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Animal Health and Welfare Strategy for Great Britain: The Evidence Base
Chapter 3: Economic prospects
3.1 Introduction
3.1.1 Achieving and maintaining a good farm health status provides an opportunity to minimise the adverse economic impacts of animal disease and can contribute to producing good quality output. Animal disease and its control can have an impact on the economic position of farm businesses. This can be in the form of a reduction in the quantity or quality of output, for example a reduction in milk yield due to disease or the loss of production experienced because contaminated milk must be discarded. Some economic effects of disease are manifested as extra inputs into livestock production. At their simplest these extra inputs can be direct costs after a disease event has taken place to moderate its impact including non-veterinary expenditures
e.g. additional feed and labour and treatment expenditures. There are also prevention costs e.g. veterinary services, drugs and medication, vaccination, dry-cow therapy, sheep dipping, hoof trimming. If a disease adversely affects the values of animals, e.g. breeding stock, this would involve a higher rate of capital depreciation. There may also be indirect costs (i.e. off-farm) arising from a disease such as export prohibitions, human health effects, environmental pollution (e.g. veterinary medicines dispersal, disposal of sheep dip, carcase disposal) and animal welfare considerations such as animal suffering associated with a disease. Such effects are often much more difficult to measure or quantify.
3.1.2 Whilst animal disease has an impact on the economic position of farms, it is difficult to observe or quantify this effect on average farm incomes from existing data sources. The following sections therefore provide a general background of the profitability of the livestock sector, the key drivers of future prospects, trends in farm gate prices and expenditure on veterinary and medicine inputs.
3.2 Profitability of livestock farmers, compared with other sectors
3.2.1 The charts below show average net farm incomes for livestock farm types in England, Wales and Scotland. In general, changes in exchange rates in 2003 increased the income that farmers in England received in CAP payments and generally resulted in more favourable commodity prices. As a result, farm incomes were the best that they have been for some time. It must be remembered however that recent rises come from a historically low base and as shown in the charts below, vary by sectors and across Great Britain. Further data on farm incomes and the financial accounts of agriculture can be found in the publication Agriculture in the United Kingdom
1.
Figure 3.2.1: Average net farm income by farm type: England
Source: Farm Business Survey * excluding horticulture
Figure 3.2.2: Average net farm income by farm type: Wales
Source: Farm Business Survey * excluding horticulture
Figure 3.2.3: Average net farm income by farm type: Scotland
Source: Farm Accounts Survey * excluding horticulture
3.3 Prospects for farm incomes
3.3.1 Key factors that will be significant drivers of farm incomes over the medium term are market developments, notably the euro-sterling exchange rate, and the June 2003 CAP reform agreement. New regulations and changes in industry productivity will also have an impact.
3.3.2 Most macroeconomic forecasters expect the euro-sterling exchange rate to stay around current levels (ยค1=70p) and at this level farm incomes should stay at a broadly similar level to those experienced in 2003. However, exchange rates are inherently uncertain and so such a forecast is highly uncertain. CAP reform implementation will be particularly important and will provide an opportunity for farmers to respond to market signals thereby producing products that consumers demand rather than producing those that they have historically produced, or which attract larger subsidies. This more market orientated approach will result in restructuring of the industry in response to CAP reform and other market pressures should increase the average profitability of farms. There is likely to be a large amount of variation around the average figure however with some farms and farming sectors benefiting more from CAP reform and others doing less well.
3.4 Farm gate prices
3.4.1 The price received by producers for their livestock and livestock products is only one contributing factor to the profitability of an enterprise, others include - costs of livestock, feed, land, buildings, equipment, labour, vets, medicines, fees, taxes, bank charges, insurance, quota purchasing/leasing, levy payments, fuel, water, subsidies received etc. Any animal health and welfare policies or regulations need to be assessed in terms of how all these factors might be affected. For farming to be sustainable the prices received by producers need to be sufficient for producers to achieve an adequate income once all the costs associated with producing that product have been taken into account. Prices are affected by many factors including supply and demand for the product (at all levels from local to international markets), inflation and currency exchange rates. As part of building a sustainable food and farming industry consideration will need to be given to how animal health and welfare policies and regulations in Great Britain could put producers in this country at an advantage, or disadvantage, to producers in other countries.
3.4.2 The following charts illustrate how farm gate prices have fluctuated since 1990. Prices for some commodities are distinctly seasonal (e.g. sheep prices), but others are less so (e.g. poultry prices). Prices can be affected by exchange rates (e.g. in 1996/97 the sterling - euro exchange rate was very favourable and prices in Great Britain tended to be higher). They can also be affected by changes in the nature of the CAP support mechanism in operation e.g. the ending of Sheepmeat Variable Premium and its complete replacement by Sheep Annual Premium in 2002, demand shocks like the concern over BSE and supply shocks like the outbreak of Foot and Mouth disease. Over the period shown clean cattle prices have fluctuated between 78 and 141 pence per kg (liveweight), clean sheep prices have fluctuated between 108 and 380 pence per kg (deadweight) milk prices have fluctuated between 14.6 and 26.0 pence per litre.
Figure 3.4.1: Monthly livestock prices
Source: Defra, MLC
Figure 3.4.2: Monthly prices of milk, eggs and poultry
Source: Defra, NFU
3.5 Expenditure on veterinary and medical products and services
3.5.1 The Farm Business Survey in England and Wales and the Farm Accounts Scheme in Scotland collects data on farm annual expenditure on all veterinary fees and medicines purchased. It is not possible to identify these two components and so whilst the following analysis will provide some evidence on usage of veterinary services, it will also reflect medicines purchased from other sources (e.g. purchasing direct from merchants, distributors, farmer cooperatives etc) and it will not include the cost of medicated feeds used in the intensive livestock sectors, i.e. pigs and poultry.
3.5.2 It is also not possible to draw conclusions regarding the drivers for differing levels of expenditure on veterinary and medical products and services. Expenditure may be either to treat a specific disease or animal health problem or it may be of a preventative nature. There are other factors, e.g. husbandry skills, which are important determiners of the health and welfare status of a farm.
3.5.3 The data suggest that there has been an overall slight downward trend in expenditure per livestock unit on veterinary and medical products and services between 1996 and 2002 (latest available data). Overall, dairy farms tend to spend more than the average of all farm types. This probably reflects the more intensive hygiene demands and veterinary involvement in that sector. Cattle and sheep farms, on average, spend less than the average for all types of farm, as do pig and poultry farms. However, this may be an underestimate for the intensive livestock sector as it does not include the cost of medicated feeds. There will also be variation around this average position for individual farms.
Figure 3.5.1: Average veterinary and medical costs per livestock unit in Great Britain, real terms
Source: Farm Business Surveys, GB
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