In recent years, it has become increasingly common for city dwellers to trade in the hustle and bustle of urban life to move onto quite literal pastures anew in the countryside. In fact, it has led to the popularity of the term ‘lifestyle farmers’ in recent years, leading to the steep rise in farmland costs.
The price of good quality farmland in the UK has doubled since 2010, rising at a rate significantly higher than London properties have experienced over this same time period. Now, on average an acre of farmland costs around £12,500.)
With this in mind, for those considering running a farm or agricultural business, it is important that you are fully aware of all the costs involved in running a company in this sector. Running a profitable agricultural business is no easy-feat for farmers and farm managers. It requires considerable knowledge of the sector and the costs incurred in order that farm diversification or other agricultural pursuits become profitable. In addition, agricultural finance may be needed and it is important to consider this.
Henceforth, understanding the types of costs you need to take into account when running a farm or agricultural business and how you can keep these costs down, in order to save money, is ever-important to maintain profitability. Furthermore, investing wisely in a farm can improve the value of the land and the business, much in the same way that renovations can help to improve the value of a property.
Operational Costs of Farms
The operational costs will differ depending on the type of farm you have, but the following will give you a rough outline of the sorts of costs you will most likely need to consider. When dealing with operational costs of a farm or agricultural business, this often includes the following:
- Equipment repairs
- Vehicle licences
- Depreciation of machinery and equipment (calculating the cost of an asset’s wear and tear over its estimated lifespan)
- Machinery and equipment leasing costs
- Fuel costs
- Electricity costs
- Contract and hire costs
According to the Department for Environment, Food and Rural Affairs (DEFRA), based on typical operational cost levels on farms who participated in the Farm Business Survey in England from 1999 until 2003, these costs added together are on average around £70,087. According to further analysis by DEFRA, this should equate to roughly 20.9% of your output, and no more than 25% in total. However, it is important to note that machinery costs could end up being significantly lower if you lease the equipment rather than buying it outright.
Contracting Charges for Agriculture
To gain further details on operational costs of agricultural businesses; particularly relating to contracting charges, it is worth liaising with the National Association of Agricultural Contractors (NAAC), a union who represent all agricultural contractors in the UK. This will help you to get a thorough breakdown of contracting prices for 2017 which is based on surveys conducted on NAAC members.
It is important to remember that average prices may vary according to numerous factors which include soil types, the size and type of equipment used, the distance travelled, the region as well as the amount of product applied. Example of some of the highest potential operational costs based on the NAAC guide are as follows:
- Maize drilling under plastic: £49.00
- Cross drilling grass: £29.00
- Deep ploughing over 30 cm: £29.95
- Rotovating (ploughed land): £28.50
- Carrot/Onion/Parsnip precision drilling: £30.00
- Combining cereals: £35.00
- ATV spraying per hour: £35.00
- De-stoning potato land: £112.00
- Potato harvesting and carting: £390.00
- Harvesting sugar beet and carting: £112.00
- 300hp tractor and above per hour: £65.00
- Forage box per hour: £110.00
Keeping Operational Costs Down in Agriculture
Whilst many of the operational costs incurred are unavoidable, there are some ways in which you can save money on farming operations. For example, it is recommended that:
- You regularly review the machinery equipment you use, as investing in a new piece of a machinery could end up becoming more cost-effective in the long run
- Switch off equipment when it is not in use, as energy bills for running equipment can end up amounting to a substantial cost
- Ensure that you are comparing tariffs between energy suppliers on a regular basis
- Regularly inspect and review the effectiveness of the machinery that is used. This is to ensure that equipment is running properly, and to avoid breakdowns at a later date
If you are running a farm or other type of smallholding (whether it be a hobby farm or numerous vast estates) investing in a farm insurance policy is important. Farm insurance means that you will be covered in the event of the farm being unable to run properly due to illness or a range of other potential events. It can also provide protection against unexpected increased running costs, as well as any accidental pollution costs incurred.
There are also farm-combined insurance policies available that can cover the standard requirements for most farms across the country; whether it be arable, livestock, dairy, egg, poultry, or specifically for pig producing farms which can provide protection for:
- House and contents
- Personal accidents
- Public liability that covers a range of farming diversifications
- Employers liability
- Commercial legal protection
Costs for farm insurance differ according to the size and type of farm or smallholding you have. It can cost as low as £259 a year; however, it is important to note that this is an estimate, and may vary also according to how comprehensive you need the policy to be