Saturday, October 19, 2019

Bracing for Brexit: a beginner’s guide

December 21, 2017 by  
Filed under Property

With just 15 months to go before the UK leaves the European Union, it is time to Brexit-proof your farm business strategy, writes Richard Crane.

Life outside the EU will upend the certainties that have come to farming for more than a generation in terms of trade and support.

But there are steps that can be taken to make an agriculture business best able to withstand, and indeed flourish, in what will be turbulent times. And the clock is ticking.

Currently, the EU Common Agricultural Policy gives around £3 billion a year to British farming. The government has guaranteed to do the same until 2022. But not beyond.

Whilst leaving unclear how much money the sector will receive from the Treasury after Brexit, the Government has already given clues about where much of it may go.

Defra secretary Michael Gove, for example, has talked of prioritising “good environmental practice” rather than “rewards” according to the size of land-holding. There is also a sense that the industry will be encouraged to stand more firmly on its own financial feet.

As well as acting for estates and farmers across the UK, helping them with business strategies and accounts, I also farm in a personal capacity. As you might expect, I have given Brexit and how to survive it a great deal of thought.

The result is a checklist of actions as we enter arguably the most challenging potential reversal of fortunes for the sector in living memory. There are risks on the road ahead, but also opportunities. These should help a farm to deal with both.

Brexit checklist

Invest in management skills. Either your own or those of key employees. The era of managing on a bed of support is ending. To prosper will require a sharp business focus. Estates, farm owners and management should invest in themselves first.

• Examine balance sheets. Interest rates remain at historic lows. This is an opportunity to pay down debt either by realising assets, taking advantage of the weak pound and firm land values, or to secure long term debt financing at favourable rates to help your business resilience in the upcoming turbulent times.

• Diversify into non-agricultural revenue streams. These can include anything from converting buildings for business or holiday rents, creating a ‘glamping’ site (right), or creating space for commercial storage.

• But be careful. The wrong diversification can upset the capital tax balance. It is important to ensure that the bulk of activity being generated is clearly from traditional farming or trading activities or risk losing important reliefs, including from Inheritance Tax.

• Focus on operational excellence to increase yields. Most of UK agriculture is still commodity based. To succeed you need to produce at the lowest unit cost. Yields are the key to driving this down.

• Get closer to the consumer. The fewer people in the supply chain between product and price paid the better for revenue. This could involve exploring online consumer channels.

•  Look for opportunities to produce crops or food that is currently imported. These may already be increasing in price due to the fall in the value of Sterling.

• Think hard about succession planning. There could be 10 years of economic turbulence ahead. Work through any awkward inheritance issues now whilst the going is good. Put those with drive and energy in charge.

• Build up a ‘war chest’. Brexit could hit land values. This will be a good opportunity to buy.

• Consider joint ventures for all or parts of the business to defray costs. There may also be a case for outsourcing some production.

• Finally, be green. The government has made clear a future support regime will emphasise environmental protection. This could include enhanced public access, with implications for privacy. It makes sense to start working on your strategy now – ready for life after 2022.

Richard Crane is a partner specialising in firms and estates at BKL, a firm of chartered accountants and tax advisers, which has offices offices in London and Cambridge.

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