Brexit will lead to rapid consolidation of the number of farms in the UK over the next seven years, according to Origin Enterprises chief executive Tom O’Mahony.

Speaking to the Irish Farmers Journal O’Mahony said there would be major changes to farm supports in the UK post-Brexit.

“The long-term direction of travel in the UK is for a structural shift in the level of supports for farmers. This structural change in farm supports will lead to a pretty rapid consolidation at farm level within the next seven years,” said O’Mahony.

The Origin chief added that while the area under crops in the UK may reduce slightly because of Brexit, the UK’s livestock sectors are most exposed to the coming structural changes in farm payments.

O’Mahony added that the euro-sterling exchange rate will continue to be the big driver of farmgate grain prices in the UK, regardless of any tariffs.

“Every year, the UK has an exportable surplus of anywhere between 2m and 4m tonnes of grain. WTO tariffs may make it more difficult for that grain to find a home, which could dictate farmer margins. Ultimately, UK grain prices will be higher if sterling begins to head for parity with the euro in a no-deal Brexit scenario,” said O’Mahony.

Stockpiling

Announcing half-year results this week, Origin said it had stockpiled “additional inventory” ahead of the Brexit deadline.

O’Mahony said there had been quite a bit of advanced buying of crop protection products, where prices are stable.

The group said it had stocked an extra €10m to €15m worth of inputs such as nitrogen ahead of Brexit. Increased farmer demand during the mild winter had also driven this.

O’Mahony added that Origin had engaged with its service providers at UK ports to ensure they had additional capacity to handle larger volumes as a result WTO tariffs in a no-deal Brexit.

The group said it is forecasting average tariffs of 6.5% on every tonne of grain and fertiliser in a no-deal situation.

Good performance

Origin reported operating profits of €9m for the first half of its 2019 financial year to the end of January 2019. The first half of the year is the seasonally quiet period for Origin, with more than 85% of profits made in the second half of the year.

Sales for the first six months of the year rose by almost 20% to reach €701.6m, which was driven by increased farmer activity relating to crop inputs and agronomy services, higher fertiliser prices as well as contribution made by the company’s recent acquisition in Brazil, Fortgreen.

O’Mahony said the new business in Brazil performed well and contributed sales of €21m for the period and operating profits of €5.5m, meaning the business has a very healthy profit margin of 26%. Origin’s net debt increased to €239m in the period, leaving the group with a net debt to earnings (EBITDA) ratio of 2.6 times.