Starter farm initiative - tenant insights: review

The Farm Business

Barriers to establishment

When generally discussing the start-up of their farm business the most commonly cited barriers reported were (i) finance; it was hard to find and was expensive (if obtained from non-bank sources); (ii) the lack of opportunities to obtain secure and affordable land; and (iii) challenges finding reliable hard-working people.

Start-up capital

From four interviewees willing to reveal financial details their initial expected investments on farms ranged from around £5k to £60k (£39k on average). Across all tenants the main sources of their initial investments were overdrafts (7) followed by loans (4), savings (4) and less often family (2). All interviewees had to invest more (sometimes significantly more) than they expected to get the farm business established (£31k on average from the 4 interviewees willing to divulge details). The extra investment capital was sourced from overdrafts, banks and agricultural markets (funding livestock purchases). The most common initial expenses were livestock, machinery, legal fees and working capital. One tenant also bought entitlements. When asked why they chose to initially invest in these areas the answers included "necessity", "can't farm without it" "can't do a lot without that kind of stuff".

Support payments

All of the tenant farmers interviewed now receive direct CAP support, although some land is farmed without entitlement (beyond their tenancy). However, none received direct CAP support at the start of their tenancies. Seven of the tenants received direct CAP support in their second and third years and one had bought their entitlements on the open market.

Six have received LFASS (Less Favoured Area Support Scheme) payments, the other two were ineligible. Those with cattle received the suckler beef support scheme. One tenant had an AECS (Agri Environment Climate Scheme) contract however many reported that they were ineligible in recent AECS rounds (Agri Environment Climate Scheme) as they did not have enough time left on their tenancies. The tenancies were extended after the AECS deadline which would have resulted in enough time on the tenancies for many to apply to the AECS scheme. Some felt that they did not have land, features and habitats that would have been appropriate for many AECS options^[9]. Some commented that the land planted on their original tenancy may have been more appropriate for AECS measures. No one interviewed had received a new entrant loan as they did not meet the eligibility criteria^[10]. Three did, however, receive a new entrant grant, but the others stated they were not eligible^[11]. No interviewees had received any forestry grants.

Changes to the Farm during the Tenancy

Land farmed

Just under half of the tenants interviewed had experienced changes to the amount of land that they farmed in their starter tenancy. The majority of these were expected changes arising from planned afforestation on parts of their farm after their tenancy started. Most tenants were now renting-in more land (including through SLDT (Short Limited Duration Tenancy)) since they started their starter farm tenancy (six of eight reported seasonal lets averaging c. 50 Ha), with one leasing considerably more land than their tenancy.

Some tenants reported that they had increased the quantities of land that they had taken on. For others the starter farm tenancy meant that they did not have to take as many seasonal lettings. Some were also involved in contract farming agreements. All tenants reported that they had invested in the land that they farmed, with nearly all saying that they had undertaken a programme of reseeding and a few farms had undergone significant changes to the quantities of crops being grown.

Many (6) said that they had made changes to their businesses compared to their business plans. When asked what the major changes were, tenants provided a little detail; there were changes in enterprises: from arable to sheep and one added a cattle enterprise that were not originally part of the plan in response to Brexit predictions. A few changed the breeds of livestock that they had on the farm due to them not performing as well as expected. One farm farmed less extensively than planned with silage being taken to improve their cow herd, whilst another went from indoor lambing to outdoor lambing. Many talked throughout the interview about the investments that they have made to improve the nutrients, soil and grass on farm.

The majority felt that the profitability per hectare had increased since they took over their farms, one felt that the profitability had decreased as a result of the "cost of everything". Many farmers were contracting and had off farm jobs, others had diversified their farm businesses adding new enterprises including selling chickens to smallholders and direct selling turkeys at Christmas and boxed pork (helping business profitability). One had undertaken a range of courses to upskill to diversify their own business.

Current finances

Due to the small sample numbers from a research ethics perspective tenants could not be asked about their absolute financial situation as they would have been identifiable. Instead, a range of questions were devised to give an indication as to how successful the farm businesses were.

Profitability

Using a three-year average for starter farm profit/loss four of the tenants reported a 'break even' position, two reported they were 'profitable', one was 'significantly profitable' and one 'didn't know' (see Figure 4). Three felt that their profitability was 'significantly less than expected', two said 'slightly more than expected', with one for each 'as expected' and 'significantly more than expected'.

The barriers that were stated as hindering the tenants reaching their expected profitability were input prices, lack of margin, more investment required than expected. One tenant stated they were, "playing catch up" whilst another felt that it "went better than expected" and another commented that "could have been more profitable if [we'd] been allowed to invest".

The majority stated that their cashflow was 'neither good nor poor' (4), three as 'good' and one 'very good'. Three described their long-term debt position as 'neither poor nor good', two 'good', two 'very good' and one 'very poor'.

Four of the starter farms reported that they were returning "just enough" profit for their family needs whereas for three profits were "not adequate". Four were also generating "just enough" profit for capital accumulation, whilst profits were "not adequate" for capital accumulation for two tenants, whilst one reported "more than enough" profit to build capital.

Borrowings

Table 2 shows the types of external finance that the tenants used within their business, the main uses of that debt and whether the farm can service that debt. Bank loans were used by seven of the eight tenants interviewed, largely to purchase machinery and livestock, with only four certain that the farm business alone could service the debt. Six of eight were using hire purchase agreements for machinery, with four of those six certain their farm could service that debt. Overdrafts were used by six of the eight businesses for working capital, with three reporting they could service their overdraft from the farm business.

Livestock and machinery investment

Three of the tenants interviewed had little or no machinery at the start of their tenancy whilst the remainder had built up varying amounts of machinery. Most had made significant investments in machinery throughout their time on the starter farms with one stating machinery expenditure was "probably 10 times what I budgeted for". The most common items that were bought are shown in Figure 5 and included: tractors (11 in total), trailers (of varying kinds including grain trailers, livestock trailers, bale trailers), handling systems and gates, forklifts, quad bikes and vehicles e.g. pickups. There were large variations in the quantity of machinery across the farms, but it should be noted that on some farms much of this machinery was used for contracting.

All tenants came to their tenancy owning some livestock, two tenants started with cattle and an additional five have added them onto their farms since the start of their tenancy - resulting in an increase in cattle numbers from 100 head to over 300 head now. The number of sheep on some farms have increased significantly with most farms more than doubling their flock size since entering the tenancy. A few tenants reported that they had moved from commercial sheep to investing in pedigree animals. Two farms had added commercial poultry enterprises to their businesses, and one had pigs.

Labour

Three of the interviewees described their employment on the starter farm as "full time", four as "part time" and one as "casual". When asked to describe the quantity of time spent working on the farm this ranged from less than 10% to 100% full time equivalent (FTE). Only one interviewee (from five) said that there was no change to the time they spent working on the farm, whilst the majority said their time on the starter farm had reduced compared to when they took it on.

All interviewees that answered felt that their spouse worked "part time" on the farm with estimates of between 20% and 50% FTE given. Living circumstances meant that only one spouse worked more on the farm than at the start of the tenancy. The main reason for spouses, generally women were working less now on the farm than before was due them providing childcare or off farm income from employment elsewhere. No other family members were working on the starter farms. Less than half said they had additional employed labour on the farm, and where there was it was mostly part-time. One interviewee explained that they wanted to give other new entrants opportunities so "our pledge was to use other new entrants - so like the scanner was a new entrant, the shearer was a new entrant."