| On Topic
Preparing for a post-Brexit future
– a view from down under
Brexit poses a
great degree of
uncertainty to
British agriculture
in terms of trading
relations with the
EU and the future
of agricultural
subsidies.
Simon Wearmouth
David Heinjus
lthough subsidies will remain in
place until 2020, what follows
remains unknown.
Farmers should prepare for a
future without support and,
perhaps, more volatile markets,
says David Heinjus, farmer and award-winning
managing director of Rural Directions, a large
Australian agribusiness consultancy.
Speaking at a series of recent seminars
entitled A view from Down-Under, organised by
Brown & Co to hear how the Australian
approach to farm business might help the
future of British farming, Mr Heinjus believed
change in the UK was very likely.
It would, however, be manageable provided
farmers were prepared to accept it. “Change is
OK. Those who resist it will suffer; those who
embrace it and move forward can prosper,” he
said.
Australian farmers were testament to that.
Many remained profitable, despite being
subject to the highest level of production and
market volatility, and some of lowest levels of
support, in the developed world.
Mr Heinjus, who also runs Pareta Farms, a
3,600ha mixed operation in South Australia,
said UK farmers should start planning now to
fine tune the four main profit drivers.
Low-cost business
Creating a low-cost business model was
critical, he said. “Work out what you need to do
to create a profit without subsidies. Politicians
can change things at the stroke of a pen, so it
would be wise to assume such a scenario
might exist.”
Farms needed to be structured properly, with
the right level of machinery and labour.
A
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“Australia’s farmers operate a no-till system,
and there is little addiction to steel,” he said.
“We aim for a machinery value to income
ratio of 1:1 at the most, and ideally 0.8 to 1.
Total plant machinery and labour should not
exceed 25% of income.”
Debt should be balanced – ideally no more
than income – and rented land should be
appropriately priced, he added. “Keeping
businesses simple, with only a few enterprises,
assists management and timeliness of
operations.”
Gross margin optimisation
Inputs should be applied according to
science-based evidence rather than a blanket
approach. “The top 20% of farmers in Australia
are investing 35% of turnover on variable costs,
while the average farmer invests 43%,” he said.
There was a strong focus on agronomy and
timeliness, as well as sound rotations that built
fertility.
People and management
Successful farm businesses had teams that
were functional, entrepreneurial and
opportunity focused and shared the same
vision, said Mr Heinjus.
“Effective, skilled operators ensure all
operations happen on time – in Australia’s
climate of extremes, this can mean the
difference between success and failure.”
Risk management
Australian growers put a strong focus on
developing a resilient business that could
withstand production and business shocks,
said Mr Heinjus. “Identifying risks and having
management strategies in place is key in a
world without subsidies.”
In summary, there was often abundant
opportunity for farmers to achieve higher profits
from existing resources, and size was not a key
factor, Mr Heinjus said. “Small farms that are
structured properly can be profitable.”
Implementing the required actions was
usually a bigger challenge than the technical
knowledge gap, he added. “But the rewards
are worth it – the top 20% of farmers in Australia
retain 30% of their turnover as net profit, while
the average retain 11%.”
Brown & Co’s Simon Wearmouth said while
no-one should second guess the detail of
agricultural policy post 2020, it was safe to
assume that direct subsidy would be
significantly reduced.
“Farmers’ net profits can be precariously
close to their BPS receipts and far too
frequently be lower. This is unsustainable now
and could prove fatal in the not-too-distant
future if corrective measures are not put in
place,” he added.
Farmers could learn much from those who
operate in a ‘no support’ environment,
particularly regarding cost control and
productivity using a combination of
benchmarking and key performance indicators,
Mr Wearmouth said.
“Forward-thinking farmers should also be
looking at reducing fixed costs, taking
advantage of current rates of interest and
restructuring debt where possibl e.”
Brown & Co are offering a “Fit for the Future”
strategic business review service to help
farmers prepare for a post Brexit world. Anyone
interested in finding out more should contact
their local team (go to www.brown-co.com or
call 01664 502126).
December 2016 | Farming Monthly | 13