The top 100 farming companies in the UK have seen their revenue fall for the second year in a row, says Funding Options, the online business finance supermarket.
The turnover of the biggest farming businesses in the UK has fallen to £4.84bn in 2015/16, down from £5bn in 2014/15. This follows a 4% decline in the previous 12 months, from £5.2bn to £5bn.
Funding Options says farms’ financial difficulties could be worsened by the potential loss of EU subsidies following Britain leaving the EU in March 2019, unless new funding alternatives are found.
UK farmers currently receive £3.2bn in payments from the EU, which provides businesses a safety net and an opportunity to invest in new farming technologies needed to modernise the industry.
As UK banks’ risk appetite have already decreased since the financial crisis, farmers are increasingly turning to non-traditional lenders to continue to receive vital finance.
Farming businesses can need relatively high levels of finance to fund capital investment and to overcome periods when income is volatile or subject to seasonal fluctuation.
Farmers are increasingly investing in cutting edge technologies designed to help increase productivity and profitability. This includes investment in GPS technology to reduce the use of pesticides and ‘self-milking’ machinery.
Funding Options adds that severe price pressure on farmers from supermarkets and falling farm commodity prices have created difficult trading conditions for UK farming companies.
Supermarkets have engaged heavily in price wars and have tried to pass on the pain by forcing farmers to accept lower prices. The supermarkets’ dominance of the market has left farmers with little room for manoeuvre.
Poultry farmers have been particularly affected, with the wholesale price of eggs falling by 11% in 2016 despite demand for eggs increasing by 3%. Their overall turnover fell by 16%.
Declining turnover and prices have led many farming businesses to seek increased financing, enabling them to make much needed investment in their businesses. The Scottish Government says farms in Scotland, have increased their total borrowing by £113m to a record £2.3bn in the past year.
Conrad Ford, CEO of Funding Options (www.fundingoptions.com), says: “The agricultural sector has faced a period of tumult and tough trading conditions.
“As large agriculture businesses have seen their income decline, the wider sector has also been squeezed severely by supermarkets and by falling commodity prices.
“EU subsidies have been crucial to many agricultural businesses, and as those are likely to end in 2019, the need for increasing turnover and productivity becomes even greater.
“Investment in new machinery and technology is clearly going to be even more crucial for the farming sector so businesses need to think ahead and get the right financing in place.”