Justifying conacre on beef and sheep farmers

Many farmers increase the size of their farm business by taking land in conacre. The time is fast approaching for decisions to be taken regarding conacre land for the 2006 season. However, in the new era of de-coupled subsidies, some of the reasons for taking conacre have changed. For instance, extensification payments and livestock numbers no longer affect the amount of subsidy received by a farm business.

The main economic argument for taking land in conacre is to spread the fixed costs of a farm business over greater numbers of livestock thereby reducing the cost per animal produced. This argument is still valid provided there is a positive margin from the livestock enterprise after the cost of conacre rents have been taken into consideration. Gross margins per cow or per ewe are considerably less without direct subsidy headage payments and on some farms they are negative. A negative gross margin means that that enterprise is not making a contribution towards fixed costs when operated on owned land, before any additional conacre costs are considered.

Valuing conacre land is very difficult. Every situation is different so everyone must work out their own value on conacre land. Is the conacre land close to the main farm or miles away? Is it well fenced for livestock? Has it a productive sward of grass? Is there water for livestock? Who is getting the Single Farm Payment due on the area? Is the land eligible to claim LFACA payments?

These are some of the details to consider in arriving at a value. However the main consideration is the gross margin generated by the enterprise using the conacre land. Therefore, it is important to know the gross margin per acre being generated by the the farming enterprises.

Using information from Beef and Sheep farms benchmarked by Greenmount Campus in 2003/04, it is possible to show a ‘break-even’price paid for conacre land. That is the conacre price at which the gross margin generated by the livestock enterprise would exactly cover the land rental.

Table 1 Conacre break-even price for beef production

* Every 10p/kg increase or decrease in beef price is worth approximately

+/- £20 to £30 / acre

Table 2 Conacre break-even price for lamb production.

* Every 10p/kg increase or decrease in lamb price is worth approximately

+/- £10 to £15 / acre

Unfortunately ‘break-even’ position on conacre land is not a satisfactory option. It means that all the margin is being used to pay the conacre rent there is no return for labour, no contribution to running farm vehicles and no money towards phone, electricity and water bills.

Table 3 is the revision of Tables 1 and 2 but showing a contribution of £50 and £100 towards fixed costs.

* Every 10p/KG increase or decrease in beef price is worth approximately

+/- £20 to £30 / acre

It is important to be realistic about conacre decisions, as paying too much for conacre land will have a negative impact on profitability. Likewise, if livestock margins are good, producers can have confidence in taking conacre land at the right price, knowing that it can still significantly boost farm income. Any change in farm policy to either increase or decrease the amount of conacre taken requires careful planning and will affect stock numbers kept and/or systems of production.

Production efficiency is the major factor influencing the price that can be justified for conacre land, so it is vital that all conacre decisions are based on accurate financial information relating to the individual farm business.

After you have considered your financial situation other factors need to be assessed in making your final decision. (If you wish to benchmark your own business contact your local beef/sheep advisor for details)