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How can UK farming costs respond to changing BPS?

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With much talk of phasing out BPS through the Brexit process, we look at how the farming industry might reduce costs and meet this shortfall.

1. Reduce the price of raw inputs: the free market answer

In theory, input prices will reduce as demand weakens. This might be possible for inputs with high margins (chemistry, seed, machinery), but requires manufacturers and importers to the UK market to adjust their profit expectations – something their shareholders may not support rapidly.

Where prices are determined by international markets (fertiliser and fuel), falling affordability in the UK will hardly affect global demand - so don’t expect to catch a break from your supplier once your BPS payments have been withdrawn, the goods will go to more lucrative markets.

2. Improve the efficiency of inputs used: the optimistic answer

With all the hype in precision agriculture in the last decade (and more…?), the bulk of UK farming is yet to see material gains. The technology is still not there: how can we get an effective variable rate application system, when we cannot scope out soil conditions in real-time?

So until hardware and sensing technology really breaks through, don’t expect overnight gains in precision and input efficiency to counter your BPS support. In any case, such tools come with a hefty price tag!

3. Reduce the cost of selling, distributing, and administering input sales: the hard answer

When you pay for an input, 30% of that price covers the cost of retailing activities in the UK, with a further 20% at wholesale level. These activities cover anything from manual administration; to thousands of sales reps running up and down farm lanes; to the hard logistics of moving inputs across the country. Technology and better information flow can dramatically reduce the cost of these activities.

The challenge is in overcoming legacy systems and ways of working in supply businesses across the UK, and embracing higher productivity. This is our focus at Yagro, working with the most progressive suppliers to shape a radically leaner industry, which is fit for purpose in today’s ultra-competitive global markets.

Summary:

We see DEFRA committing to BPS withdrawal, and expecting the UK market to adjust accordingly - as all good free markets should. To do this, UK farming will need to drive all the cost reduction approaches above, but sizeable wins will only come with structural and technological changes over an extended period of time.

At Yagro we are developing these solutions for our supply and farming customers, making them Brexit-ready well ahead of the game. These are the businesses which will survive and thrive through the long structural change coming for UK farming.