SUMMARY OF THE 2007/08 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 2007/08, 442 farms participated in the survey compared with 472 in 2006/07. The majority of farms participated in both years, although the decrease in the number of responses in 2007/08 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 2007 June Census. These sample and population numbers are used to weight the results to produce overall averages.
Overall, NFI has increased from £19,786 in 2006/07 to £29,828 in 2007/08. There were increases in all farm types other than Lowland Cattle and Sheep, although figures for this farm type are based on a very small number of farms. The largest absolute increases were in Specialist Cereals (up £24,471) and Dairy (up £20,036), which reflect the high price of cereals and milk in 2007/08.
In comparison, overall Cash Income increased from £35,478 in 2006/07 to £44,802 in 2007/08. Cereal farms showed the largest absolute increase of £30,651 from £40,090 in 2006/07 to £70,741 in 2007/08. Specialist Beef farms were the only type to show a fall in Cash Income (down £2,217).
NET FARM INCOME, OUTPUT & SUBSIDY AND PAYMENTS
Table 2 shows how farm subsidy and payments relate to NFI and total Output. In 2007/08, overall subsidy and payments averaged £41,182 per farm, an increase of 8.5 per cent from £37,987 in 2006/07. The subsidy and payments ranged from £31,165 for LFA Specialist Sheep to £55,463 for LFA Mixed Cattle and Sheep farms.
Overall, the level of subsidy and payments as a percentage of output remained fairly stable at 27 per cent in 2007/08, compared to 28 per cent in 2006/07. In 2007/08 this ranged by farm type from 11 per cent for Dairy to 53 per cent for LFA Specialist Sheep farms.
In 2006/07, overall subsidy and payments were almost double the NFI estimate, whereas in 2007/08 they were about a third higher.
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 £10,042 in 2007/08, with increases in outputs of £16,423 greater than corresponding increases in inputs of £6,381. The main contributors to the increase in outputs were Cereals (up £10,703) and Milk (up £3,394). There was a £2,038 fall in potato output from 2006/07. On the input side, the largest increases were for Animal Feed (up £3,414) and Machinery (up £1,369). Overall there was an increase of £3,195 in subsidy and payments, over half of which was due to increases in LFASS payments (£1,597).
It should be noted that results for 2007/08 incorporate higher LFASS payments compared to 2006/07. Overall there is a 50 per cent increase in LFASS payments, as 2007/08 includes core LFASS payments, whereas 2006/07 only includes the one-off supplement payment associated with the re-alignment of LFASS payments towards the end of the 2007 calendar year. Furthermore, the 2007/08 figures include payments made under the Scottish Ewe Scheme. This scheme was introduced in November 2007 and was a package of measures designed to help the sheep sector recover from the crisis resulting from the foot and mouth outbreak in England. The scheme offered farmers £6 per breeding ewe, with a total cost estimated at £19 million.
In 2007/08, Large farms showed the greatest absolute increase in NFI (up £14,930), followed by Medium farms (up £12,777) then Small farms (up £5,956). In relative terms, Medium farms showed the largest increase, with a 78 per cent increase from 2007/08.
SPECIALIST SHEEP ( LFA)
NFI increased by £9,924 from £1,933 in 2006/07 to £11,856 in 2007/08. This was due to a combination of an increase in outputs of £7,171 and a decrease in inputs of £2,753. The increase on the output side was caused by a £7,463 (31 per cent) increase in subsidy and payments, mainly due to the introduction of the Scottish Ewe Scheme and a large increase in LFASS payments of £2,656 (61 per cent). Livestock output showed a 14 per cent decrease in Sheep (down £2,400) and a 12 per cent increase in Cattle (up £330), whilst crop output fell by over 50 per cent from £1,038 in 2006/07 to £461 in 2007/08. On the input side, the biggest decreases were for Labour (down £1,173) and Machinery depreciation (down £1,071).
In 2007/08, small and medium farms showed the greatest increases in NFI (up £12,225 and £10,072 respectively), although there are a relatively small number of these farms in the sample. Large farm showed a £4,820 increase. In 2007/08, Medium farms had the highest NFI, followed by Small and then Large farms.
SPECIALIST BEEF ( LFA)
NFI increased by £2,964 from £14,117 in 2006/07 to £17,081 in 2007/08. The increase in outputs of £4,115 was greater than the corresponding increase in inputs of £1,151. The biggest increase in outputs was in subsidy and payments (up £4,280) and there was also an increase in Crops (up £1,803). There was a £818 (8 per cent) decrease in Sheep output and a £713 (2 per cent) fall in Cattle output. On the input side, the largest increase was for Animal Feed (up £1,906), with other increases including Machinery (up £633) and Labour (£210). The cost of Other Livestock Expenses (down £722), Land and Building costs (down £696) and Fertiliers (down £433) all decreased in 2007/08 compared to 2006/07.
In 2007/08, Medium farms (up £10,255) and Large farms (up £9,192) both showed an increase in NFI, whereas Small farms showed a decrease (down £2,063).
CATTLE AND SHEEP ( LFA)
NFI increased from £12,668 in 2006/07 to £18,397 in 2007/08. This was due to the increase in outputs (up £11,583) being greater than the increase in input costs (up £5,853). One of the main reasons for this increase was a £8,292 increase in subsidies and payments, mainly due to the introduction of the Scottish Ewe Scheme and a large increase in LFASS payments of £3,378 (48 per cent). There was a £1,944 increase in the output of Cattle which was countered by a £1,954 decrease in the output of Sheep. On the input side the largest increases were for Animal Feed (up £3,104) and Machinery costs (up £1,270).
In 2007/08, the largest absolute increase in NFI was for Large farms (up £9,026), followed by Medium farms (up £5,700) and Small farms (up £1,042).
CEREALS
The average NFI of Cereal farms more than doubled from £20,752 in 2006/07 to £45,223 in 2007/08. This was due to the fact that the increase in outputs (up £42,304) outweighed the corresponding increase in input costs (up £17,833). The majority of the increase in outputs was due to the increase in Cereal output (up £37,002). There was a decrease in Total Livestock output (down £2,305). With the exception of Other Livestock Expenses, there was an increase in all input cost categories. The largest increases were for Machinery Depreciation (up £3,754), Land and Building Costs (up £2,774) and Other Crop Expenses (up £2,751).
In 2006/07, the increase in NFI was for similar for Medium farms (up £41,195) and Large farms (up £44,285), while Small farms increased by £18,840. In 2007/08, NFI for Large farms was £90,863 compared to Medium farms (£69,025) and Small farms (£34,781).
GENERAL CROPPING
NFI increased from £43,053 in 2006/07 to £57,968 in 2007/08. This was due to an increase of £9,506 (4 per cent) in outputs and a decrease of £5,410 (3 per cent) in inputs. The main reason for the increased output was an increase in Cereals (up £22,746), which more than offset the decrease in potato output (down £16,874). There was a £2,394 (6 per cent) decrease in Subsidy and Payments. On the input side, the largest decreases in input costs were Labour (down £6,400) and Land & buildings costs (down £4,708).
The absolute increase in NFI was similar for Small farms (£12,309) and Large farms (£12,167). Medium farms showed the biggest increase of £25,155.
DAIRY
NFI increased by £20,036 from £32,662 in 2006/07 to £52,698 in 2007/08. This was due to the increase in outputs (up £48,797) being greater than the corresponding increase in inputs (up £28,761). The biggest increase in output was for Milk which increased by £38,145 (26 per cent) to £186,844 in 2007/08. There were also increases in Cattle (up £4,745) and Cereals (up £4,291). On the input side, there was an increase of £15,923 (28 per cent) in Animal Feed. Labour (up £4,390) and Machinery costs (up £2,787) and Other Livestock Expenses (up £2,335) are other notable increases in inputs.
In 2007/08, increases in NFI were far bigger in Large farms (up £27,635), compared to Medium farms (up £4,911) and Small farms (up £5,960) farms. In the case of Small farms, NFI changed from a negative value in 2006/07 of -£1,193 to a positive value of £4,768 in 2007/08.
LOWLAND CATTLE AND SHEEP
Trends in NFI for Lowland Cattle and Sheep farms need to be treated with some caution, as within the matched sample of 12 farms in each year, some farms have moved between size categories. In 2007/08, there are 2 more Large farms, 1 less Medium farm and 1 less Small farm than in 2006/07.
Overall, NFI decreased by £2,179 from £24,016 in 2006/07 to £21,837 in 2007/08. This was due to the decrease in outputs (down £7,162) being greater than the corresponding decrease in inputs (down £4,983). The greatest decrease in outputs was for Cattle (down £7,533) and Sheep (down £3,646). Crop output increased 75 per cent from £6,894 in 2006/07 to £12,085 in 2007/08. There were decreases across most inputs, the largest being for Animal Feed (down £1,980), Labour (down £1,323) and Land and Building costs (down £1,360),
MIXED
NFI increased by £3,849 from £20,777 in 2006/07 to £24,626 in 2007/08. This was due to the increase in outputs (up £14,433) being greater than the corresponding increase in inputs (up £10,583). The increase in outputs was mostly due to a 70 per cent increase in the output of Cereals from £24,905 to £42,344. There were large rises in Animal Feed costs from £18,090 in 2006/07 to £23,255 in 2007/08. The other main increases in input costs were for Machinery (up £2,657) and Machinery depreciation (up £1,395).
In 2007/08, the NFI for Large farms increased by 39 per cent to £51,965. However, the NFI for Medium farms fell by 11 per cent to £17,507 and the NFI for Small farms fell by 8 per cent to £10,047.
DISTRIBUTION OF FARMS BY NET FARM INCOME, NET PROFIT AND CASH INCOME
Table 4(a) shows the distribution of NFI between farms in 2007/08. Around 18 per cent of farms overall had a negative NFI, which ranged by farm type from 7.1 per cent for General Cropping and 7.8 per cent for Cereal to 25.9 per cent for LFA Cattle and Sheep farms.
A greater proportion of Large farms were in the higher income ranges, with 43 per cent with an NFI of over £50k, compared to 19 per cent of Medium farms and 6 per cent of Small farms. Small farms were more likely to have a negative income, with 21 per cent showing NFI of less than zero, compared to 11 per cent of Medium farms and 15 per cent of Large farms.
Tables 4(b) and 4(c) show the distribution in net profit and cash incomes between farms in 2007/08 respectively. Ten per cent of all farms had a negative net profit in 2007/08, and 7 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.
TENANT-TYPE CAPITAL
Table 5 shows that the average value of tenant-type capital investment for 2007/08 was £159,413 per farm, with the greatest investment in Machinery (£57,902) followed by Breeding Livestock (£42,114) and Trading Livestock (£36,915).
Tenant-type capital investment ranged by farm type from £60,566 for Specialist Sheep ( LFA) farms to £203,415 in General Cropping and £222,659 in Dairy 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 2007/08 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 2007/08, the value of total assets for owner-occupied farms increased by 11.7 per cent from £813,172 to £908,121, mainly due to an increase in land and buildings (up £70,051). Total external liabilities increased slightly from £92,513 to £93,881 (1 per cent). This combines to provide an increase in net worth of 13 per cent from £720,659 in 2006/07 to £814,240 in 2007/08, with total external liabilities totalling around 10 per cent of total assets.
Net worth increased across all farm types ranging from increases of 6 per cent for General Cropping to 37 per cent for Specialist Sheep ( LFA). The 2007/08 closing valuations show total external liabilities as a percentage of total assets ranging from 6 per cent for Specialist Sheep ( LFA) farms to 18 per cent for Cattle and Sheep ( LFA) farms.
Table 6(b) shows that for tenanted farms, net worth increased by 9 per cent from £204,909 in 2006/07 to £223,348 in 2007/08. This was due to an increase in total assets of 6 per cent to £265,712, and a decrease in external liabilities of 8 per cent to £42,364. External liabilities as a percentage of total assets averaged at 16 per cent, ranging from 9 per cent for Specialist Sheep ( LFA) to 27 per cent for Cereal farms.
Table 6(c) shows that in 2007/08, for farms of mixed tenure, overall there was an 11 per cent increase in total assets to £824,338 while external liabilities remained almost the same at £104,741. This resulted in an average 13 per cent increase in net worth to £719,598. External liabilities as a percentage of total assets averaged at 13 per cent, ranging from 8 per cent for Cattle and Sheep ( LFA) to 17 per cent for General Cropping farms.
Table 6(d) shows combined results across all tenures. For 2007/08, there was an 11 per cent increase in total assets to £740,645 while total external liabilities remained fairly stable at £84,165. This resulted in a 13 per cent increase in net worth to £656,480, from £583,177 in 2006/07. The average total external liability represents 11 per cent of average total assets. External liabilities as a percentage of total assets ranged from 8 per cent for Specialist Sheep ( LFA) to 15 per cent for both Cattle and Sheep ( LFA) and 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 £5,473 from £36,045 in 2006/07 to £41,518 in 2007/08. The corresponding increase in NFI was £10,000 from £13,759 in 2006/07 to £23,759 in 2007/08. Cash income shows less of an increase than NFI, as there has been a reduction in inputs costs not involving cash outlay in 2007/08, which are included in NFI but not included in the cash income measure. The average flow of funds shows an increase of £6,092,which is similar to that of cash income. This is because the reduction in 'Net investment spending' (£8,114) has been almost offset by a decrease in 'Net cash from non-farming resources' (£2,967) and the reduction in borrowing' (£4,528). Net profit for owner-occupied farms increased £10,521 (34 per cent) from £31,147 in 2006/07 to £41,668 in 2007/08.
The overall average cash income of tenanted farms increased by 54 per cent (£15,632) between 2006/07 and 2007/08, while NFI more than doubled from £18,412 to £37,120 over the same period. However, the flow of funds for all types of tenanted farms decreased by 12 per cent from £25,907 in 2006/07 to £22,848 in 2007/08. This reduction was primarily due to a large reduction in borrowing. Overall, Net Profit increased 88 per cent in 2007/08 to £41,266, from £21,914 in 2006/07.
For mixed farms, the overall average cash income increased by 33 per cent from 37,973 in 2006/07 to £50,517 in 2007/08. Overall average NFI increased by 49 per cent over the same period, from £24,444 in 2006/07 to £36,378 in 2007/08. An increase in net investment spending (£7,163) and a decrease in net cash from non-farming resources (£9,572) was partially countered by an increase in borrowing (£8,572) which resulted in an increase in flow of funds of £4,381 (21 per cent). Net Profit for mixed farms increased 35 per cent from £35,284 in 2006/07 to £47,477 in 2007/08.
Overall, across all farm types and tenures, average cash income increased by £9,332 (26 per cent) between 2006/07 and 2007/08, compared to a £10,866 (57 per cent) increase in NFI. Cash income shows less of an increase than NFI, as there has been a reduction in inputs not involving cash outlay in 2007/08, which are included in NFI but not included in the cash income measure. Compared to cash income, the average flow of funds shows a smaller increase of £4,480. This is because there was an increase in 'Net investment spending' (£2,108) and a reduction in 'Net cash from non-farming resources' (£2,985).
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 smaller 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) contain information on outputs, inputs, NFI and cash income according to whether the farm is in the highest or lowest 25 per cent of farms when ranked by NFI, by farm type. Some area and livestock information is also shown to allow comparison of farm attributes. Due to the low number of Lowground Cattle and Sheep farms in the sample, only totals are shown.
NFI for the lowest performing quartile ranged from -£17,417 for Mixed to £10,739 for Cereals. Conversely, NFI for the highest performing quartile ranged from £42,491 for Specialist Beef ( LFA) to £144,884 for Dairy farms. Within farm type, the greatest range in NFI was shown in Dairy which ranged from -£11,478 for the lower quartile to £144,884 for the upper quartile.
Although interpretation of all the figures is not given in this text for all farm types, the tables show the differences in the relationship between output and input costs which result in the differences in NFI. For example, for Cereal farms the total output for the lower quartile was nearly half (48 per cent lower) that for the upper quartile, whereas total inputs were only a quarter (25 per cent) lower Therefore, for the higher earning groups of farms, input cost was 67 per cent of total output compared to 76 per cent for the sample average and 92 per cent for the lower quartile.
Put another way, for every £1 spent on inputs, the higher earning Cereal farms by NFI produce £1.49 of output, compared to £1.32 for the sample average and £1.08 for the lower earning 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 £12,001 in 2007/08. Around two-fifths of this income was earned from 'Off-farm Employment and Self-Employment' (41 per cent), with 'Off-farm Investments, Pensions and Other' accounting for 36 percent and 'On-farm non-farming activities' 23 per cent. In 2007/08, non-farming income ranged by farm types from £8,796 for Dairy farms to £15,170 for Cereal farms. The highest level of non-farm income was for large farms (£13,874), followed by medium farms (£12,780) farms then small farms (£10,518).
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 17 per cent of all farms having no income other than from traditional farming, and 16 per cent having a non-farm income of £20,000 or more. Different farm types are also shown to have different levels of non-farm income with over half (56 per cent) of Specialist Sheep ( LFA) farms earning over £10,000 from non-farm income and 43 per cent of General Cropping farms having no non-farm income at all.