North Yorkshire Rural Commissioner Chris Clark talks about the pressures facing upland farmers.

AS a former farm tenant and then farm manager with 30 years’ experience in management I hope to bring my knowledge and skills into play to support a pioneering new approach to tackling rural decline in North Yorkshire. One of eight independent people charged with using evidence to inform a new set of recommendations to halt decline and promote growth in the county’s most rural communities, I accepted the invitation to join North Yorkshire’s Rural Commission without hesitation.

My wife Fiona and I own and manage 170 hectares at Nethergill Farm in the Yorkshire Dales where we are currently building an eco-hill farm business with a sustainable added-value meat activity, an educational and field study facility and eco-tourism holiday lets.

I am a partner in Nethergill Associates, a business management consultancy currently assisting with the conjecturing and management of future farming uncertainties in the Yorkshire Dales, Nidderdale, North York Moors, the Lake District and Surrey and I am a member of the Yorkshire Dales National Park Authority. As The Rural Commission prepares to consider the first area of business – farming, food and environment – I would like to outline some of the difficulties faced particularly by hill farmers for your thoughts.

Hill farm businesses are driven by the quality and quantity of grass available. This situation is affected principally by the farm’s latitude, elevation and precipitation. Whilst much has been done to improve farmland over the centuries (through capital investment in asset re-configuration – such as de-forestation or drainage) little or nothing has or could successfully be done for hill farming.

Upland colonisation for sheep (in England) started with the monasteries and an interest in wool production. Since 1945, it is more accurate to say that improvements to farming in the classical/historical vein have been replaced by programmes to combat natural deficiencies, (latitude, elevation and precipitation), via the use of fertilisers or purchased branded feeds.

Leaving the European Union and its Common Agricultural Policy is likely to exacerbate the problems and prompt significant change in the agricultural sector.

Whilst the specific changes are difficult to predict, almost certainly there will be the need for all farm enterprises to secure full commercial viability (wherever possible) without subsidies (or forms of support that distort the marketplace). Income levels from farming on more marginal land are modest, to say the least. So, marginal-land farming viability is extremely vulnerable to any changes to direct farm support and environmental payments.

Therefore, upland farm businesses will have to tackle farm business profitability. A difficult proposition when the marginal viability of upland livestock enterprises is caused by many inherent business uncertainties:

Farm profitability

Hill farm businesses are governed by commodity prices and so are beset with low profitability and subsequent low family drawings. DEFRA assessed that in 2014/15 half the UK farmers failed to cover their costs of production and even after all support payments are included in farm revenue almost 20 per cent of farms failed to achieve a farm business income. This will almost certainly be higher on livestock enterprises.

Outside income

Farm business revenue is also supported not only by the EU’s Basic Payment Scheme (BPS) and environmental payments but also by outside income generated by a working family member, via benefit payments such as any Family Tax Credit claimed as well as by diversification income.

High Street banks approach to lending money

Traditionally banks have provided access to funds by using business or personal collateral as security. However, banks are now requiring that farm businesses also demonstrate the capacity to be able to service the overdraft or loan. This requires a robust profit and loss account which many upland livestock farms struggle to achieve.

World meat prices

The post Brexit market for beef, lamb and dairy products will need regulation by appropriate support, tariffs and/or quotas. This will be vital to ensure the continuity of farming in marginal areas.

Serious flaws within the farming business model

Farms tend to produce commodities with farmers favouring the quickest routes to a revenue stream for cash flow reasons. Further, greater added-value activities are perceived to have two major problems for farmers – more investment in time and capital. Alongside this commodities are the most vulnerable entities linked to supply and demand – and the more basic the commodity the more variable will be the price set by the market. This has a massive impact on hill farm income predictability and this uncertainty contrasts markedly with outgoings such as materials, rents, interest payments and labour costs.

Farming is capital intensive and capital-intensive businesses will have low asset turn. However, as all businesses compete for scarce capital, farming has to compete with non-farming activities for that investment. And investment will always be drawn to those activities which offer higher rates of return.

And so, in an industry with an intrinsically low asset turn, the need to deliver a competitive return can only be met through higher margin activities. So, margin has to compensate for asset turn which is tough or nigh impossible in commodity farming. To exacerbate the problem of winning good returns, farming has to cope with risks such as the weather and the prospect of unwanted infections, etc., which really should command a further premium.

Addressing these complex issues will be challenging but essential.

North Yorkshire’s Rural Commission is supported by North Yorkshire County Council