Accounting in farming

Whether you love or hate Jeremy Clarkson, the Clarkson’s Farm series on Amazon conveys many of the challenges faced by farmers. In the last ten minutes of the final episode of Season 1, the financial challenges are highlighted. As I watched this part of the show, I guessed a figure of £10,000 profit. The actual profit shown was £144 on arable farming in what was a weather affected year ( yields were down 40%). This would be increased by subsidies, but one has to question the viability, or more importantly the sustainability of farming if such low incomes are generated. Of course, as many farmers know, today profits are less from growing or rearing, and more in things like direct sales through farm shops or other items like tourism.

This made me think about what we teach (or do not) about accounting for farming. One might think it is something which should be covered in an accounting syllabus at university, but it in my experience it is not. I have never been taught or have I taught IAS 41 Agriculture. As an accounting standard, it is not very complex, so teaching it is not much effort. Perhaps what is more useful to teach is how to actually prepare accounts of farms. The Irish leaving certificate (an exam for entry to university) includes some more practical items, such as an “enterprise analysis account” – an account which shows revenues, costs and profits of each part of the farm/farm activity. Such an account is useful as it can be the basis for decision making in the same way that departmental accounts can be in other business sectors.

My previous post was on a new definition of accounting. Linking it to this post, I am wondering how farm accounting fits with the “enable the flourishing of organisations, people and nature” element of the definition. It is, or will be, difficult for people and nature to flourish (by being fed, having good farming practices) if the financial return on farming is poor or subject more risks from climate change. I could go on, but some food for thought here I hope.