The Longer View

A body that may be little known by the wider general public but which plays an important role for many of us in Carter Jonas is the Central Association of Agricultural Valuers (CAAV).  

The CAAV provides professional support and guidance on a wide range of legislative matters that impact on the rural sector and it has recently published a thought provoking discussion document on how our tax legislation could be overhauled to promote greater productivity in the farming sector post Brexit.

According to the CAAV, some simple changes could make a big difference.  The paper considers ways to assist entry, progression and exit from farming; innovation and investment; resilience; and the management of risk.

“One of the key factors that needs addressing is access to land,” explains Jeremy Moody, secretary and adviser to the CAAV. This involves freeing up more land for rent, as well as ensuring that land farmed in-hand is passed down to the next generation who will farm it best.

Learning from experience in Ireland, Mr Moody suggests that encouraging farmers to let land by providing income tax relief on the rental income which would be geared to the length of term of the lease would be something the government should seriously consider.  It is important to encourage longer leases because farming is a long term business and tenants need confidence that they will have sufficient time to benefit from any investment they make in the fertility of the land or fixed equipment.

Further, Mr Moody points out that in recent years Government tax policies have favoured companies under the Corporation Tax regime which has left many farming businesses which trade as partnerships and sole traders at a serious disadvantage.  Mr Moody argues that, “Businesses should be treated equally for what they do, not discriminated against for the way they are structured”.

Mr Moody also argues that greater investment and innovation will be key to future productivity and resilience, and the CAAV is arguing for the reinstatement of Agricultural Buildings Allowances to encourage such investment which was abolished on the basis that a cut in Corporation Tax would compensate businesses.  Further, to help farmers embrace new technologies there should also be a significant capital allowance for automation and digital technologies spread over five years.

Mr Moody also recognises that a key role farmers will have to play is in the management of the environment and he considers alterations to the tax system could be considered to boost soil health, water storage, and provision of other ecosystem services.

While the above ideas are aimed at helping boost agricultural productivity and environmental sustainability Moody also recognises the importance of the wider rural economy, and the value of diversification.  However diversifying can be a risky move, so it is important that support is available via tax reliefs for abortive proposals, and the ability to write off losses against the other parts of the farming business.

This is only a very brief summary of the CAAV report but it is a thought provoking document that may well peak some interest in the Treasury.

Steven Mclaughlin – Head of Rural Property Valuation
Member of the CAAV Property Committee
steve.mclaughlin@carterjonas.co.uk

The rate at which European support payments to farmers will be paid for 2017 has been fixed at 89.47p per Euro which represents an increase of approaching 5% compared to last year’s exchange rate which is welcome news for farmers.  But things could have been even better had sterling not strengthened during September meaning the exchange rate dropped from over 92p/Euro at the end of August to around 88p/Euro at the end of September.

This is however a significant increase of over 22% compared to the rate farmers were receiving two years ago before the Brexit referendum which has given many a significant boost, not only in support payments but also in commodity prices which have generally increased as the pound has weakened.

Having said that there are a significant number of beef and sheep farms which rely on these support payments to make a profit and although the prospect of Brexit has given these businesses a boost over the last year, it remains to be seen whether this boost will be sustained in the long term.

This is a subject that has been addressed by a number of conferences and working groups we have attended in recent months where industry leaders are trying to look in to the “post Brexit crystal ball” to predict the future for UK agriculture.  As we see it Brexit is just one of those many uncertainties that farmers have always had to face but equally it has the potential to stimulate significant change within the industry.

In this context we know many farmers want to farm without any form of support and whilst we understand this sentiment if support is withdrawn it would be naïve to imagine that all regulation will also disappear.  Further the relative importance of support payments to different sectors of the farming industry varies enormously.  Whilst we believe intensive pig and poultry units and efficient dairy farms would survive without support payments, this may not be the case for some beef and sheep farms.

We suspect if we look back in 20 years’ time beef cattle and sheep will still be seen grazing our fields but the number and overall makeup of the businesses owning those livestock may well be rather different from those we see today.

James Stephen - Rural Partner, South West Region
james.stephen@carterjonas.co.uk

We are often taken aback in the difference in profitability between two apparently very similar farming businesses and, although the price achieved for whatever is being produced is very important, so too is a clear understanding of both the fixed and variable costs of production.

It is often the wide disparity in some of these costs which makes the difference on the bottom line between one business and another.  Therefore, before any decisions are made on the future of a particular business, it is vital that the relative performance of every enterprise is properly costed.

This is particularly important in these uncertain times where farmers are likely to be faced with some significant changes as we leave the EU.  These changes may lead to both opportunities or challenges and to respond to these in the most positive manner possible, it will be important to have a clear understanding of the physical and financial performance of the business.

It is all too easy to carry on doing the same thing because it apparently works but this can mask the reality of where one farming or diversification enterprise is subsidising another.  This may be something a farmer is happy to tolerate at present but if things radically change then maybe adjustments will need to be made although before doing so we suggest this is best done from a position of knowledge rather than “gut feeling” alone.

In this context a change in the farm support regime post Brexit seems almost inevitable and this may have a more significant impact on beef, sheep and arable farmers in particular, who as a general rule are more reliant on the current area based payments than more intensive dairy, poultry or pig units.

There are a minority of rural enterprises that unchanged are not viable in the medium to long term, but we suspect the majority have a strong future; but these enterprises will need to understand their business in detail today and the direction they want to take in the future.

In regions where beef and sheep farming are of great importance, we believe it is prudent for these farmers to review their businesses now.

Such a review should not only include an assessment of the performance of the farming enterprises but also all property assets and the skills of the farming family members themselves.

We at Carter Jonas take the lead and work with many professional consultants to overcome challenges and maximise opportunities that face our clients.  If you would like any advice or further information, please get in touch.

Harry Torrance – Rural Partner Wales & West Region
harry.torrance@carterjonas.co.uk