UK FARMERS will experience a return to "real farming" in 2004, according to Andersons, the farm business consultants.

The company predicts a rapid reorganisation of the industry when the final shape of the Fischler reforms to the CAP becomes clear during the coming year.

In Outlook 2004 the company says that the reforms, which include de-coupling support payments from production, appear to be universally welcome in the British Isles.

While it admits that full de-coupling is a bold move, it says it will release farmers from the distortion and bureaucracy of the subsidy payment system.

It warns, however, that it may be partially replaced by environmental legislation "creeping through on the blind side".

Of the reforms' effects, it says: "Farmers can start to grow crops or produce milk and animals for real markets. All this will lead to rapid reorganisation in the UK farming industry once the full and final details are revealed."

Outlook reviews the experiences of 2003 and urges caution about any improvement in the industry's fortunes during the year, in which total income from farming (TIFF) rose to more than £3bn in 2003 from a provisional figure of £2.4bn in 2002.

"Copious sunlight and a useful reduction in the sterling/euro exchange rate have together rescued farming's cashflows and profitability in 2003," says the report. "Most sectors have enjoyed better prices; even milk has recovered somewhat from the catastrophic lows of 2002."

But further price rises will be needed in the future, it says, not least to offset increased input prices.

During 2004 Andersons expect the sterling-euro exchange rate to remain fairly stable; interest rates to rise to 4-4.5pc; and farmers' input prices - many of which rose sharply in 2003 - to remain at roughly their present levels, but perhaps with some downward pressure.

It also points out that world grain stocks are now low after a run of weather-affected years, but, with a return to more normal production in 2004, it is difficult to see prices being maintained.

Nevertheless, it says there is a good chance that TIFF for 2004 will remain at more than £3bn and could increase, particularly if further rises in milk price are forthcoming.

The company points out that the TIFF figure excludes income from most diversified businesses, and comments: "Many farms are now 'rural businesses', with agriculture bringing in only a part, or in some cases a very small proportion, of total income.