What directors and farmers need to know

Clarkson’s Farm, streaming on Amazon Prime, has not only caused a re-evaluation of Jeremy Clarkson as a thoughtful and committed supporter of farming and agriculture but has made stars of Kaleb, Gerald and some of the other colourful characters who help run Diddly Squat farm in West Oxfordshire. 

It also gave the widest possible audience a view into the reality of British farming and just some of the most challenging circumstances faced by farmers and rural businesses in over a century. 

Having to deal with historic weather events which are becoming more frequent in both their intensity and damage, Brexit and the changing relationship between agriculture, the UK government and the EU as a result and of course, the pandemic and subsequent lockdowns. 

Without spoiling the show if you haven’t seen it yet, and you should because it’s really good, it shows how tough it is to run a profitable business in the agricultural sector – whether it’s a food or animal producing farm or any of the hundreds of other businesses that support them and the rural economy. 

According to the official figures provided by The Insolvency Service, at least five farming businesses* have been undergoing insolvency procedures such as administration, company voluntary arrangements (CVAs) or liquidations every month since May 2019. 

  • May 2019 to April 2020 = 38 businesses became insolvent
  • May 2020 to April 2021 = 27 businesses became insolvent 
  • Total = 65 businesses have become insolvent since the first lockdowns began

*defined by The Insolvency Service as “Crop and animal production, hunting and related service activities”. 

Unlike other industries, farming is more interconnected because it is so specialised. Any business failure, which is regrettable on its own, has more severe consequences and ripple effects as a result. 

An example is when straw merchants AF Biomass went into administration and ultimately liquidation in June 2021. 

The business supplied straw to customers across the whole of England with customers buying their straw to use as animal feed, animal bedding, vegetable growers and many other uses. 

What ultimately saw them close was being unable to meet contractual obligations to supply straw to power stations to use in energy generation. Only agriculture could link customers as disparate as a power station and a dairy farm. 

Farms and agricultural businesses face a set of unique challenges and threats because of the nature of the sector which other parts of the economy don’t experience or can navigate more easily.

One reason why farms are unique is that many are unincorporated businesses – operating either as a sole trader or in a partnership arrangement rather than as a limited company. 

There are several reasons why this business arrangement is prevalent in the sector – family, tradition, history, cost and the additional bureaucracy of incorporation – but all prevent farms and associated businesses from enjoying the advantages that being a limited company provides as well as significant legal protection in the event that things go wrong. 

Bounce back loan debt affects sole traders and partnerships too

This becomes more pertinent when we look at what is happening to the climate – not only across the world but specifically in the UK. 

The UK is experiencing hotter and wetter conditions than it ever has and is such a powerful variable on the day to day operations of an agricultural business that it can derail even the most well planned and organised systems if a farm cannot sow crops because the fields are literally under water. 

Depending on the market areas an individual farm specialises in – especially when it comes to food production or livestock farming – commodity prices and market fluctuations can leave their strategies particularly vulnerable to shocks and changes. 

A farming economic cycle is different to a regular business (for example, it takes about 18 months to rear a calf from birth to being suitable for food production) so modern farmers have to embrace a broader degree of speculation and risk because they have no control over the state of the market when their products come due for sale. 

And unlike shares, a farmer cannot sell their position or buy into another if conditions begin to worsen – they have to see it through which could leave them more financially vulnerable when it comes to selling their end product. 

The changing political climate will also have a big effect on agriculture and farming in the months and years to come. 

Unpicking and rebooting a 40-year-old trading agreement with the EU will throw up unforeseen and unintended consequences in terms of regulations, production and exports. 

Changing immigration laws and attitudes will affect the labour supply which farms heavily rely on for harvesting and additional legal changes to environmental, animal health, health and safety and crop production for example will all have an impact on several levels of the business. 

Any one of these external factors could have a negative financial impact on an agricultural business at any time of their production cycle and it would be no surprise if many were unprepared for the problems these could bring.

Farming insolvencies

A farm is unlike any other business but it does have to abide by the same rules when it comes to insolvency and if it cannot meet its financial obligations and debt repayments such as bounce back loans then it can become insolvent just as any other company in the same position. 

A further complicating factor when it comes to agricultural insolvency cases is that for many farmers, it’s not just a business – and a generations old family business at that – but also their home so they may be even more attached to business than any other owner or director would be and potentially less objective when making critical decisions for the good of the business. 

A working farm also needs to work no matter what legal and business processes are being discussed and implemented. Crops still have to be planted and harvested; cows still need feeding and milking, sheep still need shearing etc – it truly is the most unique and challenging environment. 

Is this summer your last, best chance to save your business?

If your farm or agricultural business is struggling under this historic confluence of adverse circumstances then you’re not alone.

Thousands of fellow businesses are making tough decisions about their future right now but the ones with the best chance of survival are the ones that recognise that things can’t go on as they are and instead of hoping for something to turn up – take the first step in getting active in their own rescue and get some impartial, professional advice. 

We offer a free initial consultation for any sole trader, partner or director of a business that is looking to change their company’s fortunes. 

Once we understand the reality of your business circumstances, we can work with you on various strategies to make life easier and ultimately get back to profitability if at all possible. 

Whether it’s buying more time to deal with creditors, focusing on reducing overall debt to a more manageable repayment schedule or looking at more permanent solutions – we’re more than happy to help.

You will then have more time to spend on the important things – looking after the animals, crops and workers that feed the country.