Seven trends to watch in 2023

Farm businesses face some critical influences during 2023. It is clear we are facing a period of accelerated change in terms of land management.

The good news is that some new and exciting opportunities are also emerging – and land managers would be wise to be proactively thinking about their options to identify where the best opportunities might lie.

1. Higher working capital requirements

Higher working capital requirements for Harvest 2023 will put a squeeze on profitability and have a big impact on cashflow.

Harvest 2022 was profitable for many arable growers who purchased the bulk of their inputs before huge increases in input costs. But input costs for Harvest 2023 will be significantly higher and commodity prices have also eased back from the highs seen last year.

Try to benchmark and budget to help navigate the financial challenges of the year ahead – and determine how much working capital you will need over the coming months. Assess how sensitive profit margins are to changes crop prices, fertiliser and diesel costs.

2. Mitigate the energy crisis

The energy crisis is opening up significant opportunities for landowners in the delivery of both large- and small-scale renewable energy schemes.

Developers of large-scale solar
projects are prepared to pay
index-linked rents of around £1000/acre along with a percentage of turnover. Battery storage site rents are typically between £2,000/MW and £2,500/MW.

Roof-mounted solar PV schemes are back in the spotlight as a way for farmers to cut electricity bills by reducing the amount of bought-in energy. But the financial feasibility of a new solar PV system will vary depending on how much energy is used on site.

An energy review will help determine whether a project is viable. Farmers who already have a solar array, but without an export meter fitted, should consider installing one. There are now some excellent rates paid for exported electricity.

3. Nature Recovery

It’s not just about carbon when it comes to responsible environmental management. The issue of biodiversity loss is likely to become increasingly high profile following last year’s UN Biodiversity Conference.

Climate and biodiversity are closely interrelated, and we are now seeing a concerted effort among environmental groups to push policy makers to recognise that nature recovery is just as important as reducing greenhouse gas emissions.

As we move forward, active habitat management will become more and more important. A big challenge that needs to be overcome is securing appropriate finance to enable this to happen – whether that is from the public or private sector.

Be mindful that there is strong research evidence to suggest farm profits can increase even if the area cropped is reduced, due to the positive effect on production from wildlife habitats.

4. Rise in bad debt

Official government figures show rising levels of business insolvencies, so it has never been more important to know your customers and manage the risk of bad debts closely.

Monitor any changes in business practices which might signal buyers are suffering cashflow problems. State terms of business clearly on invoices and set up reminders so you know when you need to start chasing for payment.

5. Let property management challenges

Everyone is feeling the effects of the cost-of-living crisis, but anyone with a property portfolio will also need to be particularly mindful about its impact on tenants. It is likely there will be commercial and residential tenants who may find themselves struggling to meet their rent.

Damp and mould in properties could also become more of an issue, because of people not being able to afford to heat their homes. Keeping the lines of communication open is vital. Get to know your tenants as well as you can, so you are aware of any early signs of stress.

Consider what happens to cashflow and profitability if a tenant leaves. Landlords also face the prospect of major legislative changes associated with improving energy efficiency and ensuring a fairer deal for tenants.

6. Seek out grants

Where available, it makes sense to take advantage of grant support to future-proof your business.

A new Rural England Prosperity Fund is also on its way, which could be useful for farmers looking to diversify. This type of support can have a significant positive impact for individual businesses and the local rural economy.

7. Expect greater volatility

The effects of climate change are more obvious every day – we’ve had heatwaves, flooding and the disease risks seem to be increasing for the arable, livestock and forestry sectors.

Researchers from Oxford University, the UK Centre for Ecology & Hydrology, the Met Office and Bristol University recently published work showing that farmers have largely compensated for the impact of adverse weather conditions on wheat yields over the past 30 years.

But climate change will push the boundaries of what is achievable through crop management and the research team’s forecast for the next 30 years is that there will be much greater volatility in cereals and grass yields.

Rhodri Thomas is head of rural at

Strutt & Parker.