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Grain falling from a combine harverster's auger


This guide is designed primarily for UK arable farmers but can be applied to others especially those businesses with a shorter trading cycles such as pigs and poultry. It is designed to act as a guide especially for those not sure what direction to take. The principles and actions suggested apply to all businesses small and large and are deliberately kept general in nature so that they can be applied to a variety of businesses. It also emphasises the need to be able to proactive in making a proposal to any lender and not wait for the problem to worsen. Also, you should consider that you may be explaining crop ccyles, trading cycles and the financial consequence of a loss of crop to someone that does not understand your business to the same extent as you do and to get what you need you will need to explain this and check on the understanding of your Bank manager or official.

Finally I cannot emphasis that appropriate and proportionate professional advice may be key as well as an open mind to consider all solutions including those that are less popular with yourself. You may wish to search out previous posts on managing change or “Farming for Nowt” or “How a Bank Manager Views my Farm” that I have made.


A lot of pain can be avoided if a farmer prepares for failure as part of a business contingency plan. Asking the simple question, “What if ?” is part of good business. But it has to be acknowledged that this is not easy, but it can make it easier for farming businesses and their families especially if failure is the result of the injury, illness or death of a key person. At the same time I acknowledge you cannot prepare for everything in life and sometimes just knowing who you can call on for help when things go wrong is key, whether it be friends, family, neighbours, key advisors or charities such as RABI, FCN and LRSN.

Preparing for crop failure can be done in five key ways:

- The simplest is by diversifying income streams either by having a mixture of crops (the most common form in rotational arable farms) or a mixture of income streams whether they be farming or non-farming.

- Crop insurance. This is not always available and is a balance against cost versus risk. It also has to be recognized that you cannot insure against all risks and the devil is in the detail. I do recommend that “key man” cover is considered as a crop can fail or reduce in value if a key person in the business is injured, ill or dies preventing it being dealt with.

- Building up a cash cushion. Too often, especially with high value crop growers, I see advice being given to spend money in highly profitable years “to avoid tax”. This is the wrong reason to spend money. Money should be spent for the benefit of a business going forward, not simply to avoid tax. Also, the accumulation of cash reserves, or the use of cash to reduce borrowing makes a business stronger and more resilient. This benefit should not be underestimated.

- Understand your obligations and their consequences and risks. This is especially true if you are growing a crop under contract or selling a crop forward. Too many do not allow for this risk.

- Risk awareness. The increase in costs of energy, fertilizer and other inputs means that the reduced profit margins on some crops and the increase in working capital to grow them has effectively increased the risk profile of growing these crops. There are also other factors that have increased risk profiles such as increased flooding, restrictions on irrigation and the withdrawal of some chemicals such as neonicotinoids for sugar beet and rape being a few examples. Increased costs have even challenged such crops as wheat on lower grade land that may become marginal. Awareness of risks of growing a crop, affordability and ability to survive reduced yield or crop failure are key in prevention of farm business failure.

Even with these preparations it does not mean you can avoid the pain of crop failure: more than one income stream may fail at once; crop insurance may not pay out as expected; your cash surplus may be inadequate.


First of all acknowledge your feelings. Recognise your disappointment, sadness or depressed feelings. These are normal, be kind to yourself and accept where you are. If you are overwhelmed by these feelings get help, talk to friends or a help line. What you feel is normal, however, you do not have the luxury of being able to wallow in these feelings to the extent that they paralyze you from taking positive actions.

Recognise negative thoughts and irrational beliefs and try not to let them distract you from positive action and solutions. Whilst the nature of farming is that it is personal, it is vital that you understand that this IS NOT personal it is BUSINESS and it will need you to plan make decisions and take actions to resolve.

You need to plan what you need to do to recover, from basic disposal of failed crop, to preparing for the next one. Identify what actions you need to take? Identify when those actions need to be done by? Check with yourself that those actions are achievable and affordable – the key to surviving and rebuilding from this situation is going to be cash.

As soon as you are aware that a crop is failing or going to fail the following actions should be considered:

- Can any value be gained from the failed crop?

- Can you mitigate against any contractual obligations by negotiation?

- Check that any crop sold forward can be bought out of? In some circumstances a contract can be bought out without a loss, and occasionally, although very unusually a profit may be made.

- The most important thing to work out is the financial impact and how and if you will fund the next trading cycle (next year’s or the following crop).


The solution to crop failure will always be financial. The loss of profit from a crop is one factor, but more importantly is the loss of the return of working capital that was used to grow that crop and will be needed for the following activity. You can only identify what is needed financially by competent planning and costing of the forward activity. The most serious failures I have seen with potatoes, possibly the highest cost crop per acre in the UK, has seen recovery achieved by excellent planning and high quality professional advice. The high quality professional advice gave the farmer and the Banks supporting him, confidence that his situation was recoverable over a period going forward. The advantage of quality forward planning and costing by a professional is that it is a view from outside the business and is not affected by the intrinsic bias that a farmer may apply to his figures to get the support they need. Equally, high quality planning and costing produced by the farmer themselves can be equally value provided the reasoning behind those figures is explained clearly.

Even if you do not require Bank support the planning and costing going forward are key to ensure your future activity is financially sound and that any eating into the wealth of the business is both proportionate and acceptable going forward. Whether using your own cash or the Bank’s the healthy “What if?” questions should be asked and the boundaries of what is and is not acceptable to the farmer should be clear.

The key to dealing with the Bank is to take a proactive approach and make a reasonable logical proposal. Increasingly farmers are dealing with people that do not fully understand the industry in detail, by explaining the trading cycles, risk/reward and options in detail and the preferred option you can very quickly gain support – this need not be complicated. The following three examples may illustrate this:

Case 1 – Single handed small farming business, tenant farmer 300 acres plus about 20 acres owned. Farmer had an injury resulting in harvest not being gathered on time and substantial decline in value of grain resulting in financial loss and shortfall in cash available to plant the following year’s combinable crops. Bank not prepared to increase overdraft to cover working capital short-fall of about £30k. Farmer produced detailed plan illustrating how the £30k hole in working capital could be recovered in one trading cycle, in this case a year, but in return for the additional support 20 acres of security offered to the Bank from a previously unsecured position, farmer also illustrates that “key man” cover is in place. This resulted in him receiving the necessary support.

Case 2 – 500 acre arable farmer with a mix of tenanted and owned land has 120 acre rape field hit by thunderstorm and hail resulting in substantial loss to crop. Crop insurance held, but declines to pay out. In this case the farmer identified clearly the amount of lost working capital. The farmer showed a detailed plan of crops and anticipated returns for the next trading cycle of 12 months and a forward forecast of what the subsequent two years should look like subject to certain assumptions. A three year plan. Using this plan they proposed that the amount of the lost working capital be put into an interest only loan for three years with the option to repay in tranches with the last payment being at the latest in three year’s time. In the proposal they accepted the possibility of asset realisation if they experienced future failure and the Bank security was adequate. Again this enabled the appropriate Bank support.

Case 3 – Large potato and vegetable growing business with most crops grown under contract experiences quality and yield issues in a bad season resulting in substantial financial loss and short fall in working capital. Farm is a mixture of tenanted and owned land plus shared farming work. Farmer works out a plan on the back of an envelope that he then takes to his highly regarded and competent land agent to fully cost out and illustrate in detail. Farmer illustrates that the business can afford to service a 10 year loan to cover the lost working capital and that changes in variety and contracts increase profitability and reduce risk. What if questions, monitoring and ongoing forecasting also agreed. Potential to realise assets in the event of future loss was also illustrated. Because the quality of this presentation to the Bank is high and the proposal reasonable the Bank accepts the proposal.

The key in each of the three cases is that the farmer had made pro-active proposals backed up with appropriate figures to illustrate the affordability of their requests.

However, I do give a warning. When experiencing crop failure some farming businesses will not be able to illustrate an affordable borrowing solution. In those circumstances it would be unreasonable for any Bank to support a loss to the extent of putting the farmer’s business and perhaps his home in jeopardy. If a farmer finds himself in that position he needs to illustrate that the loss to the business can only be mitigated by completing a trading cycle to realise as much cash out of the business as possible. This means that the farmer may have to look at asset realisation or worse still, ceasing to trade. Identifying this need early is a strength NOT a failure.

In the case of a tenant farmer, especially an Agricultural Holdings Act farmer this may put his home in jeopardy. To this I have seen some mitigation taken to prevent this as illustrated in this example:

Tenant Farmer - experiences crop failure in a wet year. Three generations rely upon two homes within the AHA tenancy. The amount of cash needed to fund the following year is not available and no Bank would be willing to lend it. The solution was for the farm to go into a shared farming arrangement enabling the farmer to sell all his equipment and use the proceeds to fund the initial working capital of the shared farming arrangement where another farmer does the work with their kit and there is a sharing of profit after certain charges by the contracted farmer. This preserved the tenancy and freed the farmer up to work elsewhere. Another similar arrangement I have seen on tenanted farms is a cropping licence where a third party farms the land, but to avoid sub-letting it is done under a cropping licence where on paper the crop is owned by the tenant until it is taken off the field by the grower. This again does away with the need to tie up capital in machinery and frees the tenant up to earn money as an employee elsewhere.

I hope this illustrates that assertive action in many circumstances can help a farmer survive crop failure. Inaction is the farmer’s enemy.

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