Farm businesses should budget for cashflow over the coming months, as profit margins remain tight and January tax bills loom, an agricultural consultancy firm has advised.

In its annual outlook report, The Andersons Centre urges farmers to “consider their cash demands for the next few months carefully”.

“This need not be a sophisticated cashflow calculation. A simple ledger of likely outgoings and incomings will provide a good sense of whether there is likely to be a cash crunch,” the report reads.

A key issue is the timing of profits on UK farms over the past few years. In general, consultants at The Andersons Centre saw “a good year overall” for farmers in 2021, followed by “record profits” in 2022.

“Returns in 2023 will be much lower and the prospects for 2024 indicate tougher times will continue,” the Leicestershire-based firm said.

It means large tax bills in January 2024, due to profits from previous years, are due to be paid when cashflow is now under pressure.

Another issue is that profits made in 2021 and 2022 had to be directed towards buying expensive inputs, particularly after the Russian invasion of Ukraine, so spare cash from the good years is not available.

“Early discussions with lenders are likely to receive a favourable hearing as long as the underlying business is sound.

"Last-minute calls to extend overdrafts are unlikely to be accommodated so easily,” states the Andersons report.

Support changes

The cashflow situation is arguably worse for farmers in England, where Basic Payments are being phased out as farm support moves towards schemes that deliver environmental outcomes.

By 2024, the minimum cut to payments in England will be 50%. Even though the total budget for agricultural policy in NI is largely unchanged in recent years, the Andersons report highlights that inflation is “eroding the real-terms value of direct support”.

The consultancy firm suggests farmers across the UK should embrace the concept of farm schemes becoming more environmentally focused, as it could mean the budget for agriculture is secure long-term.

“For many, new agricultural policy throughout the UK will return less profit, but the concept of public money for public goods is acceptable to taxpayers and voters, making it more sustainable,” the report reads.