Rented land will play a big role in any expansion

Thursday, June 21, 2012

A survey of 275 farming clients of agricultural consultants indicates dairy and beef output expansion plans are in line with Food Harvest 2020 ambitions. The nationwide survey was conducted in recent months on behalf of Ulster Bank.

Dr Ailish Byrne, senior agricultural manager, Ulster Bank, said: “These results show the progressive and commercial nature of today’s farmers which will drive expansion in output over the coming years.”

Michael Brady, managing director of the Cork-based Brady Group, and President of the Agricultural Consultants Association, welcomes farmers’ positive responses to the survey, but noted that they were less bullish than they were in surveys conducted by the dairy co-ops last year.

Q Farmers plan increases of 52% in milk output, 40% in beef and almost 60% in sheep numbers between now and 2021, according to the survey conducted in association with the Agricultural Consultants Association. What do you say to farmers, especially in beef and sheep, who fear this will lead to a price collapse?

A Farmers with big expansion plans in beef, sheep or dairying should base all business plans on five-year price averages. They should also stress test profitability on these plans at different sale prices, interest rates and input prices. I believe no economist can predict future prices, so if you make the decision to invest with borrowed money you must also be prepared to roll with the punches.



Q What figure from the survey was the most surprising for you, and why?

A ‘17 out of 20 dairy farmers plan to increase milk output, with a 42% increase in cow numbers’. Paper does refuse ink... It is easy — almost compelling — for a dairy farmer to say he/she is going to expand post-2015. The age profile, present efficiency levels and ambition of some dairy farmers would suggest otherwise. I believe there will be massive expansion, but it will be done by fewer dairy farmers.



Q Survey participants were renting about one quarter of their average farming area of 160 acres. Can rented land play a useful role for farmers trying to expand their businesses?

A Rented land is vital to expansion plans, however, there is significant scope in dairying for expansion within existing holdings. This can be achieved by maximising cow numbers on the grazing block around the milking parlour. Replacement heifers can be contract reared, or reared away from the home block. Rented land bordering the home farm is the holy grail for all expanding farmers regardless of enterprise.



Q One-third of respondents had another source of income in the form of an off-farm job or other business. Yet respondents say off-farm income will play only a 7% role in funding for investment and expansion. Is it the full-time farmer who will do most expansion?

A Yes, full-time farmers will do most of the expansion. The reason being ‘time’ — there are only so many hours in the day. However, there may be some passive investors who will form farming syndicates to invest in new greenfield projects.

Regardless whether a farmer is full-time or part-time, efficiency is a key ingredient for expansion. There is no point in expanding if you are not profitable in your present business.

Q Fragmentation and lack of land are obvious obstacles to expansion. How can they be overcome?

A Land access is the single most limiting factor in the productivity of Irish agriculture. When land access is discussed it is almost always from the viewpoint of the keen active young farmer. However, I believe the more important viewpoint is that of the often elderly non-active landowner. Pride and fear are the two primary emotions to the forefront in those who own land and are faced with choosing an option to allow another to farm that land which is steeped in family history and is considered part of the blood that runs through their veins.

Tax reliefs for long-term leases, loosening of partnership rules and other policy change proposals, though important, are really missing the point. The question we have to answer is: ‘How do we get proud, elderly or non-active landowners to be involved in a business relationship with an active farmer?’

I suggest the following issues must be addressed to achieve this goal: (1) A clearly agreed farm business plan between the landowner and active farmer; (2) Income security for landowner; (3) Maintenance schedule for land, i.e. soil fertility, building and fence maintenance; (4) Exit clause; (5) Dispute resolution clause; (6) Recognition of the non-active landowner in the successful farm business.

The structure of such a business relationship may be a conacre agreement, a short- or long-term lease, a joint venture, a share-farming agreement, a partnership or a limited company; the correct structure will vary on the circumstances in each individual case. Freer access to land will come from the ground up rather from the top down so those who have an eye on a neighbours land should practice their people skills as well a lobbying for policy changes.

Q Respondents saw lack of credit and rising input costs as financial challenges. Can agricultural consultants offer any general advice on these?

A There will always be financial and physical challenges. This is what makes farming and running a business exciting. Applying to banks for finance, dealing with tax problems in good years and cashflow issues in bad years are all part of the game. An agricultural consultant is an important part of a team to advise farmers at such times. The experienced consultant will have encountered these issues in other farm business and will have the solutions. Farmers burdened with problems and indecision find that it affects their ability to carry out day to day tasks, good timely advice at such times provides peace of mind and enhances long term profitability.

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