Section B Financial results by type of farms 2006-07
Introduction
This section contains the latest financial results from the Farm Accounts Survey ( FAS) relating to the farming years 2005-06 and 2006-07.
The farm income estimates are produced from an analysis that relates to two samples of farms of 485 in 2005-06 and 458 in 2006-07, representing full-time farms of all of the main types in Scotland (excluding horticulture, specialist pigs and poultry farms). The majority of farms participated in both years, although there was a decrease in the number of responses in 2006-07, which introduces some sample variability into the results when considering annual trends.
The quality of information collected from each farm is very high, based on fully reconciled farm accounts. Data for each farm is also validated against a comprehensive set of quality assurance checks. Some information on non-cash items, such as input of family labour, is estimated. The survey has been designed to be representative at the national level, however results by each of the 8 farm types reported by the survey ought to be treated with some caution, especially when based on small sample sizes.
The survey is not carried out on a calendar-year basis but based on farms' financial years. The exact period covered by the survey for any given year will vary across the sample depending on individual businesses' accounting year ends, although they all centre on the same cropping period (see diagram in Annex 1).
The main income measure reported is Net Farm Income ( NFI). NFI is defined as the returns to the farmer and spouse for their manual and managerial labour, and for the tenant-type assets invested by them in the business (see flow-chart in Annex 2). It is before the deduction of any interest payments. All farms are assumed to be tenanted in order to put them on the same basis when assessing their performance, and so an appropriate rent has been imputed and charged on owner occupied holdings. The principal advantage of NFI as an indicator is that it can be compared across all farms as it takes account of the different tenure, labour supply and finance arrangements of different farms. Machinery depreciation is calculated on current values and breeding livestock stock appreciation is excluded from NFI in accordance with established practice.
NFI is a narrower income measure than the aggregate-level Total Income From Farming ( TIFF) estimate, and as a consequence the annual percentage change in NFI is more volatile, especially at relatively low levels of income.
Further analysis of the 2005-06 and 2006-07 results from the Farm Accounts Survey are contained in the 'Farm Incomes in Scotland 2006-07' publication, available at: http://www.scotland.gov.uk/Topics/Statistics/Browse/Agriculture-Fisheries/PubFarmIncomes
Public Consultation on Farm Income Measures
The Scottish Government undertook a public consultation on farm income measure between November '06 and February '07, publishing a final response on 18th September 2007. This response along with all other consultation documents is available at the following web address : http://www.scotland.gov.uk/Topics/Statistics/Browse/Agriculture-Fisheries/Consultation
One main conclusion from this consultation is to replace Net Farm Income with a new measure called Farm Business Income ( FBI), which will better reflect actual incomes of farm businesses. Estimates of FBI are currently under development and will be published as soon as they are available.
The public consultation also concluded that although FBI will replace NFI as the headline farm business measure, although estimates of NFI will continue to be published, at least in the medium term.
NFI Analysis
The following commentary relates to figures shown in Table B1, which provides a detailed analysis of Net Farm Income ( NFI) by 8 different farm types.
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.
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 per cent), little change in Single Farm Payments ( 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).
Specialist beef ( LFA)
NFI increased by £1,845 from £12,576 in 2005-06 to £14,421 in 2006-07. The increase in outputs of £5,150 was greater 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).
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).
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 farms, 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).
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).
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).
Dairy
NFI increased by £12,141 from £21,318 in 2005-06 to £33,459 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).
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) as there was a small corresponding increase in inputs (up £1,462). There were 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).
All types
Although Table B1 does not show results combined across all farm types, the following commentary provides an overall assessment.
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 per cent) countered by increases in Single Farm Payments ( SFPs) of £1,182.
Tenant's Capital
Table B2 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.
Balance Sheet Data
The opening and closing balance sheets from 2006-07 are shown in tables B3 to B6. These show the average results by farm type for owner occupied, tenanted and mixed tenure categories and for all tenures combined. Although these tables do not show the overall results across all farm types, an overall assessment is contained in the commentary below.
In relation to Table B3, the overall value of total assets for owner-occupied farms increased by 4.6 per cent 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 per cent from £92,329 to £96,158. This combines to provide an increase in net worth of 4.7 per cent and with total external liabilities remaining at around 12 per cent of total assets.
Net worth increased across all farm types ranging from increases of 0.5 per cent for General Cropping to 7.9 per cent for Cereal farms. The 2006-07 closing valuations show total external liabilities as a percentage of total assets ranging from 7 per cent for Cereal to 23 per cent for Cattle and Sheep ( LFA) farms.
In relation to tenanted farms in Table B4, overall net worth, total assets and external liabilities all increased by 3.3 per cent. In 2006-07, average total assets were £241,844, external liabilities were £46,374 and net worth was £195,471. External liabilities as a percentage of total assets averaged at 19.2 per cent, ranging from 10 per cent for Specialist Sheep ( LFA) to 39 per cent for Cereal farms.
In relation to mixed tenure farms in Table B5, overall there was a 5.5 per cent increase in total assets to £744,300 and a 3.3 per cent decrease in external liabilities to £94,633, which combine to provide a 6.9 per cent increase in net worth of £649,667. External liabilities as a percentage of total assets averaged at 12.7 per cent, ranging from 5 per cent for Specialist Sheep ( LFA) to 18 per cent for Dairy farms.
In relation to farms of all tenures in Table B6, there was a 4.7 per cent increase in total assets and a 2.2 per cent increase in external liabilities, combining in a 5.1 per cent increase in net worth of £574,313. The average external liability was £83,925, which represents 12.7 per cent of average total assets of £658,238. External liabilities as a percentage of total assets ranged from 10% for Specialist Sheep ( LFA) to 22 per cent for Lowland Cattle and Sheep farms.
Cash Income, Flow of Funds and Net Profit
Tables B7 to B10 give an analysis of the flow of funds and net profit for farm businesses by tenure and type. Although these tables do not show the overall results across all farm types, the commentary below focuses on the overall assessment.
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.
In relation to table B7, the overall 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).
In relation to Table B8, the overall 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).
In relation to Table B9, the overall 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).
In relation to Table B10, across all farm types and tenures, overall 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.
Distribution of farms by Net Farm Income, Net Profit and Cash Income
Table B11(a) shows the distribution of NFI between farms in 2006-07. Around 23.3 per cent of farms overall had a negative NFI, which ranged by farm type from 16.7 per cent for Cereal and 17.3 per cent for Dairy farms to 45.3 per cent 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 per cent with an NFI of over £50k, compared to 7.1 per cent of medium farms and 1.3 per cent of small farms. Small farms were more likely to have a negative income, with 29.4 per cent showing NFI of less than zero, compared to 15.3 per cent of medium farms and 18.0 per cent of large farms.
Tables B11(b) and B11(c) show the distribution in net profit and cash incomes between farms in 2006-07 respectively. 11.6 per cent of farms had a negative net profit in 2006-07, and 7.0 per cent 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.
Net Farm Income, Output and InputPerformance by Quartile
Tables B12(a) through to B12(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 per cent 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 per cent lower than for the upper quartile, and total inputs were 24 per cent higher. For the better performing groups of farms, input cost was 73 per cent of total output compared to 82 per cent for the sample average and 102 per cent 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 the following web address: http://www.scotland.gov.uk/Topics/Agriculture/benchmarking/Benchmarkinglink
Non-Farming Income
Tables B13 and B14 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. Note, that as the non-farming income information is recorded in income ranges rather than absolute values, group averages will be less reliable than for other figures presented in this section.
Table B13 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 per cent), with 'Off-farm Investments, Pensions and Other' accounting for 37 per cent and 'On-farm non-farming activities' 16 per cent. 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 B14 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 per cent of all farms having no income other than from traditional farming, and around 14 per cent having a non-farm income of £20,000 or more. The most common range was £10,000 - £20,000, with 21 per cent of the farms in the sample.