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Secrets of specialisation: Agriculture
13th Mar 2019
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Ask most people about their pre-existing picture of a British farmer, you’ll likely get a description of a tweed and flat cap wearing, apple-cheeked old-timer. But according to Simon Budden, the director of agriculture at Kreston Reeves, this bucolic picture is out of sync with modern agriculture.
“Farmers today are business people, they’re entrepreneurs,” said Budden. “They’re looking for commercial returns on all their activities and they run it as a business. That means expanding the business beyond just agriculture, too.
“There are added-value elements on farms. For example, some of the livestock units are going with their own butcheries. I came across, not one of my clients sadly, an organic vineyard where they produce sparkling wine they ship directly into the City.”
But while agriculture has adopted traits from the wider economy, other aspects have remained the unique to the sector. So for this week’s Secrets of Specialisation, AccountingWEB spoke to Budden about how British agricultural businesses are performing -- and what challenges face them in the year ahead.
So, Simon, how’d you get started in your agricultural niche?
I worked on farms in my late teens and I enjoyed the lifestyle. That is, until the weather turned to winter! The work was fun and the social life was quite entertaining. But unless your family owns the farm, the career prospects can be limited.
So I moved into accountancy. I started out with Kreston Reeves in 1988, when we had offices in most of the local towns. People were general practice accountants in those days. The office I started in was surrounded by farms and a very significant amount of our work was linked to agriculture.
Then approximately ten years ago we consolidated our offices to build on our collective expertise within larger offices to focus activities and better serve our clients. I moved to our Canterbury office, and continued to develop my interest in the agriculture sector.
What’s unique about working with farms and farmers?
It’s generational accountancy. With entrepreneurial businesses, you might look after them for a comparitively short period. But with farms, you get to know the family and you go through everything with them. With some clients, I’ve been looking after them for over thirty years now.
What's the state of the agricultural industry right now as you see it?
The B word is up there in terms of concerns. It’s been a highly contentious issue among farmers. At the time of the vote, we did some surveying of our client base and it was split 50/50 at the time of the vote. The industry was almost at loggerheads. We even had husbands and wives that voted different ways.
In terms of our sector, the issue is how it will affect prices and access to markets. The dwindling away of the support regime is a concern for some. But access to labour will arguably be the big issue.
The UK labour force doesn’t seem too interested in agricultural work. I spoke to a cucumber grower and he said that he couldn’t get UK nationals to pick for £10-a-hour. This is not just a case of legislative access, though. Commercially, will foreign pickers want to travel here and work?
The pound has been devalued. The traditional, seasonal labour force is now asking ‘Is the UK worth the effort?’ Why go to the UK if I’m sending back 20% less than I used to?
Certainly, the devaluation of the pound has had an impact. Fruit farmers have found it more competitive to secure a labour force. People are thinking about the overall package. Is the accommodation block comfortable? Do people get wi-fi?
These things are important these days: it’s the whole package, not just the hourly rate for picking fruit. At some stage, there’ll be a competition for workers. There’s plenty of fruit farms in the UK. What are you going to do to attract the right pickers, retain them and keep them happy and motivated?
What are farmers saying about Brexit now?
People want certainty. We’re talking about a sector that makes long-term decisions. All sectors have some long term element, but you don’t plant an orchard on the basis of a three year return. You’re talking about a fifteen year cropping cycle. If you put up a new grain barn, you’re looking at a payback over 15 to 20 years. You’re talking about sector that needs as much certainty as it can get.
In terms of what farmers want from you, what work do you do with your farm clients?
We’ve moved from predominantly from being accountants and tax advisers to being business advisers. Yes, there’s still tax planning there, but we’re also working with diverse businesses to arrive at a strategy that meets the needs of everyone.
We look after this lovely farm that’s a combined unit of arable fruit and livestock. There’s a director running each of those enterprises but they’re of different ages and different financial security positions. It’s balancing these needs.
Succession is a big part of our workload. It's rarely an easy task. At what stage do you hand over the reigns? There’s not a lot of financial fat in a farm these days. You can’t give it to the kids and wait until they get the hang of it. Farms can’t afford a few years of losses.
We’ve made succession a business process. There’ll be an assessment of the required skills and what training is required to attain those skills. That has worked quite well and it fits well with the older generation in terms of handing over control. If you involve the outgoing generation in setting those goals and skill requirements, and they’re reconciled to the fact that they’re met, the barriers to handing over responsibility start to fall away.
In smaller family units, it’s more flexible. It can be on a counselling level between the individuals concerned.
What about KPIs and metrics: what do farmers concentrate on?
In terms of business performance, there are benchmark targets for yield and growing costs. Now the anomaly in there is that we all look at the farm in a slightly different way and ask what costs are going to attribute as a direct cost?
It’s useful indicative data for a lot of farms. To know that you’re, say, in the top 30% of farms for yield and efficiency of growing costs, it’s a good target. There might be other performers in there with more fields, larger kit etc, but it’s a development indicator.
It’s really knowing what the long-term plan is. If you’ve got no kids involved in the business, it’s different to having kids with an active interest in farming. For others, it’s about leaving the business in a position where it can get a good capital sum.
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