How is your farm doing compared to other farms like yours?
When final accounts are presented, clients often ask, ‘What is the tax?’ rapidly followed by, ‘So how are we doing compared to other farms like ours?’
Professional confidentiality sometimes makes a detailed response quite difficult and, of course, no two farms ARE the same. Aside from the fundamental question of tenant vs freeholder, there are massive variations of:
- Employees/family labour
- Contracting out/contracting in
- Marketing strategies
The impact of different soil types can be significant, and the weather patterns for a single year can give rise to very different results even for adjacent holdings.
For all these reasons, benchmarking for farms is a difficult exercise. However, the recent publication by DEFRA of Balance sheet analysis and farming performance 2016/2017 may be useful. The survey is derived from a sample of 1750 farm businesses across England. It includes land, buildings and quotas, irrespective of whether they are on the farm balance sheet. It presents results in a way which identifies the different circumstances of let and owned farms, geographic location and farm size.
For each category within the survey, you can see liabilities, net worth, gearing, liquidity, net interest and return on capital employed (ROCE). For example, average ROCE across the country is 0.5%, which in itself is a useful figure to quote to non-farmers when they complain about how rich the agricultural sector may be. However, this ranges from 0.9% in Eastern England to minus 0.1% in the Southwest – or 1.3% for general cropping compared to minus 0.9% for lowland grazing. Looking at net worth, the average farm is worth £1.8m, but the average tenanted farm is only £274,000.
It is often the case that the usefulness of benchmarking data depends very much on the knowledge of the user. And for all the reasons set out above this will certainly be true here. However, a supplementary page to the accounts comparing actual results against national data might give a rather better and less subjective answer than a simple response of “about average”.