2020 Perfect Vision – The efficient farmer
In his latest Agriprofessional article in the Dundee Courier, farm accounting specialist Mark Gibson looks at how past and present farm costs and prices stack up, and what the priorites should be for farmers to flourish in the future.
With a turbulent 2019 now firmly in the rear-view mirror farmers can now look forward to a new decade whilst trying to adapt in a world which continues to under appreciate their impact on Scotland’s health and economy. However, to look forward meaningfully farmers must first assess the previous decade.
Therefore, as means of a brief recap, in January 2010, the independence vote was a long way off so there was no such thing as Scottish tax rates, there were simply three rates of tax zero, 20% and 40% and the tax free personal allowance was £6,475. The 2010 Euro exchange rate for BPS was nearly ninety pence. The capital allowance threshold was £50,000, which incidentally almost covered the cost of an average NEW tractor purchase which according to Defra was £50,400. Wheat traded at £127 per tonne and milk prices averaged 24p per litre. With regards to farm Inputs, Red diesel sold for 53 pence per litre and Nitrogen was £562 per tonne. The minimum wage was £5.93 for anyone over 21 with no pension auto enrolment cost and making tax digital had not been invented.
Where we are now
Fast forward to 2020. One independence vote, numerous elections and a Brexit debacle underway we not only have Scottish tax but five rates of tax to deal with including 46%. The tax-free personal allowance of £12,500. The current Euro exchange rate is about eighty-five pence. The capital allowance threshold is £1 million. The average cost to purchase a new tractor in 2019/20 is in excess of £95,000. Wheat is trading at £146 (Scottish farmer) and milk 28p per litre. Farm diesel is per 61p per litre and Nitrogen trades at £257 per tonne. The average minimum wage for those over 21 is £8.20 from April 2020 and farmers now must run auto enrolment pensions at a cost of 3%. Making tax digital has arrived but is still to bite fully.
The pricing review above shows that whilst farm output prices clearly fluctuate there is not the same volatility in output pricing as there is in inputs, excluding the roller coaster that is farming potatoes. The increase in machinery prices has seen increased farm contracting as farmers make their ever growing machinery stock work harder to pay off the finance. The world and pricing in the last decade have cast many farmers adrift. The eye watering cost of replacing large bits of kit is a stark reality for farmers resulting in many either making do or over committing to finance.
Detail, data and digital
With the government’s Agricultural bill to pass during the spring, scrapping the current CAP framework future, subsidy values per farm are unknown meaning the control of input prices will be key to managing farm profitability going forward. The preparation of budgets and cashflows whilst many may think are reserved for corporate businesses will play a key role in farm management, as we move into a new decade. Contrary to a recent biased television documentary on the environmental impact of UK farming which insinuated that many farmers deliberately use excess fertiliser, it is our firm’s view that we have yet to meet a farmer who will pay more for anything than is strictly necessary. Farmers have never been more efficient with regards to on farm operations.
The farmer of 2020 will continue to get their hands dirty but will Artificial Intelligence, self-driving machinery and drone mapping technology available, the hope is that farming in Scotland continues its ever evolving and steadfast resolve forward into a challenging decade.
Contact Mark at firstname.lastname@example.org if you want to know more about the benefits of accounting software and digital integration.