Suffolk farmers could see profits plummet after tough spring

Confidence in the agriculture sector has taken a knock as farmers try to contain the fallout from one of the wettest winters on record/

To add to their woes, commodity prices have fallen and the Basic Payment Scheme (BPS) - which has helped many stay in the black up until now - is ending.

With diminishing amounts of the farm subsidy to sustain them through the highs and lows of the weather and prices, they are facing a tricky year, land agents admit.

Oliver Holloway of Clarke and Simpson said weather remains a big topic.

"It’s no surprise that one of the wettest winters on record, combined with falling commodity prices and the phasing out of the Basic Payment has knocked the confidence of even the most optimistic of farmers," he said.

"For a farmer to be drilling sugar beet before the previous crop has been harvested was - until this year - unheard of."

A raft of new legislation coming into effect on sustainability and the environment and a looming election mean more changes on the horizon, he added.

“The phasing out of the Basic Payment Scheme (BPS) is now well under way with 2024 marking the first year of delinked payments," he said.

The now delinked BPS payments will taper until they are completely phased out in 2017, with the Department for Environment, Food and Rural Affairs (DEFRA) beginning to offer increased payment rates through the Sustainable Farming Incentive (SFI) and Countryside Stewardship (CS) to bridge the funding gap, he pointed out.

“Farmers are a resilient bunch and history shows that short term fluctuations in weather, commodity prices and policy, generally has little impact on land values," he said.

“It does however, appear that we may have seen the farmland market at its peak and I expect 2024 to be a period of consolidation as supply and demand becomes rather more balanced."

Giles Allen of Strutt and Parker predicted the trials farmers faced over the past few months would exacerbate the volatility in profitability which emerged in recent years.

"While most arable farmers in East Anglia made decent profits in 2021 and 2022, they fell in 2023 and the outlook for 2024 is that profits will fall further," he said.

"The wet conditions have both reduced the yield potential of winter crops and increased the acreage of spring crops - so growers are facing a low output year, at a time when Basic Payments are also falling further."

Growers were now focused on finding ways to reduce risk – with many using one or more of the grant schemes on offer such as the SFI and Farming Equipment and Technology Fund – as part of their strategy, he said.

"Some are also looking for ways to reduce debt, in the light of higher interest rates, and this is prompting some land sales, although in our experience retirement and profit-taking remain the most common reasons for selling at the moment."

Although the supply on farmland reaching the market in the East of England has risen significantly this was largely down to the launch of a couple of sizeable farms and estates, rather than an increase in the total number of farms available, he added.

"We do expect supply to keep creeping up over the summer months, but things could then slow down again ahead of the general election."

Demand has softened - but there was still "an active pool" of buyers, he said. These were coming from a wider base as farmer buyers fall away to be replaced by environmental buyers, city-based investors and development rollover buyers.

"There can be stark differences in the strength of demand depending on location," he added. 

"The greater caution shown by farmer buyers is probably down to higher interest rates for anyone needing a mortgage, rather than the weather."

The dreadful weather had yet to feed into supply, demand or price - yet, he said.

"There has been no noticeable effect on values which have levelled over the past 12 months, with average arable land values across England being around £11,000/ acre, although average values in the East have tended to be a slightly lower.

Louise Grant of Brown & Co said the recent floods had a "significant" impact on farmers' morale.

"The constant challenges and setbacks caused by the floods have led to increased stress and frustration among farmers," she said.

"The damage to farmland, crops, and infrastructure has caused financial strain and uncertainty for many farmers.

"The continuous flooding has disrupted farming operations - leading to delays in planting, harvesting and other essential activities.

"Farmers have had to deal with crop losses which has not only affected their income but also their long-term planning and investment decisions."

Some may be looking at ways to mitigate future flooding events - including improving drainage systems or adjusting their planting and harvesting schedules, she said.

"However, these strategies require additional resources and may not be feasible for all farmers, especially those with limited financial means."

The floods could also have an impact on farmland coming to market, with farmers who have suffered significant damage potentially reluctant to sell their land until they can recover or receive adequate compensation, she suggested.

"In the long term, the overall perception of farmland as a stable and reliable investment may be affected," she said.

"Potential buyers and investors may become more cautious and assess the flood risk associated with specific areas before making purchasing decisions.

"This could lead to a decline in demand for farmland in flood-prone regions and potentially impact the overall farmland market."

Oliver Carr, associate director in the rural agency team for Savills covering West Suffolk, admitted it had been a tough start to the year for farmers.

 “The reduction in the basic payment scheme has been exacerbated by lower margins as costs have risen and commodity prices have dropped," he said.

"This hasn’t been helped by the exceptionally wet weather which has delayed many preparations for harvest."

Some were starting to consider their options and change the way they farm and manage their land, he said.

"A lot of our teams have been busy helping clients explore additional income streams through the likes of the Sustainable Farming Incentive and stewardship schemes, with peatland rewetting, flood alleviation, nutrient neutrality, rewilding, biodiversity net gain and more active water meadow management all rising up the agenda and offering a potential financial alternative."

Others were making the difficult decision to leave the industry, he said. They had already seen more farmland come to the market in the first three months of this year compared to the same period last year - and expected that to continue.

"Higher supply offers an opportunity for buyers to be more selective and focus on best in class properties.

"The quality of a farm’s infrastructure for example is influencing values strongly. Farms with good-quality buildings suited to modern agriculture are tending to attract more interest and competition."

The flooding has also caused buyers to look more carefully as drainage, he said. 

"Free-draining land is generally favoured unless yields are seriously impacted in drier weather.

"Where productivity is dependent on underdrainage, records and the quality of this system are becoming more important and will be factored into offers given the expense of investing in new systems.

"Similarly, the security of water supplies for irrigating specialist cropping in the summer months is also coming under greater scrutiny.”