Brexit could reduce competition within the agricultural supply sector and ultimately lead to UK farming businesses paying more for the essential inputs they need to operate, leading UK farmers’ co-operative Fram Farmers warns.
Formed in 1960, it provides the purchasing, grain marketing and administrative function for 1,200-plus members who collectively farm over 270,000 hectares throughout the UK, enabling them to obtain best value from the supply chain.
“As area-based payments are phased out, in line with the Government’s much publicised ‘public goods’ yardstick following Brexit, it is inevitable that farming businesses will have less money to spend on inputs,” Richard Anscombe, Fram Farmers’ Chief Executive, states.
“We could see less ‘farming as we know it’ taking place, and if that is the case then fewer inputs will be required,” Mr Anscombe adds. “Manufacturers and distributors would compete for a smaller market, and although that might sound like good news for farmers by increasing competition and reducing prices, we believe that the opposite may be the case.
“Consolidation within the agricultural supply sector will become more pronounced, and those companies and distributors which remain will become larger and more focused on protecting shareholder value creation and profitability, in various ways. All-inclusive supply/marketing contracts, for example, may look attractive by helping farmers to overcome short-term cash-flow issues, but ultimately could prove uncompetitive and difficult to exit. Farmers therefore must be alert, agile and well informed, which requires them to have access to first-class, completely unbiased information.
“One consequence of supply chain consolidation will be that individual farming businesses have less influence over suppliers. Belonging to a true farmer-owned co-operative which aggregates members’ purchasing and marketing volumes, and negotiates effectively on their behalf, will become increasingly important.
“In continental Europe, where the average farm is much smaller and owners cannot justify the same level of infrastructure as their UK counterparts, membership of a cooperative is almost a given. This model is very different to that of a merchant/distributor, where directors have a legal responsibility to maximise shareholder value. There’s nothing wrong with that, but when the going gets tough wouldn’t you rather that you were the shareholder, the value was returned to you and a team of industry professionals was batting only on your side?
“A true farmer cooperative which is owned by and operates exclusively for its members is a compelling model, being completely impartial, trustworthy and transparent. But for it to be successful requires complete commitment and trust on both sides. Members must trust their cooperative implicitly to always do what’s right for them and, conversely, must understand that it’s an exclusive, confidential club which they should support fully, not treat as just another merchant to ‘phone for a price on the day.
“The cooperative which I manage is dedicated to helping member businesses achieve best value in the market and make better, more profitable decisions. In 2018 we analysed our price competitiveness in some depth, looking at 15 key inputs over the past five years plus, and going back in some cases as far as 2011. Aggregating these key inputs together, over this time period, we saved members an average of 9.6% on the cost of their input purchases, while reducing administration time significantly, allowing them to focus on farming.
“Even the largest farming enterprises cannot hope to replicate the expertise, resources and range of services which our cooperative provides, including the support of industry experts who give totally independent input purchasing and combinable crop marketing advice. Consequently, professional farming businesses increasingly recognise that membership is the most cost-effective and efficient way to deal with suppliers. Those who make full use of their cooperative find it very liberating.
“The cooperative model is particularly appealing to independent-minded ‘millennials’ – the next generation who tend to eschew convention, don’t like having products and services ‘pushed’ on them and are wary of the motives of large corporations. They want to work with independent organisations with the highest ethical standards and align themselves with the values of a true cooperative.
“Because of this I firmly believe that the best days for well-managed farmer-owned cooperatives are yet to come. In the case of Fram Farmers, our future will be not just as an organisation which purchases inputs and markets combinable crops on our members’ behalf, although those will remain fundamental, but as a trusted source of added-value services and information to help progressive farming businesses make sound decisions and manage change in this fast-evolving world.”