The Scottish Government

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Scottish farm income estimates 2007

31/01/2008

Scotland's Chief Statistician today published the Aggregate Estimates for Total Income from Farming (TIFF) for 2007 and the Average Estimates of Net Farm Income (NFI) for 2006/07.

The statistics show that total income from farming increased by £90 million in 2007 to £627.5 million, a rise of 16.7 per cent over the previous year before inflation is taken into account. In real terms, this represents a rise of 11.9 per cent.

Separate figures on average Net Farm Incomes (NFI) show an increase of £8,100 from £10,800 in 2005/06 to £18,900 in 2006/07.

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

The aggregate estimates for 2007 are provisional, and are based on the latest information that is available. A final position relating to some components is not available until later in the year, therefore the 2007 figures must be treated as estimates.

In 2007, the value of Outputs has risen by £237.2 million (12.7 per cent), whilst the value of Inputs have increased by £111.2 million (9.3 per cent). Other Costs to farmers have increased by £18.9 million (2.8 per cent) and the value of de-coupled Payments and Subsidies has decreased by £17.1 million (3.2 per cent). This combines to provide an overall increase in Total Income From Farming of £90.0 million (16.7 per cent)

The underlying details of this, focusing on the main changes between 2006 and 2007 are presented below.

Outputs from Scottish farms

The value of gross output has increased by £237.2 million (12.7 per cent) in 2007.

Cereals. The biggest increase in outputs has been in the value of cereals, which rose in 2007 by £121.4 million (57.3 per cent). Most of this increase was in barley of £93.1 million (71.8 per cent), with wheat increasing by £25.8 million (36.3 per cent).

Other Crops. This sector has increased by £42.7 million, driven by an increase of £30.6 million (17.2 per cent) in potatoes, due mainly to stock from 2006 being sold at high prices in early 2007. Oilseed rape value increased by £9.4 million (43.0 per cent) and other arable crops also showed increases in 2007.

Horticulture. The overall value of horticulture has increased by £13.6 million (7.4 per cent). This is mainly due to increases of £8.2 million (9.3 per cent) in vegetables and £5.2 million (10.7 per cent) in flowers and nursery stock.

Finished livestock values increased by £4.4 million (0.6 per cent) in 2007. The value of finished cattle and calves has increased slightly by £4.1 million (1.0 per cent). There was also a small increase in the poultry sector of 2.8per cent. Output values in the pig sector remained relatively flat and there was a decrease in the value of finished sheep and lambs in 2007 of £0.8 million (0.6 per cent).

Store livestock values decreased in 2007 by £2.5 million (4.4 per cent). The biggest contributor to this decrease was the store sheep category which dropped £1.7 million (16.2 per cent).

The value of livestock products increased by £22.9 million (8.3 per cent) in 2007. This was driven by an increase in the average price per litre for milk which resulted in an overall rise in the output value for milk and milk products of £20.5 million (8.4 per cent).

Capital formation (i.e. the value of incoming and retained livestock) shows an increase of £13.8 million (up 24.6 per cent). This is primarily due to a partial recovery from low capital formation values in 2006 (specifically for dairy cattle and ewe lambs) and this needs to be noted when considering the increase in 2007. Changes in capital formation are driven by changes in the price and volumes that are used to calculate the value of animal stocks - essentially, the price difference between animals entering and leaving the herd/flock.

Input costs faced by Scottish farmers

Gross input costs increased in 2007 by £111.2 million (9.3 per cent).

The rise in input costs is primarily due to an increase in feedingstuff costs of £60.6 million (19.2 per cent). Costs also increased for fertilisers and lime by £9.4 million (7.1 per cent); fuel and oil by £5.2 million (7.3 per cent); seeds by £5.0 million (10.2 per cent) and other farm costs by £9.1 million (3.0 per cent).

Other Costs faced by Scottish Farmers

The value of interest payments on bank advances and other loans has increased by £20.2 million (19.2 per cent) reflecting both increases in interest rates during 2006 and 2007 along with an increase in lending for farming purposes.

Hired labour costs have also increased in 2007 by £7.5 million (2.7 per cent).

Total Payments & Subsidies

The total level of decoupled payments and subsidies in 2007 was £524.8 million, a decrease of £17.1 million (3.2 per cent) on the 2006 estimate of £541.9 million.

The Single Farm Payment (SFP) was valued at £393.7 million, an increase of £5.3 million (1.4 per cent) on 2006 levels, mainly due to a more favourable exchange rate in 2007 (as SFP is initially valued in Euros). It should be noted that in 2007 a higher rate of overall modulation (9.3 per cent) was applied than in 2006 (8 per cent). This modulation relates to a percentage of SFP being 'top-sliced' and routed into EU and UK agriculture schemes.

2007 LFASS payments were estimated at £61.0 million a decrease of almost £40 million on 2006, which includes an additional LFASS money that was allocated towards the end of 2006. It should be noted that this additional amount was not included in the TIFF figures published last year.

In 2007, additional support payments for the sheep sector of £20.5m were made available in order to counter the effects of Foot and Mouth restrictions imposed in the Autumn.

Revisions to previous TIFF estimates

Revisions have been made to the TIFF data since the publication of the 2006 estimates last January. These revisions mean that the latest estimate of 2006 TIFF is £40.0 million lower than the first estimate produced last year. These revisions were mainly due to the availability of more survey data relating to 2007; a revision in the estimated value of single farm payments and the inclusion of the additional LFASS payments described above.

The TIFF estimate for 2005 has also been decreased by £48.5 million. This is mainly due to a correction in the hired labour estimate; a revision in the estimated value of single farm payments and other methodological improvements. There have only been minor revisions to the TIFF series prior to 2005.

Additional information and analysis

A table showing all the components of the TIFF estimates for 2007 and previous years, along with other related analysis and charts will be published in the Spring 2008 report titled : 'Scottish Agriculture Output, Input and Income Statistics.'

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

Over the past year the Scottish Government has conducted a public consultation on farm income measures. One conclusion from this consultation is to introduce a new measure called Farm Business Income (FBI), which will better reflect actual incomes of farm businesses than the Net Farm Income (NFI) measure. Estimates of FBI have will be published as soon as they have been developed.

The public consultation concluded that FBI will replace NFI as the headline farm business level measure. It also concluded that there was sufficient interest in NFI estimates to continue with their publication, in the medium term.

Estimates of Net Farm Income (NFI) come from the Farm Accounts Survey for Scotland, which was based on a sample of 458 farms in 2006/07 and 485 farms in 2005/06. 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 directly with the TIFF estimates. In addition it should be noted that the 2006/07 NFI results, which are based on accounting periods, lag the 2007 TIFF results which are based on calendar years. This is most prominent in the crop sector, where NFI results are based on the 2006 harvest, whereas TIFF results take account of the 2007 harvest. 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.

Revisions have been made to the 2005/06 NFI estimates published in January 2007. These revisions are due to the inclusion of additional farm accounts in the results, which have been finalised since the previous publication. Revisions are also due to updates in the classification of farm types for farms in the survey.

The following table shows NFI results by farm type between 2005/06 and 2006/07 :

Overall, NFI increased between 2005/06 and 2006/07, with increases in all farm types other than LFA Specialist Sheep and LFA Mixed Cattle and Sheep. The large increase in General Cropping was primarily due to increases in the value of potato output and Specialist Cereal farms benefited mainly from increased cereal output.

Dairy farms experienced increases in the value of milk and cattle output along with increases in grants and subsidies, which overall more than offset increases in input costs such as animal feed and machinery. This lead to an overall increase in NFI.

The decrease in NFI for LFA Specialist Sheep farms has been influenced by re-alignment of LFASS payments towards the end of the calendar year, with only the earlier LFASS supplement payments being reported in the 2006/07 results. This has also had a bearing on LFA Mixed Cattle and Sheep farms, where increases in the value of livestock output have resulted in little overall change in NFI. LFA Specialist Beef farms showed a small increase in NFI, with increases in the value of cattle and crop output being greater than the increases in input costs and slight reduction in grant and subsidy payments.

Lowland Cattle and Sheep farms showed a large increase in total outputs, including a considerable increase in the value of cattle output. There were also large increases across a range of input costs. The net result was an increase in NFI.

The NFI increase for Mixed farms was primarily due to increases in output values of cattle and crops.