SUMMARY OF THE 2006/07 FARM ACCOUNTS SURVEY ( FAS) RESULTS
Net Farm Income ( NFI) estimates are produced annually from the Farm Accounts data with the main aim of providing information on trends across years. NFI is calculated by subtracting inputs ( i.e. what is used to produce a farm's output including labour, feed, machinery etc) from output ( i.e. crops, cattle output and also subsidies and payments).
In 2006/07, 458 farms participated in the survey compared with 485 in 2005/06. The majority of farms participated in both years, although the decrease in the number of responses in 2006/07 introduces some sample variability into the results when considering annual trends.
NET FARM INCOME & CASH INCOME
Table 1 shows results of Net Farm Income ( NFI) and Cash Income by farm type, along with information on FAS sample sizes and the corresponding total number of farms in Scotland recorded by the 2006 June Census. These sample and population numbers are used to weight the results to produce overall averages.
Overall, NFI has increased from £10,812 in 2005/06 to £18,890 in 2006/07. There were increases in all farm types other than LFA Specialist Sheep (down £3,218) and LFA Mixed Cattle and Sheep (down £338). The largest absolute increases were for General Cropping (up £28,310) and Cereals (up £19,228).
In comparison, overall Cash Income showed a smaller increase from £31,816 to £34,245. General Cropping (up £13,879) and Cereal (up £9,836) farms showed the largest absolute increases, whilst decreases were reported for all the LFA farm categories : LFA Cattle and Sheep (down £4,353), LFA Specialist Sheep (down £3,982) and LFA Specialist Beef (down £653).
NET FARM INCOME, OUTPUT & SUBSIDY AND PAYMENTS
Table 2 shows how farm subsidy and payments relate to NFI and total Output. In 2006/07, overall subsidy and payments averaged £38,400, ranging from £22,700 for LFA Specialist Sheep to £48,900 for LFA Mixed Cattle and Sheep farms. There was little change in the overall subsidy and payment estimate of £37,900 in 2005/06, however in that year this was three and a half times greater than the NFI estimate compared to double in 2006/07.
In 2006/07, overall subsidy and payments accounted for 29% of total Output, ranging from 14% for Dairy to 47% for LFA Specialist Sheep farms. Overall there was a slight decrease from the corresponding figure of 31% in 2005/06.
DETAILED NET FARM INCOME ASSESSMENT BY FARM TYPE
The following commentary relates to figures shown in tables (3a) to (3i) and provides a more detailed assessment of NFI results by farm type.
ALL TYPES
Overall, NFI increased by £8,078 in 2006/07, with increases in outputs of £11,393 far greater than corresponding increases in inputs of £3,453. The main contributors to the increase in outputs were Cattle (up £4,335), Cereals (up £3,309) and Potatoes (up £3,140). On the input side, the largest increases were for Animal Feed (up £1,486) and Machinery (up £1,001). There were increases across all other input costs with the exception of Machinery depreciation. Overall there was a small increase of £452 in subsidy and payments, with large reductions in LFASS payments of £1,663 (down 34%) countered by increases in Single Farm Payments ( SFPs) of £1,182.
It should be noted that the 2006/07 results reflect the re-alignment of LFASS payments towards the end of the 2007 calendar year, with only the earlier LFASS supplement payments being reported in the 2006/07 results. This has a greater impact on LFA farm types.
In 2006/07, Large farms showed the greatest absolute increase in NFI (up £15,858), with Medium (up £4,484) and Small (up £4,185) farms showing similar increases. In relative terms, Small farms showed the largest increase, almost doubling NFI from 2005/06.
SPECIALIST SHEEP ( LFA)
NFI decreased by £3,281 from £4,759 in 2005/06 to £1,478 in 2006/07. This was due to a combination of a decrease in outputs of £2,539 and an increase in inputs of £742. On the output side, there was a decrease in subsidy and payments of £1,691, with a large decrease in LFASS payments of £2,153 (34%), little change in SFPs and an increase in other payments and subsidies of £492. Livestock output showed a decrease in Sheep (down £966) and an increase in Cattle (up £688), whilst crop output showed an increase of £423. On the input side, the biggest increases were for Machinery costs and depreciation (up £1,627), although there were also decreases, most notably for Labour (down £606), Land and Building costs (down £264) and Animal Feed (down £213).
In 2006/07, Medium farms showed the greatest absolute decrease in NFI (down £5,430), followed by Large (down £3,910) and Small (down £2,557) farms. Results for both 2005/06 and 2006/07, show that Medium farms have the highest NFI, followed by Large and then Small farms.
SPECIALIST BEEF ( LFA)
NFI increased by £1,845 from £12,576 in 2005/06 to £14,421 in 2006/97. The increase in outputs of £5,150 was greater than the corresponding increase in inputs of £3,306. The biggest increase in outputs was for Cattle (up £5,131) and there was also an increase in Crops (up £1,656). There was an overall decrease in subsidy and payments (down £1,004), with the decrease in LFASS payments (down £2,862) greater than the increase in SFPs (up £1,796). On the input side, the largest increase was for Animal Feed (up £1,130), with other increases including Labour (up £585), Land and Building costs (up £562), Other Livestock Expenses (up £558) and Machinery (up £556). The only notable reductions in inputs were for Miscellaneous costs (down £290) and Machinery depreciation (down £192).
In 2006/07, the biggest increase in NFI was for Small farms (up £2,947), with little change reported for Medium and Large farms. In 2006/07, the NFI of Small farms (£9,039) was similar to that of Medium farms (£9,299).
CATTLE AND SHEEP ( LFA)
NFI showed a small decrease of £338 from £11,685 in 2005/06 to £11,347 in 2006/07. This was due to the rise in input costs (up £1,322) being slightly greater than the rise in output (up £983). On the output side the main increases were for Cattle (up £2,511) and Sheep (up £970). However, these were countered by an overall reduction in subsidy and payments (down £2,760), with decreases in LFASS (down £4,113) and SFPs (down £579) greater than increases in other subsidy and payments (up £1,931). On the input side the largest increases were for Machinery costs (up £830) and Animal Feed (up £798). There were also decreases in inputs, most notably for Fertilisers (down £598).
In 2006/07, there was an increase in NFI for Medium farms (up £1,296) and a decrease for Large farms (down £1,122), with little change for Small farms.
CEREALS
There was a large increase in NFI of £19,229, from £3,052 in 2005/06 to £22,280 in 2006/07. This was mainly due to an increase in outputs (up £14,376), although input costs also decreased (down £4,853). The main increase in outputs was for Cereals (up £14,469), with other notable increases for Other Crops (up £2,433), overall Subsidy and Payments (up £1,149) and Livestock (up £918). There was a decrease in Miscellaneous outputs (down £4,719). The main reduction in input costs were for Machinery Depreciation (down £2,380), Labour (down £1,963) and Land and Building Costs (down £1,254), whilst the main increase was for Animal Feed (up £1,022).
In 2006/07, the greatest increase in NFI was for Large farms (up £57,923), with similar increases for Medium (up £16,931) and Small (up £14,133) farms. In 2006/07, NFI was much greater for Large farms (£60,639) compared to Medium (£22,969) and Small (£16,758) farms, whereas in 2005/06 Medium farms had the highest NFI.
GENERAL CROPPING
There was a large increase in NFI of £28,310, from £8,189 in 2005/06 to £36,499 in 2006/07. This was due to increases in outputs (up £38,929) being far greater than corresponding increases in inputs (up £10,620). The main increase in outputs was for Potatoes (up £26,770), with other notable increases for Cereals (up £5,772) and Other Crops (up £1,604), Cattle (up £2,414) and Subsidy and Payments (up £1,449). There were increases across most input costs, with the biggest absolute increases in Machinery (£2,911), Land and Building costs (up £2,126), Machinery Depreciation (up £1,480), Animal Feed (up £1,231) and Seeds (up £1,098).
In 2006/07, there was a huge increase in NFI for Large farms (up £80,527), compared with much smaller increases for Medium (up £2,156) and Small (up £493) farms.
DAIRY
NFI increased by £12,141 from £21,318 in 2005/06 to £33,458 in 2006/07. This was due to the increase in outputs (up £16,935) being greater than the corresponding increase in inputs (up £6,084). The biggest increases in outputs were for Cattle (up £6,340), Milk (up £3,931) and Total Crops (up £1,638), whilst there was also an increase in SFPs (up £6,347) for farms in the sample. The biggest increases in input costs were for Animal Feed (up £4,421), Machinery (up £2,023) and Other Livestock Expenses (up £1,483), whilst the biggest decreases were reported for Land and Building costs (down £1,291) and Machinery Depreciation (down £698).
In 2006/07, increases in NFI were similar across Large (up £12,813), Medium (up £11,792) and Small (up £9,508) farms. In the case of Small farms, NFI changed from a negative value in 2005/06 of -£4,083 to a positive value of +£5,424 in 2006/07.
LOWLAND CATTLE AND SHEEP
Trends in NFI for Lowland Cattle and Sheep farms need to be treated with some caution, as within the small sample of 11 farms, there are 2 more Large farms and 2 less Small farms in 2006/07. This is reflected in the characteristics of the farm, with the average farm size increasing from 84 ha to 171 ha and the average number of livestock increasing by 80 ewes, 19 suckler cows and 14 other cattle.
Overall, NFI increased by £11,429 from £9,791 in 2005/06 to £21,220 in 2006/07. This was due to the increase in outputs (up £36,195) being greater than the corresponding increase in inputs (up £24,767). The greatest increase in outputs was for Cattle (up £21,579), Sheep (up £4,073) and Cereals (up £2,704), along with an increase in SFPs (up £6,961). There were increases across most inputs, the largest being for Labour (up £5,178), Land and Building costs (up £4,569), Machinery (up £4,164), Animal Feed (up £3,867), Fertilisers (up £2,401) and Other Livestock Expenses (up £2,265).
MIXED
NFI increased by £6,150 from £14,372 in 2005/06 to £20,521 in 2006/07. This was mainly due to an increase in outputs (up £7,611) and a small increase in inputs (up £1,462). There were also increases in crop outputs for Cereals (up £3,167) and Other Crops (up £1,250), whilst for livestock there was an increase for Cattle (up £7,144) and a decrease for Milk (down £3,414). There was also a decrease in Miscellaneous output (down £1,569). Whilst there was little overall change in subsidy and payments, a decrease in LFASS payments (down £1,234) was countered by increases in other payments. The main changes in input costs include an increase in Animal Feed (up £2,355) and a decrease in Machinery Depreciation (down £1,641).
In 2006/07, the biggest increase in NFI was for Large farms (up £9,277), followed by Small (up £5,561) and then Medium (up £2,002) farms.
DISTRIBUTION OF FARMS BY NET FARM INCOME, NET PROFIT AND CASH INCOME
Table 4(a) shows the distribution of NFI between farms in 2006/07. Around 23.3% of farms overall had a negative NFI, which ranged by farm type from 16.7% for Cereal and 17.3% for Dairy farms to 45.3% for Specialist Sheep ( LFA) farms. [This excludes Lowland Cattle and Sheep farms for which sample sizes are too small to draw reliable conclusions.]
A greater proportion of large farms were in the higher income ranges, with 24.6% with an NFI of over £50k, compared to 7.1% of medium farms and 1.3% of small farms. Small farms were more likely to have a negative income, with 29.4% showing NFI of less than zero, compared to 15.3% of medium farms and 18.0% of large farms.
Tables 4(b) and 4(c) show the distribution in net profit and cash incomes between farms in 2006/07 respectively. 11.6% of farms had a negative net profit in 2006/07, and 7.0% had a negative cash income. As with NFI, there was a greater proportion of large farms in the highest net profit and cash income ranges.
TENANT-TYPE CAPITAL
Table 5 shows that the average value of tenant-type capital investment for 2006/07 was £150,454 per farm, with the greatest investment in Machinery (£54,063) followed by Breeding Livestock (£40,262) and Trading Livestock (£35,754).
Tenant-type capital investment ranged by farm type from Specialist Sheep ( LFA) (£58,221) to General Cropping (£187,662) and Dairy (£194,057) farms.
Note that machinery is shown at depreciated current values. Although breeding livestock appreciation had been omitted from NFI, it has been included in the calculation of average tenant-type capital and therefore the two sets of figures are not on the same basis.
BALANCE SHEET DATA
The opening and closing balance sheets from 2006/07 are shown in tables 6(a) to 6(d). These show the average results by farm type for owner occupied, tenanted and mixed tenure categories and for all tenures combined.
Table 6(a) shows that during 2006/07, the value of total assets for owner-occupied farms increased by 4.6% from £770,285 to £806,054, mainly due to an increase in land and buildings (up £24,392). Total external liabilities increased by 4.1% from £92,329 to £96,158. This combines to provide an increase in net worth of 4.7% and shows total external liabilities remaining at around 12% of total assets.
Net worth increased across all farm types ranging from increases of 0.5% for General Cropping to 7.9% for Cereal farms. The 2006/07 closing valuations show total external liabilities as a percentage of total assets ranging from 7.5% for Cereal to 23.2% for Cattle and Sheep ( LFA) farms.
Table 6(b) shows that for tenanted farms during 2006/07, net worth, total assets and external liabilities all increased by 3.3%. The 2006/07 values show average total assets at £241,844, external liabilities at £46,374 and net worth at £195,471. External liabilities as a percentage of total assets averaged at 19.2%, ranging from 9.9% for Specialist Sheep ( LFA) to 39.3% for Cereal farms.
Table 6(c) shows that in 2006/07, for farms of mixed tenure, overall there was a 5.5% increase in total assets to £744,300 and a 3.3% decrease in external liabilities to £94,633, which combine to provide a 6.9% increase in net worth of £649,667. External liabilities as a percentage of total assets averaged at 12.7%, ranging from 5.3% for Specialist Sheep ( LFA) to 18.1% for Dairy farms.
Table 6(d) shows combined results across all tenures. For 2006/07, there was a 4.7% increase in total assets and a 2.2% increase in external liabilities, combining in a 5.1% increase in net worth of £574,313. The average external liability was £83,925, which represents 12.7% of average total assets of £658,238. External liabilities as a percentage of total assets ranged from 9.6% for Specialist Sheep ( LFA) to 22.2% for Lowland Cattle and Sheep farms.
CASH INCOME, FLOW OF FUNDS, AND NET PROFIT
Tables 7(a) to 7(d) give an analysis of the flow of funds and net profit for farm businesses by tenure and type. For the flow of funds, the assumption that all farms are tenanted that is made in the NFI calculation is disregarded, and interest paid and net investment spending are charged but depreciation on plant or machinery, and other imputed costs are not deducted. This provides a flow of funds more directly related to farmers' financial situation.
Overall, the average cash income of owner-occupied farms increased by £1,881 compared to a £6,691 increase in NFI. Cash income shows less of an increase than NFI, as there has been a reduction in inputs costs not involving cash outlay in 2006/07, which are not included in the cash income measure. Compared to cash income, the average flow of funds shows a greater increase of £3,014. This is because the reduction in 'Net cash from non-farming resources' (£2,654), has been more than countered by a reduction in 'Net investment spending' (£1,265) and a greater 'Increase in borrowing' (£2,522). The increase in 'Net Profit' (£6,812) is similar to the increase in NFI (£6,691).
Overall, the average cash income of tenanted farms decreased by £1,831 compared to a £785 decrease in NFI. Cash income shows more of a decrease than NFI, as there has been a reduction in inputs costs not involving cash outlay in 2006/07, which are not included in the cash income measure. Compared to cash income, the average flow of funds shows an increase of £1,457. This is because the increase in 'Net investment spending' (£2,341), has been more than countered by a greater 'Increase in borrowing' (£3,815) and an increase in 'Net cash from non-farming resources' (£1,814). The decrease in 'Net Profit' (£350) is similar to the decrease in NFI (£785).
Overall, the average cash income of farms of mixed tenure increased by £5,608 compared to a £10,009 increase in NFI. Cash income shows less of an increase than NFI, as there has been a reduction in inputs costs not involving cash outlay in 2006/07, which are not included in the cash income measure. Compared to cash income, the average flow of funds shows a decrease of £2,120. This is because there has been a large increase in 'Net investment spending' (£5,195), coupled with a decrease in 'Borrowing' (£3,827) and a smaller increase in 'Net cash from non-farming resources' (£1,294). The increase in 'Net Profit' (£10,759) is similar to the increase in NFI (£10,009).
Overall, across all farm types and tenures, average cash income increased by £1,758 compared to a £5,565 increase in NFI. Cash income shows less of an increase than NFI, as there has been a reduction in inputs costs not involving cash outlay in 2006/07, which are not included in the cash income measure. Compared to cash income, the average flow of funds shows a similar increase of £1,585. This is because the increase in 'Net investment spending' (£923) and reduction in 'Net cash from non-farming resources' (£775), have been countered by an increase in 'Borrowing' (£1,525).
Corresponding changes by particular farm types across different types of tenure vary quite a lot from the overall assessment, although these ought to be treated with caution as they are based on small sample sizes and there are some changes in the farms in the sample between the years.
NET FARM INCOME OUTPUT AND INPUT PERFORMANCE BY QUARTILE
Tables 8(a) through to 8(d) have been included to show output, inputs, NFI and cash income according to whether the farm is in the highest or lowest performing 25% of the farms in the survey sample, by farm type.
NFI for the lowest performing quartile across all farm types was negative. In 2006/07, this ranged from -£15,547 for Specialist Sheep ( LFA) to -£3,291 for Cereals. Conversely, NFI for the highest performing quartile ranged from £19,612 for Specialist Sheep ( LFA) to £92,142 for Dairy farms.
Interpretation of all the figures is not given in this text for all farm types. However by way of example, for General Cropping farms, it can be seen that the average area of crops in the lower quartile is lower than for the upper quartile, although the number of livestock is higher.
In General Cropping farms, total output for the lower quartile was 11% lower than for the upper quartile, and total inputs were 24% higher. For the better performing groups of farms, input cost was 73% of total output compared to 82% for the sample average and 102% for the lower quartile.
Put another way, for every £1 spent on inputs, the top performing farms by NFI for the General Cropping farms produce £1.36 of output, compared to £1.22 for the sample average and £0.98 for the lower performing farms, with the implication that better performance in relation to NFI is associated with much lower input costs.
The individual output and input value categories may also be used to benchmark individual farm businesses to the better and lower performing categories by farm type. Further benchmarking data using farm accounts data is available at :
http://www.scotland.gov.uk/Topics/Agriculture/benchmarking/Benchmarkinglink
NON-FARM INCOME
This section presents information on the non-farming activities and incomes of farmers and spouses participating in the Farm Accounts Survey. Participants were asked to indicate into which of ten income ranges the joint non-farming income of the farmer and spouse fell for each of seven separate sources of income. The sources of income are listed in the Appendix and include on-farm non-agricultural income as well as off-farm income. Note, that the non-farming income information is recorded in income ranges rather than absolute values, so group averages will be less reliable than for other figures presented in this publication.
Table 9 displays the approximate levels of income from non-farming activities according to farm type and farm size. Overall, the non-farming income of the farmer and spouse both on and off the farm, averaged £10,316 in 2006/07, showing a reduction from the 2005/06 average of £11,800. Almost half of this income was earned from 'Off-farm Employment and Self-Employment' (48%), with 'Off-farm Investments, Pensions and Other' accounting for 37% and 'On-farm non-farming activities' 16%. In 2006/07, non-farming income ranged by farm types from Dairy (£7,762) to Lowland Cattle and Sheep (£14,728). The highest level of non-farm income was for Small farms (£11,154), followed by Large (£9,674) and Medium (£8,867) farms.
Table 10 shows the distribution of this non-farm income by farm type and farm size. As one would expect there is considerable variation between farms, with 19% of all farms having no income other than from traditional farming, and around 14% having a non-farm income of £20,000 or more. The most common range was £10,000 - £20,000, with 21% of the farms in the sample.