 |
| Economic
Report on Scottish Agriculture 1997 Edition |
| Section B - Financial Results by Type of Farming 1995 - 96 |
|
| Economic
Report on Scottish Agriculture 1997 Edition |
| Section B - Financial Results by Type of Farming 1995 - 96 |
| Introduction |
| The Farm Accounts Survey |
| The Scottish Agricultural College is contracted by SOAEFD to provide each year accounting data for a sample of the main types of farm in Scotland above a certain minimum size, the anonymity of the co-operating farmers being preserved by the submission of each individual record under a code number. |
| This note summarises the latest available information on incomes, output and costs for 1994-95 and 1995-96, that is the 1994 and 1995 crop years respectively, though the unavoidable spread of closing valuation dates from the autumn of one year to the spring of the next means that some of the 1995/96 accounts take in the 1994/95 winter and others that of 1995/96, and similarly with the 1994/95 accounts. The farms included are those for which accounts were available for both years, an identical sample of 489 at the time of processing. As in previous years the farm classification depends upon the relative importance of the various crop and livestock enterprises as measured by standard gross margins. |
| So that all farms are on the same basis they have been treated as tenanted with an appropriate rent charged for owner occupied holdings. Net farm income, as defined, is before the deduction of any interest payments. Machinery depreciation is calculated on current values and breeding livestock stock appreciation is excluded from net farm income in accordance with established practice. |
| Table B2 gives, for 1995-96, the value of capital investment by farmers as tenants. Machinery is shown at depreciated current values. It should be noted that while breeding livestock stock appreciation has been omitted from net farm income it has been included in the calculation of average capital and therefore the two sets of figures are not on the same basis. |
| The opening and closing balance sheet data from the 1995-96 accounts sample are presented in Tables B3 and B4 which show the average results by type of farm for the owner occupied and tenanted categories. These include, respectively, holdings or businesses that are mainly owner occupied or mainly tenanted but exclude the relatively few that are not clearly one or the other. A number of caveats apply to these figures; that the balance sheets relate to the business rather than the farmer and therefore any other assets belonging to the latter are excluded; also that the valuation for land and buildings, crops and livestock is based on the conservative market price whilst for machinery and equipment it is at replacement cost. Due to the difficulty of judging these prices, especially in the case of land and buildings, the balance sheet entries should be treated with some reserve in respect of both the absolute level and the year to year trend. This caveat extends to dependent figures such as net worth. The figures in the tables are weighted averages based on the 1995 census distribution by tenure category, type of farming and size of business. |
| Tables B5 and B6 give an analysis of the flow of funds for the same sample of farms as Tables B3 and B4. This additional income measure discards the assumption that all farms are tenanted and, by charging interest paid, relates more directly to the farmer's financial situation. Net farm income is shown exclusive of breeding livestock stock appreciation. Inputs not involving cash outlay are imputed charges such as the rental value of owner occupied land and tenant's improvements, the value of partner's labour and depreciation of plant and machinery. |
| Interest relates only to borrowing for farming purposes, but includes that related to land purchased. Net investment spending is expenditure on land, buildings, improvements, plant and machinery less sales and capital grants. Cash from non farming sources represents funds of various kinds from outside the farming business including capital introduced less capital withdrawn. Increase in borrowing indicates the net change in the external credit position of the farm business, being the increase in external liabilities less any increase in liquid assets. The flow of funds represents the total funds from the farm business, from non farming sources or from increased (net) borrowing which are available to the owners of the farm business for consumption purposes, tax and national insurance payments, the reward to other unpaid labour and any other private payments. |
| Incomes, Output and Costs |
| Specialist Sheep (LFA) |
| These are the most extensive farms in the Less Favoured Area (LFA) with a very high percentage of their area in rough grazing and are devoted mainly to sheep production. The lack of winter keep means that a significant number of livestock are sold as stores. |
| Sheep went into the winter of 1994 in good condition but the tupping suffered from wet and windy conditions. Ewes maintained their condition through the early part of the winter but by February the effects of pregnancy, prolonged wet weather and in some cases inadequate supplementary feeding led to hill mortality levels ranging from 10-15% with higher than average numbers of barren ewes and gimmers. In general hill ewes were on the lean side at lambing time. The early part of the lambing season experienced severe weather conditions but late lambers met with drier though cold weather. There was higher than normal ewe mortality with lower lamb numbers but better lamb survival rates generally. During the summer sheep recovered well in the dry, warm weather with finished lambs being in excellent condition. Quotas and subsidies continue to be the major influences on profitability. Overall, net farm income rose by 23% in 1995/96. |
| For 1996/97 it is expected that incomes will fall slightly as increased store prices are crowded out by the reduced SAP payments. |
| Specialist Beef (LFA) |
| Unlike the two other LFA types these farms have more grass than rough grazing with cattle production by far the predominant enterprise. |
| Although the weather was not cold at the end of 1994, out-wintered cattle suffered a bit during prolonged wet weather. Due to the extremely mild autumn pneumonia in stock was a severe problem in some units and, where possible, cattle were turned back outside as a preventative measure. Losses and the reduction in condition of cattle were experienced in some farms. Despite the late spring most cattle were turned out on time possibly due to lack of keep and straw with the latter being very expensive by March 1995. The longer than expected drought meant that supplementary feed had to be offered to many herds. There were also problems with hill streams ceasing to run and natural springs drying out. Increased payments through SCPS, Extensification Premium and BSPS helped to maintain consistent returns in this sector but margins were pressed with the high cost of hay and straw. The net farm income rose by nearly 10% in 1995/96. |
| As a result of the BSPS and SCP "top-ups", the Beef Marketing Premium Schemes, the Over Thirty Months Scheme and especially the near doubling of the HLCA’s the 20-25% fall in prices and numbers marketed in 1996 have been largely tempered and net farm income for 1996/97 is expected to fall by 16%. |
| Cattle and Sheep (LFA) |
| These farms have more rough grazing than grass with cattle and sheep production equally important. |
| For 1995/96 market returns for cattle remained constant but due to an increases in subsidies, output rose. The output for sheep was due to both increases in market returns and subsidy payments. Although there were increases in practically all inputs the 12% rise in outputs meant that the net farm income rose by over 15% in 1995/96. |
| It is expected that for 1996/97 the net farm income will fall slightly more than for those specialising in sheep but not as much as the beef specialists. |
| Lowground Cattle and Sheep |
| These farms are similar to Specialist Beef (LFA) but, being outwith the LFA, have less rough grazing. The results from this farm type should be interpreted with caution as the sample size is small. |
| Farms within the sample are dependant on the sale of finished and store cattle, with the sheep enterprise accounting for only 16% of total farm output with the result that financial output is similar to the Specialist Beef (LFA) farms. However, the 6% increase in inputs costs more than cancelled the 4% increase in output costs with the net result that net farm income for 1995/96 falling by over 4%. |
| The net farm income is forecast to fall by 23%, a greater fall than is anticipated for the LFA equivalent farm type because such farms will not benefit from the rise in HLCAs. |
| Cereals |
| On this type over half the area is in cereals with oilseed rape also grown. |
| Most of the country reported the easiest harvest since 1984. The majority of cereal and oilseed crops achieved in excess of average yields with good quality, increased prices and increased AAPS payments. Malting barley consistently achieved prices of £150/tonne and the feed grain prices were £10/tonne up on last year. This was due to high world grain prices prevalent at the time. Cereal crops harvested after the early September rain and spring oilseed rape did not achieve such high prices. Although overall input costs rose by nearly 6%, due to the increased returns for cereals the net farm income rose by over 72% for this farm type. |
| Net farm income is forecast to fall by 20% despite increased yields in most of the country but still keeps it higher than at the 1994/95 level. The reduction is due to a slight reduction in AAPS payment rates and a large reduction in grain prices in 1996 compared to 1995. |
| General Cropping |
| On this type, while over half the area is down to cereals, other crops, and in particular potatoes, are of greater importance than on the previous type. |
| As with 1994 General Cropping farms enjoyed the same combination of good prices, grain quality and Arable Area Payments as the Specialist Cereals farm type but the financial performance was very much affected by the behaviour of the market for potatoes. Although the average ware crop price was around £165/tonne, slightly less than for 1994, and seed prices similar to last year at approximately £200/tonne, the output fell by almost 18%. This was further compounded with increases in most inputs resulting in a reduction in net farm income of 10%. |
| Due to the fall in potato prices from the high levels experienced in both 1994 and 1995, it is expected that net farm incomes in these farms will fall by around 48% even though they have substantial cereals areas. |
| Dairy |
| While this type specialises in milk production, cattle production is also important with sheep and crops being of minor significance. |
| Dairy farm incomes continue to remain at high levels following deregulation of the milk market. Cows were housed at the usual time and enjoyed good quality fodder throughout the winter which kept yields up and led to quota limit difficulties for many producers. At New Year, with many producers over quota, the price for quota leasing reached 22-23p/litre and for purchases reaching 80-90p/litre. These levels fell back to 10-11p/litre and 55p/litre respectively as milk production went below its quota level. Net farm income increased by over 20%. |
| Although the milk output is expected to rise in 1996/97 due to an increase in milk prices, the smaller cattle enterprises on Dairy farms will be affected by the same experiences felt by all the beef sector but without the SCP "top-up" and the rise in HLCA’s, with the result that incomes will fall by around 15%. |
| Mixed |
| On these farms no enterprise is predominant although livestock production contributes the greatest percentage to output. |
| The financial performance of these farms reflects the fortunes of the more specific farm types discussed above. Although the cattle enterprises on the mixed farms showed a fall of 6% in output, the other enterprises more than compensated with overall output increasing by almost 10%. Although inputs also increased the Net Farm Income on Mixed farms to rose by 32% in 1995/6. |
| It is expected that the incomes for these farms in 1996/97 will fall more as a result in a reduction in output due to similar problems more specialised farms are going to experience than an increase in input costs. |
| Balance Sheet Data |
| On owner-occupied farms, net worth increased on all types, the increases ranging from around 2.4% for Dairy to 28% for General Cropping. Total assets also increased on all farm types, with General Cropping and Cereals farms showing the greatest increases, probably reflecting the two good years the arable sector has experienced. With total external liabilities the picture was mixed with Dairy farms having increases of over 12% and General Cropping farms falls of 17% and the rest of the farm types experiencing changes in between, usually around zero. |
| For tenanted farms the range of changes for net worth was even wider with General Cropping rising by almost 30% and LFA Specialist Beef falling by 1%. The situation was similar with total assets with General Cropping rising by nearly 27% and LFA Specialist Beef increasing by less than one half of a per cent. Unlike owner-occupied farms, nearly all tenanted farms saw rises in total external liabilities with only LFA Specialist Sheep experiencing only a marginal drop. |
| Flow of Funds |
| For owner-occupied farms LFA Specialist Beef , LFA Cattle and Sheep, and Cereals farms saw reductions in their flow of funds in 1995/96. The largest increase was with 42% for LFA Specialist Sheep. Spending in investment went up, except for General Cropping and Dairy farms. Due to the low number in the sample for Lowground Cattle and Sheep farms, the results must be treated with some caution. |
| On tenanted farms it was LFA Specialist Beef and LFA Cattle and Sheep which were the ones to experience a reduction in the flow of funds. The highest increase was found in the Lowground Cattle and Sheep although it must be borne in mind, as with the owner-occupied farms, the sample size is small and so the numbers must be treated with some caution. |
| 1 See footnote (1) to table B2 |
| 2 Fuller details are given in the booklet 'Farm Incomes in Scotland 1995/96' obtainable, price £5, from HMSO, 71 Lothian Road, Edinburgh, EH3 9AZ. |