Investing eggs in multiple baskets
A parent who wants to pass on their business to the next generation needs to ensure that the business is robust and able to continue providing a profitable future for their children. One of the best ways to do this is by diversification and expansion, but this comes with an inherent risk of failure, especially when a large initial investment is required.
Welsh farmer John realised some time ago that his current upland beef and sheep unit would not enable his young son eventually to join the family business. Therefore, the family decided to look at expanding a free-range egg unit on some of their low-lying land close to the main farm.
The existing poultry unit had 12,000 laying birds; the eggs were sold on contract to a packer and eventually went to Tesco supermarkets. The farm is in a good location for the enterprise as there are other egg producers in the area. This makes the collection of eggs and supply of pullets and feed viable within the integrated supply chain. At the time, the packer was seeking additional egg supplies and a further building on the farm could house an additional 16,000 free-range birds. This is where RSK subsidiary ADAS and its extensive knowledge of the farming sector came in.
John employed ADAS experts to analyse the investment and help create a business plan, which was necessary to demonstrate to potential lenders the likely return that would be made from a substantial investment in expanding the poultry enterprise. ADAS looked at several factors, including the viability of the current business and how it compares by enterprise to other producers in Wales, the margins being made on all enterprises and where improvements could be made, whether further expansion of the poultry unit gave a suitable return on investment, whether any of the grants offered by the Welsh Government would be suitable to support the investment plans for the business and the effect on the business of the forecast decline in the Basic Payment Scheme and its impact on farm income.
The resulting advice given to the client based on the above analysis provided reassurance to John that his farm was in a strong position. ADAS also recommended that he invest in new housing and advised on methods for showing annual improvement and implementing a machinery-replacement policy. As a result, John had the confidence he needed to proceed with investing in a new house that will provide his son with a way to enter the family business.