Business and environmental sustainability

Sustainability is defined as ’the ability to be maintained at a certain rate or level’ but how can this be applied to a farming business? Shouldn’t we be striving for growth within our agriculture business rather than just maintenance? Oliver McEntyre, our National Agriculture Strategy Director, explores business and environmental sustainability and how you could use them to have a sustainable and growing agriculture business.

Historically, there has perhaps been a conflict between environmental sustainability and farm business sustainability, at times when food was in short supply and the demands of the population overrode the demands of the environment

Times move on though and, from conversations with our agriculture customers, sustainability has become one of the buzz words over the last decade – maybe even longer. But sustainability isn’t just about the environmental aspect of a business. It’s about operational sustainability, family dynamic sustainability and, perhaps most importantly, the financial sustainability of a farming business.

With the majority of farmland in the UK being owner-occupied, farmers have a strong responsibility for ensuring the stewardship of their land for the next generation – even if there’s no family succession in place.

From a purely practical viewpoint though, financial sustainability has to be top of the achievement list. Without financial security, there’ll be no capital to invest in infrastructure. Or if every inch of a farm and its land needs to be in production to get anywhere near financial sustainability, it leaves little room for environmental management. So what does financial sustainability look like? From a banking perspective, it’s a business that generates enough income to:

• Cover all costs
• Make any capital repayments due
• Pay income tax
• Allow for the partners’ drawings/salaries to give a standard of living they desire
• Generate enough income to re-invest in the business, either through saved cash for smaller investments or by demonstrating the ability to constantly generate enough cash through usual business activities to support borrowings

Any business that can’t tick all of these boxes isn’t sustainable – no bank can lend purely against assets alone. Even if they could, eventually those assets will run out as the debt burden gets increasingly higher, to the point where the lender would say ‘no’ and asset sales would follow to repay the debt. A non-sustainable business could try to survive through a slow ‘drip-drip’ in sale of assets to fund the constant cash-negative situation, but eventually those assets will ebb away and there’ll come a time when the assets run out and the business has nowhere to manoeuvre.

Farming businesses achieve financial sustainability in a variety of ways – from the purely agriculturally-related businesses to those that are diverse in nature with additional enterprises. This could be either adding value to existing produce, from using the farm base to generate a diversified income, or even having family members generating off-farm income through work away from the farming unit.

Family and operational sustainability are part of the same equation – investment is key to operational sustainability. Any business needs to invest or risk falling behind in innovation and efficiency. Underinvested businesses are usually cumbersome to operate, which can lead to pressures that put the family (or employed team) at loggerheads, rather than together as a combined unit. Once again, the importance of financial sustainability comes to the fore in simply operating a farm business.

When considering the operational sustainability of your farming business, important topics such as succession planning, cashflow and benchmarking also need to be considered, on which I’ve previously provided my views.

Historically, there’s been a plethora of environmental schemes available to farmers. Some were very area-dependent, while others were more generic and based on the local habitat and target species. The much vaunted Domestic Agricultural Policy proposes to introduce a new scheme – Environmental Land Management Scheme, ELMs for short – still somewhat of an unknown, though it’s supposed to be simpler to access and assess. We’ll find out in due course.

In the meantime, there are plenty of options for UK agriculture to increase sustainability in the eyes of the onlooker, while actually having the potential to reduce costs:

1. Min-till cultivations protect the carbon captured in soil, as well as the microorganisms. It also reduces costs and can help control black-grass
2. Embracing technology through field and yield mapping helps farming businesses concentrate on the more productive areas of a farm or field – concentrating the inputs where the soil has the greatest ability 
3. Finishing systems in the red meat sector can be honed to reduce the number of days to slaughter – cutting costs and carbon footprint
4. Green cover crops can be used to protect soil from wind blow as well as increase soil organic matter

In recent months, UK agriculture has come under much scrutiny for its carbon footprint, especially the dairy and red meat sector. So the more the industry can do to mitigate, educate and improve standard practices, the better. There’s been much talk of importing food and some even advocating that UK farmland should be given over to pure environmental management as its primary purpose, though if we import food, we rapidly export environmental responsibility. 

UK agriculture is efficient, combining high welfare and good environmental management with food production. But the fact remains that food is a necessity, not a luxury – unlike some other significant contributors to greenhouse gases (GHGs). However, agriculture as a whole must continuously strive to become even more carbon efficient.

Our support for the agriculture industry is continuous. Our ambition is to enable all our farming clients to be sustainable for the long-term – through agriculture, diversification or off-farm income. From an operational and environmental perspective, we can also support investment in technology to help farming businesses implement the latest innovations to keep them up to date and efficient.

Things to consider

1. Strive for financial sustainability – so the business can pay bills, provide for the family and service debt, as well embrace technology and innovation as it develops
2. Keep an eye on the upcoming environmental scheme ELMs through the Domestic Agricultural Policy, to see if some of the measures within it can aid both environmental and financial sustainability
3. Always reflect and review, never be content or complacent, keep up to date with innovations – they might not only give business sustainability, but environmental sustainability too

The views and opinions expressed in this content don’t necessarily reflect the views of Barclays Bank UK PLC, nor should they be taken as statements of policy or intent of Barclays Bank UK PLC. Barclays Bank UK PLC takes no responsibility for the veracity of information intimated by a third party and no warranties or undertakings of any kind, whether express or implied, regarding the accuracy or completeness of the information given. Barclays Bank UK PLC takes no liability for the impact of any decisions made based on information contained and views expressed in this presentation or article.