There are few things as important as the food that we eat – where it has come from, how healthy it is and, of course, how much it costs. But to get that food to our table the UK agricultural sector is facing an unparalleled set of challenges from labour shortages and regulations to environmental concerns and volatile input costs.
The farming industry, and its supporting ecosystem of SMEs, is well adapted to dealing with change. But some overarching trends and patterns have emerged which are shaping the future direction of the industry:
1. Extreme weather and climate change
Unpredictable and severe weather conditions are seemingly here to stay, and clearly they have an instant and profound impact on the agricultural sector. Not only are mitigation measures such as diversified income streams necessary to spread risk, but the industry is also expected to lead the way in decarbonisation and sustainability. Both endeavours frequently require additional resources and planning.
2. Workforce pressures
The top line from a review into labour shortages in the food sector earlier this year was stark: Britain’s domestic food production is under threat from a lack of workers. The agricultural sector is reliant on a reliable and accessible pipeline of skilled and motivated seasonal labour, but this is not always straightforward as the UK government continues to map out regulations and support mechanisms post-Brexit.
A recent NFU survey also pointed towards a lack of applicants, highlighting the longer-term need around countering negative perceptions of the roles and prospects available across the industry. An ageing workforce is a factor too – The Telegraph reports that just 11% of farmers are aged 22 to 35. And dairy giant Arla revealed in June that over a tenth of its UK farmers were considering leaving dairy farming altogether because of ongoing staffing issues.
3. Consumer trends
The cost of living crisis has forced many consumers to change their shopping habits and choose products primarily based on price – with 30% buying less meat according to Red Tractor “Trust in Food” research. And 24% of respondents said they were ‘trading down’ – buying food they perceive to be produced to lower safety and animal welfare standards.
People aren’t always just looking for the best deal – particularly when diets and ethical motivations come into play. Sales of organic and locally-produced food continue to grow – the market for organic food is now worth over £3.1bn (Soil Association, 2023) and the total farmed area dedicated to organic farming in the UK stands steady at 3% (Defra, 2022).
4. Volatile input costs
Everybody is having to deal with high rates of inflation, but the agricultural sector is particularly vulnerable to price rises across several specific input costs from iron and steel for building maintenance through to the wheat in feedstuffs. The price of fuel and power has been dropping compared with the highs of 2022, but is always subject to change at short notice thanks to political or even weather events. Forecasting upcoming pinch points has never been more critical.
5. Technology and innovation
The agricultural sector has been through its fair share of revolutions. And advances in tech and AI are opening up numerous opportunities that will arguably transform the sector more than ever. Precision farming with GPS-enabled tractors and drones can remove the trial and error from cultivating crops; Internet of Things sensors collect data and monitor crop conditions; renewable energy technologies reduce exposure to energy prices; and GM crop developments can cut down input costs from irrigation to pesticides.
There are plenty of hurdles to overcome though, not least rural connectivity, trust and ethical issues and capturing and sharing data throughout the value chain so it can be efficiently leveraged. Even so, an EY report on digital agriculture is clear that the benefits of new technology far outweigh the drawbacks as the return on investment becomes clearer.
The agricultural sector has more on its plate than ever before. Sudden disruptions such as supply shortages or avian flu are combined with a longer-term trajectory towards new technology and dependable workforce forecasts.
Across the value chain, resilience and flexibility are mission-critical in order to future proof individual businesses and equip them for the challenges and opportunities ahead.
Capify is a specialist finance provider to thousands of UK smaller businesses. Our business loans help operators in the agricultural sector navigate specific short-term challenges and invest in the opportunities of their sector. Find out more about our financing solutions, and see how much you may be eligible to borrow, here:
https://capify.co.uk/cash-flow-working-capital-loans/
