Digging up the dirt on the National Living Wage increase

By Andrew Heskin, Partner and ARA specialist

The rise in the National Living Wage (NLW), the largest material increase ever, has brought relief to many workers – but some sectors have struggled to adapt.

As a labour-intensive and capital-reliant sector, agricultural businesses need to be mindful of where costs increase and identify how they can prevent a cash flow problem.

The NLW is due to rise in April 2024 to £11.44 – and extend to 21 and 22-year-olds for the first time.

Due to high operating costs and vulnerability to fluctuating supply costs, farms typically run with thinner margins than businesses in other sectors.

For this reason, agricultural business owners need to know how to manage an NLW increase before it comes into force on 1 April 2024.

The direct implications for farmers

The most immediate effect of a higher minimum wage is increased operational costs for farmers.

Labour-intensive farms, such as those producing fruits, vegetables, and dairy, will feel the pinch more acutely.

These operations rely heavily on seasonal and full-time workers to plant, tend, and harvest crops or manage livestock.

As wages rise, the cost of maintaining a workforce will escalate, potentially reducing profitability for farmers already dealing with tight profit margins.

An increase in the minimum wage could also affect the competitive position of local farms against international counterparts.

Navigating increased labour costs

While many sectors can automate in the face of rising labour costs, farms and other agricultural businesses may struggle to do so.

However, there are other strategies that you can lean into to conserve your financial capital and continue to meet labour costs:

  • Investing in technology – Farms can offset higher labour costs by making their workforce more efficient with new machinery which, while representing an upfront cost, can provide significant savings later on.
  • Training – Farmers can focus on training and development to enhance the efficiency of their existing workforce. Implementing more efficient work practices and providing incentives for high performance can also contribute to improved productivity.
  • Diversification – Diversifying farm operations can provide additional revenue streams and reduce the impact of increased labour costs on any single part of the business.
  • Cooperative labour sharing – Forming or joining a cooperative with other local farmers can allow for the sharing of labour resources. This approach can help manage peak seasonal demands more efficiently, ensuring that labour is available when needed without the long-term commitment of hiring additional full-time staff.

Looking at the bigger picture

While it can be useful to look at wage costs in isolation, they should be part of a wider financial plan to ensure that you can meet your running costs and achieve any targeted growth, while also remaining prepared for any unexpected costs.

We can help to advise you on meeting your labour costs and place them in the context of your financial plan.

To access our support, get in touch with a member of our team today.