact on farmer's income will inevitably follow through to the
rest of the industry - contractors and feed, fertiliser and seed suppliers/merchants
immediately come to mind. Banks have historically supported the industry
and there are signs of a wish to do so again - but there are alternative
solutions to the bank overdraft that may be appropriate.
We are clearly moving into a difficult period
for many in the agricultural and farming business - those that are
well managed and well advised
will undoubtedly survive, but others will struggle. Adding value to
a client relationship, by providing practical advice to weather the
problems ahead, increases returns over the years. We believe your farming
clients may need help now. Partners at the P&A Partnership are
available to support your activities.
Call Jeremy Priestley on
0114 2755033 if you need assistance – initial consultations
are always free.
July 2005
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