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FARM INCOMES IN SCOTLAND 2000/01
INTRODUCTION
This booklet gives the latest financial results from a survey involving the collection of around 500 farm accounts representing all the main types of full time farms in Scotland. The information is collected annually for the Rural Affairs Department by the Scottish Agricultural College (SAC). Individual records are submitted anonymously to the Department.
The results are used to aid administrative and policy decisions and the Department is very grateful to the participating farmers for their continued co-operation with SAC and for the detailed information they provide.
The analysis relates to an identical sample of 450 farms for which accounts were available for both 1999/00 and 2000/01, that is the 1999 and 2000 crop years respectively. This enables a more accurate comparison of the year-to-year changes, as the trends will not be affected by variations in the sample. However, the unavoidable spread of closing valuation dates from the autumn of one year to the spring of the next means that some of the 2000/01 accounts relate to the 1999/00 winter whilst others relate to that of 2000/01 (and the corresponding split applies to the 1999/00 accounts as well). The survey does
not relate to a calendar year, and the exact period covered will vary across the sample depending on individual businesses' year ends.
The type classification of the farm depends on the relative importance of the various crop and livestock enterprises. The size relates to the economic size of the business. Individual farm results are weighted according to the number of farms of that type and size, and where appropriate tenure, in the population as a whole. The results given here should therefore reflect the industry as a whole. A summary of the system and the farm type definitions is given in the Appendix.
In order to put all farms on the same basis for the purpose of the net farm income calculation, all farms are considered to be tenanted and therefore an appropriate rent has been charged on 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.
NOTES
Due to rounding, sub-totals in the tables may not exactly equal the sum of the component items.
Some of the size-groups contain only small numbers of farms, and the results may not be very reliable. Results are not shown for size-groups of fewer than five. Where this is the case the symbol " is used.
Due to the small sample size for the Lowground Cattle and Sheep farm type it is not shown separately in any of the tables. The financial data for these farms are, though, included in the figures for 'All Types'. Similarly, the forecasts given in Tables 2 and 5 for 'All Types' incorporate expectations for Lowground Cattle and Sheep in 2000/01.
Delays to fieldwork caused by FMD in 2001 have resulted in a slightly smaller sample size than normal; however, there is still a sufficiently large number of farm accounts, in an appropriate size, type and tenure stratification, to give a representative picture of Scottish agriculture. The 2000/1 accounts are unaffected by FMD, as the effect of culling took place almost entirely after farms had closed their books. All impacts will be seen in the 2001/2 accounts.
The forecasts relate to farms
unaffected directly by FMD culls (though some farms in the sample will have entered stock into welfare cull schemes). Interest lies principally in providing a 'barometer' of change for typical farms of different types in Scotland, and FMD-culled farms are arguably atypical for this year. The forecasts will have been affected by the closure of the auction markets for much of the spring and summer following FMD, which removed a substantial amount of market information from the public domain.
Payments under the new area-based Less Favoured Areas Support System (LFASS) are included in 'other grants and subsidies' rather than in direct livestock subsidies for cattle and sheep, into which Hill Livestock Compensatory Allowances were previously incorporated.
COMMENTARY
Net Farm Income (NFI) estimates are produced annually from the Farm Accounts data with the principal aim of providing information on the trends across years. Results are presented for those farms that have provided information for both of the two most recent crop years to enable a more accurate comparison of the year-to-year changes (as the trends will not be affected by variations in the sample).
A summary of net farm income (NFI) results, sample sizes and weights used for 1999/00 and 2000/01 are provided in Table 1. Table 2 shows rounded actual NFI and direct subsidy figures for 1999/00 and 2000/01, and forecasts for 2001/02. Table 3 shows the outputs, inputs and NFI for 1999/0 and 2000/1 by size group for each farm type. The proportion of farms in different NFI ranges is given in Table 4 and Table 5 shows the average figures for tenant's capital. Table 6 uses an index to show in both nominal and real (i.e., adjusted for inflation) terms how levels of NFI for the different farm types have changed over time. The following commentary relates to the detailed figures in Table 3 and also gives some explanation of the forecasts for 2001/02.
ALL TYPES
Overall 2000/1 was a more favourable year for farms overall, with NFI rising by 109% over 1999/0, although this increase was from a very low base. This outcome is more positive than forecast in January 2000 when a modest fall in NFI was expected across all types. NFI increased given a rise in overall output of just over 1% and a slight fall in total inputs.
There is of course substantial variation around the all-farm NFI figure. NFI rose for dairy and general cropping farms in particular (686% and 3,562% respectively, from very low incomes in 1999/0). Improved sheep, cattle and potato prices, plus the impact of the new slaughter premium, were expected to lead to rises in the NFI of hill livestock and general cropping farms, as has been the case. Only specialist cereals farms saw a significant decline in NFI (of 85%). More details are given below.
The NFI forecast for 2001/2 is made on the basis of information about price, output (yield, area and stock numbers) and subsidy change over the forecast year as compared to the previous year. Data are taken from a range of sources, e.g., SEERAD commodity surveys, the Home Grown Cereals Authority, and the Department of the Environment, Food & Rural Affairs).
The forecast suggests another increase in NFI for the average Scottish farm of 61% on 2000/1. Crop, cattle and milk output is expected to increase, although sheep output will falls. Inputs are likely to rise slightly, especially miscellaneous inputs and feed, which are quite possibly linked to FMD. Central banks cut interest rates throughout the year in an attempt to head off a recession, with the result that at least UK farmers were faced with some of the lowest borrowing costs for years.
Again, the average farm figures do not indicate the variability in the likely situations on farms of different types. Dairy and general cropping farms are expected to see significant increases in NFI again, given the increased prices seen in 2001 for milk, potatoes and cereals (though these have fallen in 2002). Livestock farms are likely to do less well than in 2001/2 reflecting FMD consequentials such as the loss of export markets for much of 2001. Specialist sheep farms are forecast to see the most significant decline in NFI in 2001/2 (to a negative level), resulting from depressed sheep prices and subsidies.
SPECIALIST SHEEP (LFA)
As forecast in January 2000, improved sheep prices have outweighed the effects of a fall in the Sheep Annual Premium, resulting in an increase in NFI. Specialist sheep farms saw output rise relative to the previous year, resulting in an improved NFI although this is still significantly below the average across all farm types. Inputs stayed at around the same level as the previous year.
2001/2 is forecast to be a less favourable year, with a significant fall in sheep output (of around 17%) due to lost market revenues and reduced subsidy receipts particularly SAP (although LFASS payments may increase a little). Outputs overall are likely to fall by around 7%, while inputs rise by 2%, particularly for feed and miscellaneous items as a likely consequence of FMD. 2001 has been a particularly poor year for the sheep industry in Scotland with overall output likely to be significantly down on average, principally because of the loss of the export markets for much of 2001. The impacts of FMD have been much greater in the sheep sector than any other livestock sector. The year saw the opening of Private Storage Aid for lamb, increased promotion of the product and extension of the Welfare Disposal Scheme for light or surplus lambs, which helped to place a floor on the market.
SPECIALIST BEEF (LFA)
Improved cattle prices and increased subsidies (following the introduction of the slaughter premium) in 2001 were expected to lead to an increase in NFI compared to 1999/0, and the outcome has in fact been more favourable than anticipated originally with an increase of around 40%. These farms saw on average a small increase in output, and a small fall in inputs.
2001/2 is forecast to see less favourable average NFIs. As for sheep, FMD resulted in the closure of export markets for cattle for most of the year. Crop and cattle output should rise (the latter due to higher subsidy receipts, although LFASS payments may fall), leading to an increase in overall output of just under 2%; however, overall inputs are set to rise by just under 3%, eroding any gains from higher output.
CATTLE AND SHEEP (LFA)
As for other livestock farms, NFI in 2000/1 was expected to rise due to better cattle and sheep prices, and the introduction of the slaughter premium. These farms saw on average a small increase in outputs and a fall in inputs in 2000/1, leading to an improvement in average NFI.
As for the other LFA livestock farm types, the expectation for 2001/2 is for lower NFI, reflecting the difficulties faced by the livestock sector in the wake of FMD. A similar picture is forecast. Output is likely to fall, given the importance of sheep to these farms, and inputs are likely to rise, again, probably due to FMD related increase in feed and other costs. The weather added to problems for stock-farmers caught by FMD movement restrictions, with delayed turn-out, forage running short and many animals being kept in poor conditions as a result. Extra variable costs would be anticipated with regard to fodder, bedding and vet bills. Considerable extra costs were also placed on the industry with regard to the administration required to licence livestock movements and meet the bio-security demands imposed on the industry.
CEREALS
Lower prices in 2000 for all cereals, combined with high fuel and fertiliser prices, were expected to cause NFI to fall by more than half in 2000/01, and a significant decline has indeed been seen to well below the all farm average NFI. Output fell for both crops and livestock, and particularly for cereals and other crops, coupled with falls in other revenues, particularly contract work. Crop protection and other crop expenses (such as drying) were up by 10%; contract costs were also up. Although overall inputs fell, this did not compensate for the fall in total output.
The main feature of 2001 apart from FMD was the wet weather, leading to problems for cereals and roots establishment and harvesting. Some crops failed due to water-logging, and set-aside increased significantly. The forecasts for 2001/2 for both specialist cereal and general cropping farms reflect significantly increased barley output following price rises which should more than compensate for reduced area payments, increased oilseed rape output and significantly increased potato output. Overall output is set to rise by around 6%, with only a small rise in total inputs of less than 1%, leading to a much more favourable average NFI than observed in 2000/1.
GENERAL CROPPING
NFI was forecast to rise significantly in 2000/01, chiefly due to better potato prices. These farms saw on average a significant increase in outputs, particularly for potatoes, and a fall in inputs, which together led to a dramatic improvement in NFI from the very low levels seen in the previous year.
NFI is forecast to rise significantly again in 2001/2 on average for this farm type, chiefly due to higher potato output once more. A significant increase in overall output of around 12% is expected with only a small increase in inputs.
DAIRY
Average NFI was forecast to fall in 2000/1 compared to 1999/0 given a continued fall in milk prices in 2000. However, a significant increase was seen, albeit from a very low base. This was primarily due to improved livestock output from cattle and sheep, with milk output remaining at around the same level as the previous year. Total outputs were up and input costs fell too, leading to a significant increase in NFI from the low levels seen in the previous year.
Despite FMD, production continued at higher than expected levels in autumn 2001, when shortages had been anticipated because of disrupted calving patterns. 2001 was a generally good year for grassland production, with mild (but not too wet) conditions in autumn enabling farmers to make better use of grass. NFI is expected to improve significantly again in 2001 based on significantly higher output (with an increase of around 14%, based on better crop, cattle and milk outputs) and a rise in inputs of around 3% that is small in relation to output. Milk prices saw significant rises in 2001 (of around 19%, including agri-money) and yields have increased too on 2000/1. Better milk prices and low quota costs mean that the sector has been better placed than for a number of years, although there are now clear signs that milk prices are starting to fall (which will affect the 2001/2 farm account year to some extent depending on the individual sample farms' year-ends). FMD will have caused increased costs on most dairy farms because of bio-security costs and restrictions on livestock movements that resulted in higher feed costs when stock could not be moved. It is difficult to quantify the extent of such losses. However some of the positive effect of the increased milk price will have been due to FMD.
MIXED
The physical performance of enterprises on these farms is reflected in the commentaries above. Total output remained similar in 2000/1 to the previous year, though cereals output fell as expected given lower prices. NFI rose slightly due to reduced input costs.
For 2001/2, mixed farms are expected to see a further increase in NFI, based on similar total outputs to the previous year and economies in total inputs. Crop, cattle and milk outputs should increase, giving in an overall rise despite reduced sheep output, and more than compensating for increased input costs.
DISTRIBUTION OF FARMS BY NET FARM INCOME
Table 4 shows the variation in NFI between farms in 2000/1.
Around a third of all farms in the sample (and a third to a half when examined by farm type) had a negative NFI in 2000/1. As in previous years, there was a greater proportion of large farms than medium, and of medium farms than small, in the highest income ranges. Smaller farms are more likely to have negative income than larger farms.
TENANT'S CAPITAL
Table 5 shows the value of capital investment by farmers as tenants for 2000/1. 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.
On average for all farm types, total investment was slightly down on 1999/0 levels for small, medium and large farms. The value of all types of capital fell on average. Cereals farms saw similar levels compared to the previous year, whilst general cropping farms saw an increase.
BALANCE SHEET AND FLOW OF FUNDS DATA
In previous years, all farm businesses that were not clearly either wholly or mainly owner-occupied or wholly or mainly tenanted were excluded from balance sheet data and from measures such as cash income, cash flow and flow of funds. In addition, all farms with untypical balance sheet data were also excluded. The combined effect of this was that around a quarter of the farms in the FAS were excluded from these tables.
BALANCE SHEET DATA
The opening and closing balance sheets from the 2000/01 accounts sample are presented in Tables 7(a) to 7(d). These show the average results by type of farm for the owner-occupied, tenanted and mixed tenure categories and for all tenures.
There was generally only a slight fall in the total assets of owner-occupied farms. The most significant fall in absolute terms was for dairy farms, although this amounted to a decline of less than 2%. Closing liabilities values were generally at similar levels to the previous year, though around 5% higher for diary farms, mostly through increased bank borrowing, and lower for cereals and general cropping farms. Changes in net worth reflected these changes in asset and liability levels, with a slight decline for the all-type average. The largest fall was for dairy farms. Total external liabilities as a percentage of total assets were at a similar figure to the previous year, at 14% across all farm types. The percentage was lowest for general cropping farms (3%) and highest for LFA cattle and sheep (21%).
The total assets of tenanted farms were down overall, by about 5%. Only LFA specialist beef farms saw a small increase; dairy farms saw the largest fall (around 15%). Total external liabilities increased very slightly on average across all farm types, and net worth fell by around 8% (though rising slightly for LFA specialist beef farms). Total external liabilities as a percentage of total assets rose on average, to around 20% (and was lowest for LFA sheep farms at 7% and highest for dairy at 31%). Mixed tenure farms saw a small fall in net worth on average; the diverse nature of this group must be borne in mind in interpreting the figures, as it includes farms with a variety of tenure arrangements.
CASH INCOME AND FLOW OF FUNDS
Tables 8(a) to 8(d) give an analysis of the flow of funds for the same groups of farms as in the balance sheet data. In this income measure the assumption that all farms are tenanted that is made in the net farm income calculation is discarded, 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.
The average cash income of owner-occupied farms rose in 2000/1. Only cereals farms saw a decrease, reflecting the low average NFI achieved. Generally the flow of funds rose too.
For tenanted farms, cash income increased overall, on average, especially for LFA specialist sheep farms, following the increase in NFI compared to the previous year. The flow of funds on average fell slightly, e.g., reflecting a fall in borrowing on mixed farms, but rose on LFA specialist sheep farms reflecting an increase in borrowing.
Overall, across all farm types and tenures, average cash income rose, following the trend in NFI, and the flow of funds rose linked to the higher levels of net cash from non-farming activities seen in 2000/1.
NON-FARMING INCOME
This section presents information on the non-farming activities and incomes of farmers and spouses participating in the Farm Accounts Survey. Over 90% of participants provided information on whether the farmer and spouse had other sources of income, either from non-farming activities on the farm or from off-farm activities. 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. Note that the non-farming income information is recorded in income ranges rather than as absolute values, so group averages will be less reliable than for other figures presented in this publication, and there is an unusually high degree of rounding error when comparing total non-farming income with its constituent parts.
Table 9 indicates the approximate levels of income from non-farming activities according to farm type and farm size. For all farms, the non-farming income of the farmer and spouse, both on and off the farm, averaged around 8,000, which is at a similar level to the previous year. Over half of this was earned from employment and self-employment, with a significant proportion coming from investments, pensions and social security payments too. The remainder was from on-farm activities that use farm resources, such as small-scale bed and breakfast businesses. Such activities contributed a relatively low percentage of total non-farm income (less than 10%) compared to the off-farm sources. As was the case in the previous year, cereal farms had the highest non-farming income in 1999/00, with dairy farms the least. Small farms had on average a higher total non-farming income but lower on-farm non-agricultural income.
Table 10 shows the distribution of this non-farming income by farm type and farm size. As one would expect, there is considerable variation between farms, with 17% of all farms having no income other than from farming, and 9% having non-farming income of 20,000 or more. The modal ranges were 5,000-10,000 and 10,000-20,000, which both had 19% of the sample.
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