Farms need SFP to survive.

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The single farm payment is on its way at last, but that's not the end of the story. Starting with the results of our exclusive survey, in conjunction with farm business consultant Andersons, this special feature will guide you through the maze of entitlement issues

Most farmers will use their single farm payment to inject much-needed cash into their farming operations, according to an exclusive survey by farm business consultant Andersons and Farmers Weekly.

Although many advisers have suggested the money should not be used to shore up farm businesses, it seems most farmers cannot afford to set it to one side.

At least two-thirds of the 95 farmers surveyed said they would use some of their cheque to reduce their overdraft or pay off other short-term loans. And a quarter predicted that all the money would be used to pay off accumulated business debts.

"This means less than a third of producers believe they are sufficiently profitable to earmark the aid for other purposes," said Andersons partner David Neill.

But only a few of that third were looking at investments beyond the farm gate. Most said they would use the SFP for capital investments, perhaps making up for years of under-investment.

"Although the aim should eventually be for farming enterprises to stand on their own feet without subsidy, the results confirm how difficult that is to achieve in the current climate," Mr Neill said.

"It's no real surprise, given where we are with prices and costs. And bills and overdrafts have been going up over the winter. It would be nice to think that farmers could eventually ring-fence their SFP, but whether that's possible remains to be seen."

The survey suggested that few respondents were thinking that way at the moment. Almost 60% stated they did not anticipate a change in the way they would spend their cheques.

Of those who thought their spending patterns might change, a clear aim was to broaden the business base, with many looking at diversification and off-farm investments. However, a good few thought that they would be more likely to need the money just to keep the business running.

"For those farmers who are planning to invest payments in their farm businesses, there is a trend towards property and buildings rather than shiny new toys."

New buildings or storage facilities came top of the list, with farmhouse or cottage improvements and barn conversions next. Tractors and materials handlers, livestock equipment including milking equipment, farm vehicles and combines followed.

Respondents' farms ranged from 6-1300ha across England, Wales, Scotland and Northern Ireland. The largest category was combinable crops, but good responses were also received from dairy, grazing livestock, and roots farms.

Perhaps surprisingly, almost a third of farmers said they might consider taking their SFP in euros. "This suggests they want more control over when payments are converted into sterling, or they have a use for euros -- perhaps for purchasing inputs or taking on a euro loan," Mr Neill said.

"This may have implications for the supply trade if farmers really are this keen. The banking sector will also need to offer the industry simple and cheap euro bank accounts."

While almost 90% of farmers had a good idea of their 2005 receipts, worryingly less than half had tried to quantify the amounts through to 2012, said Mr Neill.

"It's enough of a concern that about 10% have no idea of how much they should be receiving this year.

"But it is even more concerning that many do not seem to realise that, given the various possible deductions plus the effect of inflation, the value of the SFP in real terms could halve for many businesses by 2012.

"Producers really should be aware of how their payments are likely to drop and know the effect of this on their business," he added. "And, most importantly, they should have a plan to deal with it."

GRAPH: WHAT FARMERS ARE SPENDING THEIR SFP ON Most farmers will be ploughing their SFP cheques back into their existing business, according to our exclusive survey.

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Edited by Andrew Shirley

Legend for Chart:

A - Year
B - Historic payment
C - Regional payment
D - % deductions (est)
E - Total
F - Net present value

A        B        C        D         E        F

2006   212.50    30.20   15.00    206.30   187.70
2007   175.00    60.30   17.50    194.10   161.10
2008   137.50    90.40   20.00    182.30   138.50
2009   100.00   120.60   22.50    171.00   119.70
2010    62.50   150.80   25.00    160.00   100.80
2011    25.00   180.90   27.50    149.30    86.60
2012     0      201.00   30.00    140.70    74.60

Total                            1203.70   869.00