Farmers across the country are facing eroding margins and increasing cash management pressures. The announcement in the 2024 Autumn Budget that Agricultural Property Relief will be reformed and that from April 2026 farmers may pay up to 20% inheritance tax on assets above £1 million has only added to their concerns about the viability of their businesses and livelihoods in the future. These concerns have been reinforced by the Government's apparent reluctance to explore alternatives, such as the National Farmers' Union counter proposal for tax on the sale of a farm instead of inheritance.
The sector is broad and varied, but the following key challenges will be familiar to farmers across the UK.
Access to skilled labour, particularly for seasonal and specialised work, is a real concern for UK farms. Vacancies are unfilled, and many businesses have had to absorb significant staffing cost increases. A recent survey shows that on average farmers are paying 27% more on these costs now than they were at the end of 2019.
The reliance on migrant workers and the need to attract them to rural areas is a long-term challenge, and was made considerably harder post-Brexit.
In recent years, the sector has faced volatile prices for key supplies such as fertiliser. Farmers don't have the ability to fully pass on cost increases to their customers, which only exacerbates margin pressures, and can make the farming of some crops and dairy herds commercially unviable.
The transition away from the Common Agricultural Policy (CAP) and the development of a new domestic policy has reshaped the support mechanisms for UK farmers.
Brexit meant the removal of certain subsidies which were crucial to some farmers’ ability to report a profit for any given year. It also disrupted accessible routes to market beyond the UK where many had established supply chains. A Farmers Weekly survey of over 900 respondents in 2023 showed that 69% believed Brexit had a negative impact on the sector.
As the industry moves towards a new era of agricultural subsidies and environmental schemes, farmers face the challenge of understanding and complying with evolving policy frameworks while ensuring the economic viability of their operations.
The UK farming sector is increasingly focused on environmental sustainability and biodiversity conservation. For example, the dairy sector has recently launched a new initiative to highlight its environmental ambitions as part of the need to address the viability of the industry in the future.
Balancing the need for sustainable land management practices with the pressures of agricultural productivity presents a significant challenge for farmers, particularly when operating with such tight margins. Adapting to changing climate patterns, reducing greenhouse gas emissions, and implementing sustainable farming techniques are crucial for the sector, but funding is needed from the Government to propel these efforts.
In an example of having to ‘think outside the box’ to secure the future, there are examples of farmers using crowdfunding to support plans to develop new facilities (eg, a zero-waste dairy facility for one in 2024, which also sought co-investment from private investors and financial institutions). This isn't without its risks, but shows the opportunity for seeking a wider pool of investors when looking for access to capital.
These diverse challenges requires strategic planning and an agile mindset to develop resilience for the business.
While farming inevitably involves emotional attachments, try to look at the business through a commercial lens. What are the current and future drivers of profitability? Are there crops or herds which could be divested to support the long-term growth of the business?
Technology can help you make better decisions. Credible, easy-to-use monthly management accounts that are available to operators (and directors in a limited company structure) on a timely basis are essential. It enables management to consider margin pinch points and working capital trends, and address discrepancies to budget promptly.
Maintain a live, rolling 13-week rolling short term cashflow forecast. In a cyclical business, even in good years, certain months will create a cash drain, so real-time information is key to ensuring management decisions are made on an informed basis, such as predicting the impact of price differences or delayed harvests.
Could your farm benefit from agri-tourism, for example via an on-site cafe, accommodation, activity centre, or brewery/distillery? This could bring additional income streams which may help to limit the business' exposure to any difficulties with the arable/pastoral business. These projects would be long-term investments, so full set-up costs and projected cash flows should be carefully considered as part of any decision making process.
In owner-managed limited company structures, the addition of non-executives with fresh perspectives and different backgrounds in commercial enterprises can bring a wealth of alternative business expertise to complement the farming expertise of existing directors. Succession planning also needs to be actively addressed, to ensure business continuity.
Proactive engagement with lenders and suppliers if cash is tight will ensure the credibility of relationships is maintained.
Consider how your assets can help you access finance. For example, do you have unencumbered physical assets which can act as security for asset-based lending, or a long-term lease with terms an external third party will lend against? Approaching a wider pool of lenders with the support of an adviser who knows which lenders have the right risk appetite for farming businesses will make any fundraising or refinancing a much smoother process, and less draining on management time.
UK farmers continue to play a vital role in food production, environmental stewardship, and rural economies, and overcoming these challenges is crucial for the sector's long-term prosperity.
For more information, contact Claire Martin.
