With grain prices at an all time high, but a push for more farms to go down the regenerative route, visitors to this years Groundswell event heard what difference a lower input system might have on the bottom line. Alice Dyer, Cedric Porter and Teresa Rush report.
A well-run regenerative farm business can deliver cost savings and, depending on the season, higher margins than a conventional system. According to four years worth of data assessed by rural adviser Land Family Business (LFB), farmers using regenerative practices on their arable farms were largely ending up in a similar place financially to those using more conventional practices. However, when commodity prices are this high, it might not always be the case.
This was the message from LFB director Gary Markham, who runs a Groundswell benchmarking group of 20 regenerative farms and estates and announces the results each year at the show.
He said: From 2018 to 2021 the group has had variable costs that are 112/hectare less than a group of conventional farms farming 40,000ha.
Labour and machinery is 155/ha less and despite lower output of 244/ha, the average margin has been 23/ha more.
The figures were skewed by the 2021 harvest where higher yields and prices meant the margin for Groundswell growers was 169/ha less. That gap might be wider this year because of the strength of commodity prices, Mr Markham said.
Over the four years, Groundswell farmers saw lower yields for winter wheat, peas and linseed, but higher yields for winter barley, oilseed rape, beans and spring oats. Total variable costs were 115/ha less at 355/ha, with machinery and labour 152/ha less at 350/ha.
With wheat at 300/tonne, the gap in productivity proves relatively less profitable for regenerative systems, with a 499/ha difference predicted for the 2022 harvest, Mr Markham said.
However, farming is a long-term business and while margins may be higher in conventional systems this season, this is probably only likely to be a blip. It is far better to have a sustainably profitable business than knee jerk reactions to a volatile market.
A pragmatic business-like approach that targets its fertiliser use and will use ploughing when it is justified appears to be the most profitable, with farmers still building soil quality.
LFB also compared the amount of nitrogen used between the two systems, with conventional farmers using on average 40kg/t more in oilseed rape and 9kg/t more in wheat crops.
The hook of using fewer inputs at a time of high fertiliser, fuel and other costs will be tempting for many farmers, said Richard King, partner at business consultants Andersons.
However, for all but a few farms, adopting these practices is likely to have a short-term cost, with a move away from a reliance on agrochemicals and synthetic fertilisers likely to lead to a reduction in output.
With fertiliser markets still rocky and gas prices set to further rise, Ian Watson, joint managing director of Elite Íæż½ã½ã Trading Company, gave visitors his advice on buying for next season.
He said: Do not be totally exposed by not buying, or by buying but not selling. The most important market to follow is urea which is probably 60% of world nitrogen consumption.
Prices will continue to be dependent on the situation in Ukraine he added.
With less Russian gas going into Europe, some plants might shut. More gas [availability] means prices will go down, if there are more gas shortages the price will go up.
One product which is in short supply is sulphur, he said.
Talking black and white, buy your sulphur, get half your nitrogen bought and if you are buying nitrogen or havent already, offset it against some grain sales.
Use urea if you can I think it is the product going forward. I like liquid nitrogen because it is much more accurate every drop gets exactly where it is meant to go. I will be having discussions with our liquid suppliers about why there is a 25% premium for liquid over urea.
[INSERT BENCHMARKING DATA]
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Profit foregone biggest cost in transition
Growers thinking of adopting a regenerative farming approach should assess the business case in the same way they would any other investment.
That was the message from farm business consultants Andersons to visitors at the Groundswell event.
Some farmers will be looking at regenerative agriculture as way to boost returns, especially in a time of high costs for key arable inputs. But even those who are looking to farm in a more sustainable way will need to make profits in the long term if they are to remain in business, said Sebastian Graff-Baker, a partner at Andersons.
Farm businesses should be prepared for a dip in profits during the transition to a regenerative system, he warned.
Clients are saying to us that they want to improve the long-term performance of their farms. There is going to be some deterioration of profits. We dont know for how long, or how big it will be, but the likelihood is the biggest cost [during the transition period] will be the foregone profit, said Mr Graff-Baker.
If a regenerative approach can be made to work successfully, then business performance may end up higher than continuing with established practices. But equally there may never a full recovery, although there may be other benefits not quantified in the bottom line, such as the shift to a more resilient business, less affected by volatility, he added.
Andersons launched an adaptation of its long-running arable Loam Farm Model at the event, designed to model the financial impact of transitioning to a regenerative farming system (see table).
The trajectory each farm takes will be down to individual circumstances. Soil type will play a role, but the management ability of the operator is likely to be just as, if not more, important. Regenerative systems usually require a higher level of management ability. If you are not making a profit under the existing system, then ditching the plough is unlikely to be enough to turn things round, said Mr Graff-Baker.
[INSERT The Regen Farm Model ]
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Eustice urged to regulate wild west carbon market
Defra Secretary George Eustice came under pressure at Groundswell to regulate the wild west carbon market. Speaking at the event, NFU president Minette Batters said she was concerned a lack of regulation could leave farmers vulnerable to schemes that could lose them money.
We need a common set of standards and methodologies that measure carbon and regulate carbon payments, she said.
Responding, Mr Eustice said Defra Minister Lord Benyon was conducting a review of green financing that includes carbon trading.
Government has also established the independent UK Green Taxonomy Group to advise on standards for green investment, he said.
Meanwhile, Government has recognised the UK Woodland Carbon Code as a means of offsetting a companys carbon emissions.
There was criticism the recent National Food Strategy did not include more on human health and nutrition, including from Henry Dimbleby, author of the Government-commissioned review into food policy.
Fellow restaurateur Thomasina Myers condemned the failure to impose a tax on food that is high in sugar and fat or highly processed.
Mr Eustice said taxation measures had not been ruled out, but also explained the Government would not adopt Mr Dimblebys recommendation for a goal of a 30% reduction in UK meat and dairy consumption.
Such a reduction would have a miniscule impact on global carbon emissions, he said.
Far more important is for the UK to develop systems and technology that reduce the output of carbon from livestock and share that with the world.
Ian Bailey, of land consultancy Triage, was at Groundswell. Alongside farmer-led Re-generation Earth, Triage provides a regenerative budget plan for farmers that measures carbon use and sequestration along with a biodiversity profile. This is then used to determine a roadmap of how a farm can become more regenerative and achieve carbon net zero and the service also includes business planning.
Mr Bailey shared an example showing an arable farm using a nitrogen rate of 250kg/hectare at a price of 700/tonne could reduce its variable costs from 1,055/ha to 626/ha in five years. Those savings, sales of sequestered carbon and the Sustainable Farming Incentive could add up to to 640/ha within 10 years.
At todays fertiliser prices a 350ha arable farm may be able to make savings and extra income of 75,000 in year one and 225,000 by year 10 without any loss in yields, also improving the farms soil its most valuable asset, said Mr Bailey.
If nitrogen fertiliser was 350/t, the corresponding budget figures were 65,000 and 172,000, he added
Re-generation Earth was one of a number of companies offering carbon offsetting at the event, as pressure for companies to reduce their carbon footprint to net zero by 2050 increases. There was concern among many about the unregulated nature of the carbon market. Director and Kent farmer Doug Wanstall agreed there needed to be a robust set of standards for projects selling carbon or biodiversity net gain (BNG) credits.
That is why we have teamed up with the UK Carbon Code of Conduct so the farmers we work with have confidence carbon offsets and BNG credits are approved and verified by a recognised third-party organisation, he said.
