For North Yorkshire's farmers, 2006 will be the first full year of the Single Payment and the end of the use of taxpayers' money to support food production. ROB KAY, the region's corporate director for Barclays, urges farmers to think about how best to take advantage of the new European rules.

FOR most North Yorkshire farmers, the change has not felt particularly momentous. It may be only now that things feel a little different as, for many, the bank overdraft has been increased to cover the long-awaited first payment through the Single Payment Scheme.

But no one should forget that the Single Payment is fundamentally different to the previous support payments, as it can be received without having to produce anything on the farm; although farmers will need to keep their land in a good agricultural and environmental condition to secure their payments.

On a number of farms, the Single Payment will be greater than the profit the farm has previously generated; for some farms significantly so. For anyone who is serious about running their farm as a business, the aim should be to think of the Single Payment as a minimum income, with the farming activity undertaken enhancing and supplementing the Single Payment. What is the point of simply subsidising an enterprise that would otherwise be unprofitable - thereby ensuring the profit generated on the farm at the end of the year will be less than, instead of greater than, the Single Payment?

In a survey conducted by Barclays at the European Dairy Event, farmers told us their Single Payment would be used for a wide range of purposes, including reducing borrowing, reinvesting in the farm, investing off the farm, paying university fees and going on holiday!

But it was disappointing that nearly half of the farmers we spoke to told us they had not decided what they would do with the payment. The danger of indecision is that the money may be lost in the day-to-day expenditure of the farm. Farmers owe it to themselves and their families to give the matter urgent thought.

So what should the payment be used for? That rather depends on whether you intend to run your farm as a business. For some, whose cost of production is lower than the value of goods produced, it can certainly make sense to invest in the farm; for others reducing debt may be a better use of the money. For those whose cost of production is greater than the revenue generated from the market place, and who are determined to run the farm as a business, some new thinking is needed. For others, the time may be right to invest their time and efforts in a new direction.

Most farmers are determined to carry on making a living. Their aim must be that their business is run as efficiently as possible so every enterprise at least breaks even. There is still scope to reduce costs on many farms. An excellent way to find out how is to join a group of like-minded farmers so you can benchmark your costs against similar farming enterprises.

Keeping costs under control is always important, but I believe farmers also need more certainty about the prices they will receive in the future. While the Common Agricultural Policy subsidised food production, both processors and retailers were able to rely on a guaranteed supply of quality products to fill the shelves.

With farmers now having the option to receive the Single Payment without producing food, it is time to move to a different arrangement with buyers.

For farmers, food production must now be much less of a speculative venture. For that to happen, far more of them need to know what their unit costs of production are. They should also be willing to share that information with processors and retailers to demonstrate what prices they realistically need in order to be able to make a reasonable return.

Processors and retailers, in turn, should provide farmers with a reliable indication of the prices they can expect to receive, before they plan their production. That would enable farmers to make rational business decisions, rather than carrying on producing in the hope that prices received at some point in the future will be sufficient to have made it all worthwhile.

It would also help to ensure the Single Payment would not have to be used to subsidise food production, as I fear will be the case on too many farms in the coming year.

Updated: 10:20 Tuesday, January 03, 2006