Welsh farm finance study reveals bigger isn’t always better
New analysis of farm business data from over 1,500 Welsh sheep and suckler cow enterprises has found that there is a viable future for small family farms – but only if costs are kept tightly under control.
The data was collated as part of the Red Meat Benchmarking project and independently interpreted by the Andersons Centre and is part of a £2.15 million initiative supported by the Welsh Government’s EU Transition Fund, and delivered by Hybu Cig Cymru – Meat Promotion Wales (HCC) with support from Farming Connect.
The report highlighted the diversity within the Welsh sheep and suckler cow sectors. It also points towards the significant range in financial performance within red meat businesses in Wales.
“The top-performing enterprises generate a financially viable, and in some cases, very profitable business,” said HCC’s John Richards, industry development and relations manager.
“These businesses, however, weren’t necessarily the largest in terms of scale or size.
What the data analysis has evidenced is the importance of building a business based on solid foundations before attempting to grow and expand.
“The data shows that top performers keep their overhead costs considerably lower per breeding animal than the farms in the bottom tier.
“Figures from the sheep enterprises show that top-third performers have almost half the amount of overhead costs when compared to the bottom third. Producers are encouraged to review each overhead cost, and all business costs in general, however large or small, to keep them low.”
It is often assumed that as a business grows, financial performance will also increase due to economies of scale. However, the project demonstrated that this is not always the case.
For sheep flocks, the average net margin did increase very slightly as flock size increased, and the net margin of the best top-third performers got bigger.
However, the losses of the poorest performers also increased. The same pattern was evident within
the suckler herds; however, the variance in performance was even greater.
Lower performing sheep farmers were found to spend half as much more than the top-performing farmers on variable costs, and well over double the amount on overheads (232%).
Suckler cow herds vary to a similar extent, with higher overall costs per pound of output, and an increase in
variable costs of about 90% and overheads of 230%.
The costs per pound of output totalled 63p for the top third sheep enterprises, and £1.19 for the bottom third enterprises, meaning they operate at a loss.
Corresponding figures for the suckler herd showed all three groups operated at a loss. However, analysts warn many of the figures were based on estimates with returns also harder to predict as suckled calves in Wales are generally sold at specialised sales at higher prices than the common “suckled calf” market.
Researchers also questioned whether some participants may have included all cattle costs in this enterprise (for example, the post-weaning calf and the store animal), rather than just costs specifically for the suckler cow and her calf.
John Richards added: “A prolonged period of political turmoil in Westminster and Brexit uncertainty has been, and continues to be a huge hindrance for agriculture; it’s a challenging time.
However, the analysis did not identify one major problem within the sector, but a number of smaller issues that can be tackled for positive effects on farming businesses.
“Farmers should aim to effectively utilise all the resources available to them, they need to be stocking their farm to an optimal level to maximise the output from the land.
“There is also a need to focus on detail. The value of benchmarking and the savings that can be made by keeping a close eye on farm finances is evident from this work.
“Measuring an enterprise’s performance by taking time out to calculate the returns is fundamental for a well-managed, profitable and sustainable business.”
Minister for Environment, Energy and Rural Affairs, Lesley Griffiths, said: “This report provides farmers with essential sector-level detail of how and why performance varies across farming businesses in Wales.
Whatever the outcome of the Brexit process, the changing market conditions in which farmers operate mean they must adapt now in order for their businesses to thrive in the future.
“The information compiled in this report will be an invaluable guide to some of the options available to reduce operating costs.
“The report shows there are farming businesses across Wales of all sizes who are able to generate a profit at the same time as upholding the highest environmental and animal welfare standards.
“We know turning a profit from sheep and suckler cows is not easy, but with the right planning and with the support available from Farming Connect and HCC it is possible to run a successful farming business that delivers benefits for the environment and the economy of Wales.”