Scottish farm business income: annual estimates 2016-2017

1. Summary – 2016 Crop Year

2016-17 income estimates focus on the 2016 crop year. There was both a reduction in spending on inputs in 2016-17 compared to the previous year, as well as an increase in crop and livestock production on average for all farm types. This, combined with a upturn in grants and subsidy payments, increased the profitability from agriculture.

Profitability

In 2016-17, the average FBI for businesses in the survey was £26,400. This represents an increase of 94 per cent (£12,800) in real terms over the last year, however, it is a decrease of 46 per cent (£22,900) in real terms since 2011-12.

2016-17 saw spending on inputs fall, which was supported by an increase in outputs caused by a rise in crop and livestock revenue and the increased value of subsidy payments^[1]. Since 2011-12, crop and livestock inputs and outputs have both fallen, however the cost of inputs have fallen at a slower rate than the outputs over the period. This combined with the decline in value of subsidy payments led to a decrease in FBI.

Forty five per cent of farms in the survey generated income equivalent to less than the minimum agricultural wage (MAW) on a per head basis, per hour of unpaid labour. This includes the 23 per cent of farm businesses that made a loss in 2016-17.

General cropping farms had the highest average FBI in 2016-17, at £47,000, while LFA sheep farms had the lowest average FBI, at £14,000.

All lower quartile farms (businesses with the lowest 25 per cent of FBI values) made a loss in terms of FBI in 2016-17 with the exception of LFA cattle and sheep. The average FBI of lower quartile farms ranged from a profit of £2,600 for LFA cattle and sheep farms to a loss of £56,100 for dairy farms.

The upper quartile farms (businesses with the highest 25 per cent of FBI values) had incomes ranging from £64,000 for lowland cattle and sheep farms to £148,900 for dairy farms.

Farm Business Income is the primary measure of farm level income in the UK but has only been calculated since 2009. A related measure, Net Farm Income, has a longer series and shows, when prices are adjusted for inflation, that the average income in 2016-17 has recovered slightly from the low in 2015-16.

Components of profitability

All inputs and outputs have been counted against one of five cost centres: agricultural; agri-environment; diversification; agricultural contracting; and income from the direct payments scheme.

The average loss from agricultural farming activities decreased in 2016-17 to £21,300. The average farm business in the survey still made a loss when taking into account diversification (£3,400), contracting (£3,300) and agri-environment activities (£6,500), and therefore was reliant on subsidies (£34,500) for profit.

Diversified farm businesses achieved incomes, on average, £17,400 higher than non-diversified farms. The most common diversified activity in 2016-17 was renting out buildings (other than for tourist accommodation), although processing and retailing of farm produce generated the greatest profit.

Productivity (Output/ Input Ratio)

The overall average output to input ratio is 1.16, meaning that for every £1 spent on inputs, Scottish farm businesses are generating £1.16 worth of outputs. The average for high performing farms is around £1.38, while for lower performers it is around £0.91; an average loss of £0.09 for every £1 spent.

Financial strength (Assets and Liabilities)

The net worth of farm businesses in 2016-17 increased by £6,600 to a closing balance of £1.3m for all farm types, while average liabilities and average asset values both increased by £4,600 and £11,200 respectively. The average debt ratio (liabilities as a percentage of assets) is relatively low, with liabilities equal to ten per cent of assets. A low debt ratio can make businesses more resilient in low income years and helps in securing better rates on loans.