The Farm
Accounts
Survey

This note summarises the latest available information on incomes, output and costs for 1995-96 and 1996-97, that is the 1995 and 1996 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 1996/97 accounts take in the 1995/96 winter and others that of 1996/97, and similarly with the 1995/96 accounts. The farms included are those for which accounts were available for both years, an identical sample of 482 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 1996-97, 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 1996-97 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 1996 census distribution by tenure category, type of farming and size of business.

Tables B6 and B7 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)

Sheep went into the autumn and winter of 1995/96 in good condition, with the mild and dry weather ensuring excellent conditions for tupping. A high number of lambs were conceived and ewes maintained condition throughout early and mid-pregnancy, despite snowfall and hard frosts over the Christmas period. Hill sheep suffered in the early spring through a prolonged period of snow on the hills, especially in the south of the country, and ewes lost a lot of condition. In general, hill lambing conditions were poor and although numbers born were good, heavier than normal losses were suffered through the combined effects of ewes in poor condition, a lack of milk in ewes and poor grazing conditions. This was compounded on those holdings where supplementary feed was not offered on the hill. The net effect of all these factors was an average lambing for hill flocks. The net farm income remained relatively stable in 1996/97, falling less than 1.5%.

For 1997/98 it is expected that incomes will fall, due partly to the expected fall in crop prices and also the reductions in sheep subsidies.

Specialist
Beef (LFA)

The most significant event affecting the Beef Sector was the announcement of 20 March, 1996 by the then Secretary of State for Health that identified a possible link between BSE and nvCJD. For a short period following this statement virtually no cattle were marketed and prices remained around 20% lower through 1996 compared with 1995. The response by markets was a fall in consumer demand for beef which led back to the cattle markets and farmers’ incomes. The response by the Government of the time was to pay a series of extra payments on Suckler Cow and Beef Special Premium claims and the near doubling of the HLCA payments on cows. Further payments were also made to producers having sold stock over a specified period (the Beef Marketing Payment Scheme), and additional measures related to the disposal of stock over 30 months and of young calves. However, the virtually unchanged size of the breeding herd in the June 1996 Census reflected the underlying stability related to the SCPS quota system. Husbandrywise, 1996 has been an easier summer for beef producers after a fairly harsh winter and late spring although conditions reported from the wetter areas of the north and west were the most favourable for many years. The beef herd did well in terms of autumn grazing, plentiful winter keep and although there was not much spring grass available, the turnout in May was during a period of sunny and reasonably dry weather. Following the good summer grazing cattle looked well and were generally heavier despite extra numbers being carried. Cows were in better than average condition and both the quality and weight of calves were better than average. The little over 3% increase in inputs was more than offset by the 9.5% increase in outputs due to the increased cattle subsidies which were in response to the fall in the beef market. This resulted in an overall increase of 37% in net farm income.

It is expected that there will be a sharp fall in net farm incomes for this farm type mainly due to reductions in cattle subsidies and also the market prices for store stock.

Cattle and
Sheep (LFA)

The cattle enterprises of these farms experienced similar difficulties as the beef specialists with respect to the fall in demand for beef. For 1996/97 the market returns for cattle increased by nearly 12% due to the rise in subsidy levels as experienced in the specialist beef farms above, while sheep returns increased by a modest 5%. The overall result was an increase of 6% for outputs while inputs increased by nearly 2% despite a substantial fall in feed prices due to a drop in price for potatoes. Labour was the only other input to experience a fall, and that was less than 1%. As a result net farm income increased by over 27%.

The forecast net farm income for this farm type for 1997/98 is reflected in the two previous farm types with an expected fall similar to, but not quite as much as the Specialist Beef (LFA).

Lowground Cattle
and Sheep

Lowground farms which were able to feed managed to maintain the good conditions of the pregnant ewes despite some very hard conditions mid-winter. Early lambing lowground ewes had good weather and no real problems were reported. Sheep returns fell by nearly 12%, partly due to the fall in subsidy levels. Since the cattle enterprises on these non-LFA farms were mainly beef finishing, they did not benefit from the top-up payments paid on Suckler Cow Premium claims and from any increase in the HLCA rates. In contrast to the hill breeding sector, the increase in subsidy payments received did not fully compensate for the fall in the market price of beef with the result that total cattle returns fell by nearly 5%. For 1996/97 the overall output fell by over 1%. Of the inputs only the cost of feed fell while other crop expenses more than doubled. This meant that the total for inputs increased by 11.5% which resulted in an overall fall in net farm income of 73.5%. It must be borne in mind that there are only a few farms in this sample and so any results for this farm type must be treated with caution.

This type of farm relies more heavily on crops and milk than the LFA equivalents, and it is expected that both of these enterprises will experience a fall in their outputs. Again, these farms will also be affected by the reductions in cattle and sheep subsidies, and although inputs are also expected to fall, net farm incomes have been estimated to go slightly negative for 1997/98. As mentioned above, the problem with the forecast for this farm type is that there are very few farms in the sample which can produce not very robust results and so must be treated with a great deal of caution. The low sample size does, however, reflect the small number of such farms in the overall farm population.

The harvest for 1996 was relatively straightforward with the majority of cereals and oilseed crops achieving above average yields with good quality. The level of payments under the Arable Area Payments Scheme (AAPS), together with cereal prices at only slightly below the previous year’s levels, made this one of the more profitable sectors. Feed barley was traded at around £92-£95 per tonne, wheat at approximately £105 per tonne while good malting samples of barley commanded a price of £120-£130 per tonne. Crop output increased by nearly 20% and overall output grew by over 6.5%. However with inputs also increasing by nearly 9% the net farm income for cereal farms remained relatively stable with only a small fall of under 1%.

The estimated 20% fall in the market price of crops will obviously affect this farm type the most, and, although AAPS returns are forecast to rise around 6% reflecting reduced set-aside areas, net farm incomes for 1997/98 have been forecast to drop sharply. As with all the farm types, inputs for Cereals are expected to fall slightly, especially for seeds and fertiliser.

The cereal situation was similar to that experienced by the cereal specialist farms. Following the 1996 potato harvest which had high levels of production, the prices received for ware and non-contracted potato crops were well below average, especially when compared with the very high prices experienced in the previous year. This has resulted in the area planted for the 1997 harvest being slightly down on the 1996 area. Potato output fell by over 30%, which together with a fall of 5% in cereal output resulted in an overall fall of 8%. For the inputs, although the cost of feed and seed fell, total inputs increased by 6%, mainly due to other crop expenses and land and building costs. Net farm incomes for this farm type fell by over 55%.

The situation for General Cropping farms for expected net farm incomes in 1997/98 is similar to Cereal farms, except there is a greater reliance on potatoes which will be experiencing a price rise. This means that net farm incomes are, again, expected to fall, but not as sharply as for Cereal farms.

Severe winter weather with the extremely low temperatures recorded over the Christmas period caused considerable problems for an industry so reliant on piped water supplies for feeding stock and operating cleaning equipment. The extensive snowfall at the beginning of February in the southern half of the country also caused a few days disruption in the collection of milk on many farms. The backlog of cull cows on some farms in 1996, along with a better grazing season led to an overquota milk supply situation. In order to deal with the superlevy situation, producers looked towards acquiring additional quota which made the quota market buoyant. Although the milk output rose by nearly 2%, total output fell by nearly 2%. With the 1% rise in inputs, net farm income fell by over 14%.

Due to a fall in the price of milk of around 4p per litre, the milk output for Dairy farms for 1997/98 are expected to fall around 11.6% which is the main factor behind the expected drop in net farm incomes, even though inputs are expected to fall nearly 2%.

The physical performance of these farm are reflected in those above. The financial output results were up by nearly 3% due mainly to the cereal returns and the extra subsidies for the beef sector. As with all the previous farm types, inputs rose, on this occasion by over 7% resulting in a net farm income reduction of over 16%.

Since Mixed farms rely upon several farm enterprises its usually the case that incomes can be buoyed up in one enterprise as they go down in another. However, for 1997/98, the forecast is that all the major enterprises are likely to have falls in output which means that this farm type could well be experiencing a very sharp fall in income levels.

Balance
Sheet
Data

On owner-occupied farms, net worth increased on all types except Dairy where it experienced a fall of 1.6% due to an 8.2% decrease in current assets, probably due to the fall in value of cull cows, and a nearly 10% increase in borrowing probably in order to acquire more quota. The highest net worth increase was for Specialist Sheep (LFA) at almost 12%, due to a 12% increase in total assets reflecting the increase in value of SAP quota and the increase in value of breeding sheep.

For tenanted farms both Cereals and Dairy exhibited falls in net worth, both in the order of 16%, the reasons for Dairy similar to those for owner-occupied. Cereals also exhibited a fall in current assets and an increase in bank overdrafts. Cattle and Sheep (LFA) had the highest increase in net worth of 5%, again with an increase in current assets. This is possibly due to farmers keeping hold of cattle rather than selling them and so ending up with added value, heavier weight stores on their farms and also possibly due to an increase in the number of in-calf heifers. Increases in net worth for the other farm types being around 1 to 3%.

For owner-occupied farms only General Cropping saw a reduction in its flow of funds, a fall of over 10% while Mixed saw a very small increase. The highest increase was over 60% for Specialist Sheep (LFA). This was due to a large increase in borrowing and in spite of a near tripling of net investment spending.

On tenanted farms both Specialist Beef (LFA) and Mixed farms saw falls in their flow of funds, the latter due to a 500% increase in net investment spending. Dairy experienced the highest increase of over 9% due to a near doubling of inputs not involving cash outlay and a large increase in borrowing, the latter possibly due to the need for quota.