CM October 2020

EXCLUSIVE REPORT
AUTHOR – Markus Kuger
IN the Middle Ages, the majority
of the working population were
either farmers or farmhands. It was
an industry that sat at the heart of
Medieval economics. It may be a
far throw from today’s society, but
agriculture is arguably still one of the most
important contributors to the UK economy.
The sector is worth £120bn and employs
approximately 4 million people.
For centuries farming has traditionally
been a family enterprise and most agricultural
businesses in the UK today are still classified
as ‘micro’ businesses. Dun & Bradstreet data
shows that these micro businesses make up
95 percent of the active business population
within the agricultural sector.
Many of these businesses are well
established and our data indicates that more
than half have been in operation for 20 years,
with 15.2 percent of business being over a
decade old according to Dun & Bradstreet’s
proprietary data. As seasoned businesses,
many within the sector will have survived and
learnt from significant events and evolution in
the industry such as swine flu, Mad Cow disease
and TB outbreaks, the outcry over genetically
modified crops, and a rise in demand for plantbased
products. In addition to the current
COVID-19 situation, farmers are also facing
changes to subsidies and regulations due to
Brexit.
But the repercussions of Brexit and
COVID-19 mean that farmers and the
agricultural industry are facing turbulent
times, including changes to subsidies and
regulations. The Medieval foundations of
farming are being shaken to the core and
placing pressure on farmers to adapt to an
evolving environment and assess the potential
risk and opportunity for their business as they
move into the next decade.
FINANCIAL HEALTH
The turbulence in the market over the past
few years and especially recently, has resulted
in some casualties. According to Dun &
Bradstreet’s proprietary data, the number of
UK farming businesses has dropped in the last
four years from 100,198 to 95,317. However,
the number of corporate liquidations in the
sector have stayed relatively flat over the past
two years – although this may change as the
full impact of COVID-19 and the UK’s exit from
the EU becomes clearer.
Positively, our data shows that payment
behaviour in the agriculture industry is
higher than average for the UK, with a higher
percentage of payments being made promptly
by the industry. The amount of bills being paid
on time has risen by 5.5 percent to 57.2 percent
between May 2017 to May 2020.
Payment performance for the agricultural
sector in Scotland is the highest across the UK,
60%
40%
20%
0%
Percentage of Business by Age as of May 2020
0
1-5
6-10
Business Age in Years
with just under three quarters (74.7 percent) of
payments made on time. Performance worsens
in areas such as Yorkshire, the South East,
South West and North East, but bills are still
being paid at the average rate.
In contrast, the payment performance
of agricultural business in regions such as
Northern Ireland, Greater London, Greater
Manchester, West Midlands and Wales is below
the national average. The latest data shows
positive trends across the industry including
an improvement in prompt payments,
increasing tangible assets and tangible net
worth and a year-on-year increase in sales
of 19 percent, potentially driven by higher
demand for locally sourced food throughout
the pandemic.
However, the high demand throughout
the pandemic is likely to be short-lived as
the UK will enter a deep recession and we
are predicting UK real GDP will contract by
almost ten percent in 2020. This will have an
effect on household incomes and the longterm
demand for food is expected to decrease.
The rising number of failing businesses is also
concerning given the economic importance of
the sector and debt levels steadily increased
since 2017 with profits decreasing by a third (36
percent) over the same period.
Brexit and COVID-19 are only adding to the
challenges faced and the industry faces yet
more turbulent time and are going to have to
be even more astute in their financial decisions
going forward in order to survive the pending
recession and sluggish economic environment.
THE IMPACT OF BREXIT
The uncertainty of the UK’s exit from the EU
and potential end of free trade across Europe is
weighing heavily on the agricultural industry
with decisions still pending on subsidies, trade
arrangements and labour mobility.
11-20
20+
With one eye on
the future, the New
Trade and Agriculture
Commission recently
announced a set of new
trade policies to better
identify and open up
opportunities for UK
farmers, especially for
SMEs.
Advancing the credit profession / www.cicm.com / October 2020 / PAGE 19
continues on page 20 >