The economic downturn, the shifting sands of agricultural policy, climate change, the biodiversity crisis and soaring input prices are likely to be critical influences within the rural sector in 2023, according to land and property specialists Strutt & Parker.
Rhodri Thomas, Head of Rural at Strutt & Parker, says: “It is clear we are facing a period of accelerated change in terms of land management. This time of year is ideal for land managers to start gathering information and data to help them work out the best ways to respond to the challenges they will face in 2023. The good news is that some new and exciting opportunities are also emerging, and land managers would be wise to be proactively thinking about their options to identify where the best opportunities might lie.”
1. Higher working capital requirements
Higher working capital requirements for Harvest 2023 will put a squeeze on profitability and have a big impact on cashflow. Harvest 2022 is likely to have been a profitable year for those arable growers who purchased the bulk of their inputs before the massive increases in input costs and benefited from the significant increases in grain prices. But the input costs for Harvest 2023 will be significantly higher and commodity prices have also eased back from the highs seen earlier in the year.
Strutt & Parker’s farming team can assist with benchmarking and budgeting to help you navigate the financial challenges of the year ahead. We can assess if you are likely to have sufficient working capital over the coming months, and to see where the dips in your cashflow potentially may be. In addition to this, our farming and research team has developed a new tool to help assess how sensitive profit margins are to changes in some of the main variables, such as fertiliser and diesel costs and crop prices.
2. Mitigating the energy crisis
The energy crisis is opening up significant opportunities for landowners in the delivery of both large- and small-scale renewable energy schemes. Developers of large-scale solar projects are prepared to pay rents of around £1000/acre (index linked) along with a percentage of turnover. Battery storage site rents are typically between £2,000/MW and £2,500/MW.
Roof-mounted solar PV schemes are back in the spotlight as a way for farmers and landowners to cut their electricity bills by reducing the amount of energy they buy in. The financial feasibility of investing in a new solar PV system will vary depending on how much energy is used on site. The best returns will be where there is high energy use on site. An energy review is useful to analyse your consumption profile and investigate which renewable energy technology is most appropriate. Farmers who already have a solar array, but do not have an export meter fitted, should consider getting one installed, as there are now some excellent rates being paid for exported electricity.
3. Nature recovery
It’s not just about carbon when it comes to responsible environmental management. The issue of biodiversity loss is one that is likely to become increasingly high profile in the wake of the UN Biodiversity Conference (Cop 15). The UK is now one of the most nature-depleted countries in the world because of the loss of wildlife-rich habitats, according to research published last year by the Natural History Museum.
Climate and biodiversity are closely interrelated, and we are now seeing a concerted effort among environmental groups to push policy makers to recognise, through policy implementation, that nature recovery is just as important as reducing greenhouse gas emissions. As we move forward, active habitat management will become more and more important. A big challenge that needs to be overcome is securing appropriate finance to enable this to happen – whether that is from the public or private sector – although there is strong research evidence that shows that, due to the positive effect on crop production from wildlife habitats, farm profits can increase even if the area cropped is reduced.
4. Rise in bad debt
Official government figures show rising levels of business insolvencies, so it has never been more important to know your customers and manage the risk of bad debts closely. Monitor any changes in business practices which might signal buyers are suffering cashflow problems. State terms of business clearly on invoices and set up reminders so you know when you need to start chasing for payment.
5. Let property management challenges
Everyone is feeling the effects of the cost-of-living crisis, but anyone with a property portfolio will also need to be particularly mindful about its impact on tenants. It is likely there will be commercial and residential tenants who may find themselves struggling to meet their rent. Damp and mould in properties could also become more of an issue, because of people not being able to afford to heat their homes. Keeping the lines of communication open is vital. Get to know your tenants as well as you can, so you are aware of any early signs of stress. Consider what happens to cashflow and profitability if a tenant leaves.
Landlords are also facing the prospect of major legislative changes associated with improving energy efficiency and ensuring a fairer deal for tenants. Raising EPC ratings in traditional buildings is a complex area and with significant cost implications for rural landlords so it is important to get expert, independent advice.
6. Seek out grants
It makes sense to take advantage of grant support to future-proof your business where it is available. For example, we know that tighter environmental legislation is likely and grants of up to £250,000 are currently available for farmers in England to replace, build or expand existing slurry stores so they have six months’ storage capacity. Farmers have until 31 January to enter their details into an online checker to see if they will be eligible for the scheme.
A new Rural England Prosperity Fund is also on its way, which could be useful for farmers looking to diversify. Strutt & Parker has been contacting Local Authorities to ensure that they make the most of the funding on offer, as we have seen first-hand how this type of support can have a significant positive impact for individual businesses and the local rural economy.
In Scotland, there is funding available for carbon audits and soil testing under the Preparing for Sustainable Farming (PSF) National Test Programme. Funding of £500 is available for getting a carbon audit completed by an FBAASS accredited advisor. Funding for soil sampling and analysis is available to farmers and crofters in Scotland who claim region 1 ground on their SAF form.
7. Expect greater volatility
The effects of climate change are becoming more obvious to us every day – we’ve had heatwaves, flooding and the disease risks seem to be increasing for the arable, livestock and forestry sectors.
A research team from the University of Oxford, the UK Centre for Ecology & Hydrology (UKCEH), the Met Office and Bristol University has recently published work on wheat yields which shows that for the past 30 years farmers have largely been able to compensate for any adverse weather conditions in the way they manage the crop. However, climate change will push the boundaries of what is achievable through crop management and the research team’s forecast for the next 30 years is that there will be much greater volatility in cereals and grass yields.
The forestry sector is seeing Ips typographus (a beetle) and oak processionary moth spread in the southeast of England. Eradicating these pests and diseases is impossible, but containment is possible, so woodland owners need to actively monitor their woodlands and plan ahead.