Sector trends

Agriculture outlook: Cash flow remains key for NI farming businesses

Cormac McKervey, Ulster Bank’s Senior Agriculture Manager/Climate Lead, reviews the latest opportunities and challenges for farmers in the region.

Burdens are mounting on farming businesses in Northern Ireland as high prices of vital inputs such as electricity, fuel, feed and fertiliser continue. Resilient by nature, farmers could still act now to protect their profitability later by keeping on top of cash flow. 

Costs: a unique set of circumstances for farmers

Older farmers may remember the late 1970s and early 1980s, when inflation and interest rates peaked at 22% and 17% respectively. How many have come through a period when inflation was running at 30%, though? Consumers are feeling the impact with inflation at 9.1%. But farmers are at the front end of it, with inflation three times that figure. 

If you consider a farmer with an overdraft of, say, £50,000, they might be fine when their meal bill for the month is £20,000. But if that meal bill is now £40,000, their fuel bill goes from £5,000 to £10,000, and fertiliser goes from £20,000 to £50,000. Suddenly, that overdraft isn't covering anywhere near the same amount of ground that it used to.

We recognise the challenge here for farmers and have announced several support measures for businesses that need them to try and ease cash-flow pressures. 

The year end and start of 2023 could be particularly challenging, so even though farmers are typically time-poor and may be profitable right now, a cash-flow projection could help identify any gaps and give them time to seek investment capital or finance for extra liquidity going forward.

Growth plans: pausing for thought

We feel this is a holding year for many farmers rather than a year of pushing on – there’s not much appetite for significant capital investment right now. It’s not that there’s anything inherently wrong with the profitability of the business. Rather, there is a wait-and-see attitude. 

Land is an exception: when land becomes available, farmers will always want to buy, despite how difficult things might be. 

There are also opportunities from renewables. Some farmers are taking the view that while energy costs are very high, and they don't necessarily want to spend an awful lot on capital investment, solar panels could reduce their reliance on electricity and offer payback in about three to four years.

Regulations and legislation: farm payments, emissions reductions

Northern Ireland is currently without an Assembly or a fully functioning Executive, so there is no new regulation coming up for farmers in the region.

Northern Ireland farms have a big issue with ammonia (NH3) emissions produced by many common farming activities, such as the housing of livestock, the storage and spreading of manure and slurries and the application of fertiliser. 

Over half the graduates in agriculture from Greenmount College this year were female. I think that’s probably the first time ever and is a sign of how things have changed. Farming was traditionally a hugely male-dominated industry and is now much more reflective of wider society

Reducing ammonia emissions across Northern Ireland is a key priority for the Department of Agriculture, Environment and Rural Affairs (DAERA). A consultation document has been issued and reported back on. We feel there will be significant changes to what farmers can do, particularly in plans for new builds, but for now there is no progress on that.

Another development that’s related to cash flow is that farmers usually get their farm payments from the DAERA in mid-October. This year, in light of the cash-flow implications, the Department will issue these on 1 September. 

This will help farmers by boosting cash flow. It’s not new money, but it’s six weeks earlier than usual and is a significant change. 

Farming talent: hope for the future

We have three excellent colleges in Northern Ireland focusing on agriculture, equine and food. We’ve recently seen for ourselves the number and the quality of the graduates coming through. It’s a great vote of confidence for the future of the NI Agri-food sector to see so many top quality graduates.

It’s been magic to see the demand for courses across all degree levels, on everything from food nutrition, marketing and packaging, and supply chains through to Agri-tech and sustainability. It’s a great sector to be involved with.

The other positive development is diversity in agriculture – over half the graduates in agriculture from Greenmount College this year were female. I think that’s probably the first time ever and is a sign of how things have changed. Farming was traditionally a hugely male-dominated industry and is now much more reflective of wider society.

Soil fertility innovation: a key differentiator for Northern Ireland

A four-year £45m Soil Nutrient Health Scheme (SNHS) involving 27,000 farms in Northern Ireland could be a step change if we handle it well. Every field will be soil-sampled by an infrared, which means we’ll get an indication of soil fertility below the ground, and the amount of carbon it can store. 

It starts with Counties Armagh and Down and will go around the province until every field is done. We will be the only region in the UK, probably one of the only regions across the EU, to have this, and it will give us a fantastic baseline to say the amount of carbon we can store in our grasslands here is X amount. It won’t be a finger in the air, it will be science-based and a rich source of data. 

If we’re smart about it, the information will become our marketing body. Farmers will get an indication of the nutrient status of their soil, and what they need to do in terms of lime, PH, and fertiliser. They’ll also have an indication of the amount of carbon they can store. So, when they’re selling a product, whether it’s a litre of milk or a kilo of beef, farmers can show it comes from a farm with hopefully below average carbon footprint, and it’s scientifically backed up.

For more information and insights on agriculture, visit Ulster Bank 

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