NEXT year offers the prospect of better profits for agriculture but businesses will have to work hard to realise the potential.
The message is from farm business consultants Andersons, in their Outlook 2013 report. The report says that although a political agreement on CAP reform could be reached by early summer, detailed rules allowing businesses to plan for the new regime may not be clear until late in the year.
Costs will be an issue and the current high price of many inputs requires an even greater need to use them effectively.
The range in performance between businesses is getting wider with the best farms continuing to innovate and improve.
The report says the real financial effect of 2012 may not materialise until next year, but some businesses could have serious cash flow problems in the New Year.
In the arable sector the lack of produce to sell and quality issues will become a stark reality as the 'back of the barn' is reached. Livestock producers also face an expensive winter.
Coupled with tax bills from previous, more profitable, years and lower Single Payments than in the past, finances may be stretched. For some businesses the disruption in cropping programmes will also result in lower profitability in 2013.
The report says the other key influence, apart from the weather, is exchange rates.
The Sterling versus Euro conversion rate is fundamental. The Eurozone crisis rumbles on, and a significant weakening of the Euro to the detriment of UK farming cannot be ruled out.
Looking at farm income prospects, Outlook 2013 says profitability will have fallen in 2012.
The aggregate measure for the industry as a whole – Total Income from Farming (TIFF) – reached a 15 year high in 2011.
Recent revisions by Defra now put that figure at £5.57bn for the year – lower than the original estimate of £5.69bn.
By the time the final figures are published in the spring, Andersons believe the figure may be closer to the £5.3bn they had estimated for 2011.
The weather will cause huge variability in the 2012 financial performance of farm businesses.
Overall combinable crop output will be down despite the higher prices. Many root and vegetable producers face the same situation. For livestock farmers, especially intensive producers, the main issue being feed costs.
Taken together, these factors see Andersons forecasting TIFF to drop by 20 per cent – down to £4.25bn for 2012.
The company expects incomes to recover somewhat in 2013 – an overall recovery in profitability of around 10-12 per cent in real terms, bringing TIFF back to around £4.7bn or more.
The report says that even in the current climate there is an opportunity for profits to be made in all parts of UK farming – whether it happens is down to individual farm businesses.