The cash flow crisis in farming and its implications for the wider rural economy

The cash flow crisis in farming and its implications for the wider rural economy

The Prince’s Countryside Fund commissioned The Andersons Centre in March 2016 to complete snapshot research to gain a greater understanding of the cash flow pressures at farm level and their impact on the wider agricultural sector. Through an analysis of recent data and a series of telephone interviews with 21 agricultural businesses an overview of the current situation resulting from the cash flow challenges in farming and its knock-on effect on wider rural economy has been identified and evaluated.

Key findings

Farm business cash flow

  1. The UK agricultural industry is experiencing its third year of declining farm gate prices.
  2. The decline in prices is likely to continue for most commodities in 2016 and potentially beyond. The worst affected sectors are cereals, milk and pigs where incomes are dropping sharply.
  3. Half of farms are no longer making a living from farming itself, and 20 per cent generated a loss even before accounting for family labour and capital.
  4. Levels of borrowing have almost doubled in the past 10 years. A large proportion of farms across most sectors will see a widening gap between required and actual profit in 2015/16 and most likely in 2016/17.
  5. 17 per cent of farms face major financial problems as their liquidity ratio demonstrates they do not have the ability to pay off their short term debt.
  6. Current extreme cash flow pressure has driven a sharp increase in levels of farm trade credit which will increase through 2016 and negatively affect the whole agricultural and rural sector.
  7. The businesses surveyed identified that on average more than half the proportion of their farming customers were currently experiencing cash flow issues.
  8. Nearly all stated the low farm gate prices (especially milk), and their drop from the high 2013/14 levels, as the main driver of cash flow challenges at farm level.
  9. The other most commonly quoted driver (10 out of 21 interviews) was the delay in the Basic Payment Scheme (BPS) payment to farmers.

The impact on the wider sector

  1. The volatility of output prices does not just negatively affect farming businesses but the decreased cash flow filters through the wider agricultural sector. This negatively impacts other businesses from input suppliers, vets, auction marts to consultants. Its effects include reduction in available work, decreasing income and potential staff redundancies although the full extent is not completely understood.
  2. The majority of suppliers interviewed are experiencing a direct impact on their cash flow resulting from the challenges at farm level.
  3. Most suppliers have changed the way they operate their business, becoming more proactive as a result of the cash flow issues at farm level.


The following are The Prince’s Countryside Fund’s recommendations for farm businesses, agencies and the wider rural sector to help support farm businesses.

  1. Improved communication and collaboration between suppliers, banks and farm businesses focusing on the immediate needs to help with budgeting and managing repayments.
  2. Cross-sector commitment to encourage businesses to engage with the farming help charities and the array of business tools and advice available. Support staff to increase their understanding of the range of practical and emotional support available to farmers through presentations and briefings.
  3. Timely distribution of payments to farm businesses with clear communication of projected timescales. This will not only help to ease cash flow difficulties but also boost morale in the sector.
  4. The financial pressures now being experienced require farmers to have a higher level of business skills than has been necessary in the past. Encourage more farm businesses to take advantage of opportunities to improve their skills in business planning and financial management.

a. Access training in business planning and change management.

b. Use online tools (and others) to identify and evaluate cost of production and efficiency savings for their business.

c. Seek advice and guidance to influence decision making on longer-term investments.

The short- to mid-term prognosis for commodity prices looks set to continue with farm businesses receiving depressed prices across most commodities. The knock on effect of cash flow difficulties for farm businesses on the wider sector should be an issue of major concern for the future of farming and our rural economy. We must work together to mitigate these factors.

Read the Full report here.