The Scottish Government

This item was published during the term of a previous administration that ended in April 2007

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Farm income estimates

31/01/2007

Estimates for aggregate farm level incomes for 2006 and individual incomes for 2004-05 and 2005-06 were published today.

The figures show that Total Income From Farming (TIFF) has increased by £94.6 million in 2006 to £577.5 million, a rise of 19.6 per cent over the previous year before inflation is taken into account. In real terms, this represents a rise of 16.0 per cent.

The rise is primarily due to an increase in total output values in the cropping and horticulture sectors.

Separate figures on average Net Farm Incomes (NFI) show a fall of 27 per cent from £13,800 in 2004/05 to £10,100 in 2005/06. The cereal sector saw an increase in Net Farm Income, while all other sectors showed a decrease.

Please note that the two measures of income (TIFF and NFI) should not be compared directly with each other: Total Income from Farming assesses Scottish agriculture as a whole and covers the calendar year 2006; Net Farm Income should be used to compare between different types of farms and covers the period from December 2003 to May 2005 for 2004-05 accounts and December 2004 to May 2006 for 2005-06 accounts.

A consultation is underway to seek views on proposed changes to headline farm income measures used in Scotland. The closing date for submitting responses is February 22, 2007.

revisions have been made to the 2005 TIFF data since the publication of the 2005 estimates last January. These have had the effect of increasing the bottom line 2005 TIFF figure by £47 million. These revisions were mainly due to the receipt of more recent data that showed increases in yields, prices and production of soft fruits. The payment in respect of the new Land Management Contract Menu Scheme was also included which contributed to the increase.

SECTION A: Aggregate Estimates - Total Income from Farming (TIFF)

The aggregate estimates for 2006 are provisional, and are based on the latest information that is available. A final position relating to the costs of farming (inputs) is not available until later in the year, therefore the 2006 figures must be treated as estimates.

Total Income From Farming, which measures business profits plus income to workers with an entrepreneurial interest, has risen by £94.6 million in 2006, an absolute increase of 19.6 per cent from last year. In real terms this represents a rise of 16.0 per cent.

The principal factor contributing to the increase in TIFF is a rise of £71.8 million or 66.3 per cent in the potato sector. Overall, oil prices in 2006 were higher than in 2005 and this, combined with a general upward trend in input costs, has resulted in an overall increase in the gross input value of £45.3 million (3.9 per cent).

The underlying details of this, focusing on the main changes between 2005 and 2006 are presented below.

Total Payments & Subsidies

The total level of payments and subsidies have remained similar in 2006 at £556.6 million [1]. The Single Farm Payment (SFP) was valued at £414.5 million, an increase of £18.1 million (4.6 per cent) on 2005 levels, mainly due to an increase from the EU. The SFP total has been estimated, taking account of EU and National modulation (where a percentage of SFP is 'top-sliced'and routed into EU and UK agriculture schemes).

[1] The 2006 total does not include Less Favoured Area Support Scheme (LFASS) payments of £40 million which were recently announced by ERAD. These payments will be added to the 2006 TIFF estimates in due course, in line with the TIFF methodology of accruing payments to the scheme year

The Older Cattle Disposal Scheme (OCDS) was introduced in 2006 to replace the Over Thirty Months Scheme (OTMS). Approximately 37,000 animals went through OCDS in Scotland with a value of £9.1 million to Scottish farmers.

Input costs faced by Scottish farmers

Increases in the crude oil price contributed to the total value of inputs increasing by £45.3 million (3.9 per cent) in 2006.

There has been an increase in several input costs: The fuel and oil costs faced by Scottish farmers in 2006 increased by £7.7 million (12.2 per cent). The effect of a 20.2 per cent annual price increase in red diesel is consolidated by increases in contract work costs (6.5 per cent), veterinary expenses (5.9 per cent) and other farm costs (4.2 per cent), which may also be indirectly related to increases in fuel costs. Fertilisers and lime costs increased by £5.1 million (3.8 per cent) due primarily to higher prices for these inputs. Feedstuff costs also increased by £12.4 million (4.0 per cent).

Very few input costs fell in 2006. The most notable decrease was in crop protection, which reduced by £2.4 million (5.2 per cent). This was due mainly to a decrease in the area of cereal crops.

Other Costs faced by Scottish Farmers

The value of interest paid has increased by £4.3 million (4.3 per cent) reflecting both changes in interest rates during 2005 and 2006 and an increase in lending for farming purposes to £1,281 million (up 4.2 per cent) in 2006.

Hired labour costs have also increased by £15.5 million (6.1 per cent).

Outputs from Scottish farms (net of subsidies)

The value of gross output (net of subsidies) has increased by £140.1 million (8.0 per cent) in 2006.

Other Crops

The biggest increase has been in this category, which includes potatoes, oilseed rape and other arable crops The increase is primarily due to the value of potatoes increasing by £71.8 million (66.3 per cent), reflecting the average annual market price for maincrop ware potatoes which increased by 63.3 per cent.

Cereals

The value of cereals has risen by £26.7 million (14.6 per cent). This increase is due to market price increases for all cereals, in particular wheat which has risen £14.39 per tonne (up 20.6 per cent). Within this sector, there was a decrease in areas from 411,329 hectares to 398,049 hectares in 2006 (down 3.2 per cent), however average yields achieved in 2006 increased to 6.7 tonnes per hectare (up 2.9 per cent).

Horticulture

The overall value of horticulture has increased by £20.8 million (12.1 per cent). This includes increases of £15.2 million (22.7 per cent) in vegetables, £2.3 million (5.0 per cent) in flowers and nursery stock and £3.3 million (5.6 per cent) in fruit.

Livestock

The overall value of livestock and livestock products has decreased by £10.8 million (1.0 per cent). The value of finished cattle and calves has increased by £13.4 million (3.4 per cent). There has also been an increase in the value of finished sheep and lambs of £4.8 million (3.7 per cent). However, the value of both pig and poultry products have decreased by £6.2 million (down 9.9 per cent) and £13.1 million (down 15.6 per cent) respectively. Capital formation (i.e. the asset value) of incoming livestock also shows a decrease of £11.9 million (down 14.9 per cent) this reflects a 10.8 per cent decrease for cattle and a 43.9 per cent decrease for sheep. These decreases are mainly due to changes in the price that is used to calculate the value of animal stocks - essentially, the price difference between animals entering and leaving the herd/flock. A decrease in the average price per litre for milk has contributed to a fall of £6.3 million (2.5 per cent) in the value of milk and milk products.

SECTION B: Farm Level Estimates - Net Farm Income (NFI)

Estimates of Net Farm Income (NFI) come from the Farm Accounts Survey for Scotland, which was based on a sample of 481 farms in 2004-05 and 474 farms in 2005-06. These estimates relate to December 2003 to May 2005 for 2004-05 accounts and December 2004 to May 2006 for 2005/06 accounts. The survey only includes full-time farms above a certain size (over and above 0.5 Standard Labour Requirements) and covers most main farm types in Scotland, excluding horticulture, specialist pig and specialist poultry producers.

NFI represents the return to the farmer and spouse for their manual and managerial labour on tenant-type farming. It is intended as a consistent measure of the profitability of tenant-type farming. NFI is not a proxy either for farm business income or for farm household income, and should not be compared with the TIFF estimates. Further information on the definitions and methodology of NFI estimates are available on request.

Estimates of NFI, in particular trends by farm type, should be treated with some caution as they are based on a relatively small sample size and are subject to annual sample variations.

Table shows NFI results by farm type between 2004-05 and 2005-06:

All farm types, with the exception of Specialist Cereals, experienced a fall in net farm incomes between 2004-05 and 2005-06. Dairy, LFA: Specialist Sheep, LFA: Specialist Beef and LFA: Cattle and Sheep experienced significant falls in output and increases in inputs, leading to a fall in net farm income. Although the General Cropping farm types experienced a fall in inputs, the fall in output in this sector was greater which resulted in a reduction in net farm income. The Specialist Cereals, Lowground Cattle and Sheep and Mixed farm types experienced increases in both outputs and inputs. However, with the exception of the Specialist Cereal farm type where output increased more than inputs, the net farm income for the Lowground Cattle and Sheep and Mixed farms dropped.