Paying the costs

Cost saving measures lead to a significant increase in income.

24 September 2013, Words by Sophie Barrett

 

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Average total expenditure was capped (up just 0.2%) in 2013 at £88 per acre despite significant inflationary pressure on many input costs. Our survey shows that the two main costs, property repairs and management represent three quarters of all costs and a third of gross income.

However, other costs (see Table 3) which increased by 7% to £23 per acre represent over 10% of gross income should not be ignored – anecdotal evidence suggests that the market is competitive for costs including insurance with premium reductions achieved in some cases.

In addition, new legislation can bring added costs. In October 2012, the Government introduced a requirement for all employers to automatically enroll their workers in an approved pension scheme, to be phased in over four years for smaller employers. Despite this new legislation, only 20% of a subset of our survey participants currently has an employee pension scheme.

Average property repairs decreased a significant -6.3% across ’All Estates’ to £41 per acre, but still represent just over one-fifth of gross income and almost half of total expenditure.

Capital improvement on the average estate also decreased significantly – by almost a half to £13 per acre.

The amount an estate spends on repairs and improvements generally varies from year to year unless the estate has a rolling repairs programme. It is a good policy to actively manage and timetable repairs to fit in with cashflow and labour troughs. This may be even more important in the light of the Davis v Davis-Cooke Agricultural Land Tribunal Decision (31 October 2012).

In the light of this we would suggest landlords review their repairing obligations, particularly with dairy farm tenants who have been permitted to expand.

It is likely that landlords will need to undertake significant and unexpected repairs and/ or improvements, which could lead to some volatility in repair and improvements costs over the next few years with regards to investment into agricultural units.

Average total management costs across ‘All Estates’ increased by 5.7% in 2013 to £24 per acre. However, the annualised increase over the past three years was just 1.4% and below inflation.

 
 

Key Contacts

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

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