The Scottish Government

Agricultural and Farm Classification and the Farm Accounts Survey.

Why are farms classified?

Farms are classified into groups according to type and size to allow analysis of the sector. The Farm Accounts Survey (FAS) uses UK farm classification typology to group together similar farms to allow comparisons between results for different groups of farms. The UK farm classification system is designed so that the farms in the same group are as similar as possible and farms in different groups are as different as possible. Because it is not practical to examine each farm individually it would be impossible to carry out meaningful analysis of questions like the following without classification:

• Is the number of small farms shrinking?
• How many sheep farms are there in the Scotland ?
• How will small cattle farms be affected by new government policy?
• Are large farms more profitable?
• How diversified are cereal farms?

Results of the FAS presented using the UK farm classification system are published each year in Farm Incomes in Scotland (the most recent copy of which may be found at www.scotland.gov.uk). The other primary user of the UK farm classification system is the June Agricultural and Horticultural Census.

How does the UK farm classification system work?

Four different kinds of classification need to be considered.

1. Classification of Agricultural Businesses by Type
2. Classification of Agricultural Businesses by Size

A. Classification of Agricultural Businesses by Type

Classification of Agricultural Businesses by type is a relatively simple process when only one agricultural enterprise type is present on a farm. However, when more than one enterprise type is present (for example both pigs and poultry), a system is needed for deciding how to classify the resulting Agricultural Business.

This means that a system is needed for weighting the relative contributions of different crop or livestock types to the Agricultural Business as a whole. The UK system is based on weighting contributions by the profit associated with them. Standard Gross Margins (SGMs) are calculated per hectare of crops and per head of livestock and used to calculate the standard profit associated with each part of the Agricultural Business.

What are SGMs and how are they calculated?

Information on individual margins for each farm is not available, so standard figures for different livestock and crop types are used. SGMs are representative of the level of profit that could be expected on the average farm under "normal" conditions (i.e. no disease outbreaks or adverse weather). Different SGMs are calculated for Scotland , North England , East England , West England , Wales , and Northern Ireland to allow for the differences in profit in different areas.

SGMs reflect the "gross margin" expected, which means that they reflect the value of output minus the variable costs directly associated with producing that output. Variable costs are costs that vary in approximately direct proportion to the scale of production, for example seed, fertiliser and feed.

Until 2004, the SGMS used in the FAS for classification were based on a three-year average centred on 1988. The SGMs now in use are based on a five-year average centred on 2000. SGMs are based on a five-year average in order to lessen the impact of yearly fluctuations on calculated SGMs.

The 2000 SGMs for Scotland can be seen in Annex 1.

How are Agricultural Businesses classified into different types?

Farm classification is based on the relative importance of the various crop and livestock enterprises on each farm assessed in terms of standard gross margin. The method of classifying each farm is to multiply the area of each crop (other than forage) and the average number of each category of livestock by the appropriate standard gross margin, the proportions of the total contributed by the various enterprises determining the type of farm. The list below defines the main types that are used when presenting the results of the FAS ¹.

1. Changes were made to the classification system in 2004, the key ones for the FAS being the extension of cattle and sheep types to include other grazing livestock (including goats and deer).

For Example:

The UK classification system for Agricultural Business Types is closely related to the Eurostat method used at EU-level, but there is a slightly different list of farm types to reflect UK agriculture, and a slightly different set of calculated SGMs is used.

B. Classification of Agricultural Businesses by Size

For the purpose of classifying Agricultural Businesses according to size, a different system of combining different enterprise types is used. Enterprise types are added together according to how much labour they use. This means that Agricultural Business is classified according to whether they are e.g. a one-person Agricultural Business or a three-person Agricultural Business. Standard Labour Requirements (SLRs) are calculated for different livestock and crop types, and used to find the total amount of standard labour used on the farm.

What are SLR coefficients and how are they calculated?

Information on individual labour usage by enterprise on each farm is not always available and could vary across farms, for example depending on the extent to which the farmer chose to substitute machinery for labour. Standard figures for the labour requirements associated with different livestock and crop types are therefore used, on an hours per-head or per-hectare basis. SLR coefficients are representative of labour requirements under typical conditions for enterprises of average size and performance. SLR coefficients are generally standard across the UK , but are 50% higher for field enterprises in Northern Ireland to reflect smaller field size.

The SLR coefficients for different enterprise types can be seen in Annex 1

How are Agricultural Businesses classified into different sizes?

Once the total annual SLR figure for an Agricultural Business has been calculated (by multiplying the numbers of different livestock or numbers of hectares of different crops by the relevant SLR coefficients and then adding the results together), the number of hours can be converted to an equivalent number of full-time workers (on the basis that a full-time worker works a 39 hour week and so 1900 hours a year).

This leads to the classification of farms by number of full-time equivalent (FTE) workers as follows:

Very Small <0.5 FTE Spare Time

0.5 to <1 FTE Part Time

Small 1 to <2 FTE Full Time

Medium 2 to <3 FTE Full Time

Large 3 to <5 FTE Full Time

Very Large 5 or more FTE Full Time

The Very Small category is further classified into Spare Time Agricultural Businesses (<0.5 FTE) and Part Time Agricultural Businesses (0.5 to <1 FTE). All the larger classifications represent various sizes of Full Time Agricultural Businesses.

The UK system for classifying Agricultural Businesses by size using SLRs provides a more intuitive description of farm size, particularly the difference between Full and Part Time Agricultural Businesses, than the Eurostat system, which uses a method based on SGMs.

SEERAD ASD-3

January 2005

Annex 1: 2000 SGMs and SLR coefficients for Scotland (figures in £ for SGMs and hours per unit of production for SLR coefficients)