Economic Report on Scottish Agriculture 2011 Edition

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Other Farm Income Measures

Net Farm Income 5 ( NFI) is defined as the returns to the farmer and spouse for their manual and managerial labour, and for the tenant-type assets invested by them in the business. Although replaced by FBI as the main measure of farm income, NFI is still useful for comparative analysis of agricultural production activities and to preserve longer term trends and it will continue to be published as a secondary measure. This section briefly explains the definitional differences between NFI and FBI and highlights the main effects of these differences. A full analysis of the differences between FBI and NFI was published in "Farm Business Income statistics, 2007/08" in August 2009 and can be accessed at http://www.scotland.gov.uk/Publications/2009/08/26130432/0 .

Table B7: Impact of definitional differences between 2009/10 FBI and NFI results

NFI Definition

Included in NFI (avg £/farm in 2009/10)

FBI Definition

Included in FBI (average £/farm in 2009/10)

Includes imputed labour costs for unpaid family and other labour.

Average imputed labour cost of £7,677

No imputed labour costs.

FBI reflects income to all those with entrepreneurial interest in the business.

Not included

No imputed labour costs for farmer and spouse. NFI reflects income to farmer and spouse alone.

Includes imputed rental costs for owner-occupied land and buildings.

NFI reflects income based on tenant-type capital.

Average imputed rental cost of £11,572

No imputed rental costs.

FBI treats tenure as is.

Not included

Excludes net ownership charges.

NFI reflects income based on tenant-type capital.

Not included

Includes net ownership charges.

FBI treats tenure as is.

Average net ownership charges of £6,716

Excludes net interest payments.

NFI reflects income based on zero level of indebtedness.

Not included

Includes net interest payments.

FBI reflects actual income of business.

Average net interest payments of £3,158

Excludes diversified income.

NFI mainly reflects income based on agricultural production.

Not included

Includes additional diversified income.

FBI reflects actual income of business, including diversification.

Average additional diversified income of £3,676

Difference between FBI & NFI in 2009/109

FBI excludes NFI imputed labour and rental costs of £19,249

FBI includes net ownership charges and net interest payments of £9,874

FBI includes additional diversified income of £3,676

Overall difference to FBI: +£19,249 -9,874+£3,676 = +£13,051

The following table and chart summarises this information and shows how each of the factors impacted on FBI results in 2008/09 and 2009/10.

Table B8: Relationship between NFI and FBI, National level

£ per farm

2008/09

2009/10

NFI

28,453

21,314

Positive impact on FBI:

Excluding imputed labour costs

7,304

7,677

Excluding imputed rental costs

11,165

11,572

Including additional diversified income

3,069

3,676

Negative impact on FBI:

Including net ownership charges

-6,330

-6,716

Including net interest payments

-4,389

-3,158

FBI

39,271

34,366

Difference FBI - NFI

10,818

13,051

Chart B7: Factor impact on FBI, National level, 2009/10

Chart B7: Factor impact on FBI, National level, 2009/10

The biggest impact on FBI results was the exclusion of imputed rental costs, which averaged £11,572 per farm at a national level in 2009/10. This impact was high partly because at the national level 58 per cent of farms were owner-occupied and a further 10 per cent had a mixed tenure. This means that 68 per cent of farms represented by the results had some level of artificial rental costs imputed within the NFI measure.

Imputed rental costs were partially offset by the inclusion of net ownership charges within FBI, which averaged £6,716 in 2009/10. This included items such as landlord expenses, building insurance and depreciation costs, which apply to farms of all tenures.

The exclusion of imputed labour costs contributed on average £7,677 to the overall FBI results in 2009/10. The imputation for labour and rental costs introduced a certain amount of subjectivity and inaccuracy to the NFI results. The exclusion of these imputations from FBI will generate a more accurate set of estimates.

On average, farms in the sample incurred net interest payments of £3,158 which have been included in the FBI measure.

In order to establish the income from the entire farm business, FBI includes an average income for diversified activities of £3,676 per farm, which were not included in NFI. Further information on income from diversified activities is given in a separate diversification section.

Another useful income measure is Cash Income which is the difference between total revenue and total expenditure. This measure represents the cash return to the group with an entrepreneurial interest in the business for their manual and managerial labour and on their investment in the business. It excludes notional items such as depreciation and livestock and crop valuation changes.

Table B9 shows NFI and cash income by farm type. It can be seen that, although lower due to its narrower definition, the trends in NFI are very similar to those in FBI. The trends in Cash Income are also similar for most farm types although overall Cash Income increased slightly, compared to a decrease in FBI and NFI. This suggests that non cash items such as depreciation have increased between 2008/09 and 2009/10.

Table B9: FBI, NFI and Cash income by farm type

Type of Farms

Farm Business Income
All Sizes (£/farm)

Net Farm Income
All Sizes (£/farm)

Cash Income
All Sizes (£/farm)

2008/09

2009/109

2008/09

2009/10

2008/09

2009/10

Specialist Sheep ( LFA)

16,268

29,907

9,099

18,745

21,865

36,077

Specialist Beef ( LFA)

29,923

38,335

19,151

30,090

33,185

42,473

Cattle and Sheep ( LFA)

27,896

44,390

20,453

32,130

38,910

52,981

Cereals

41,817

16,690

26,969

2,645

48,547

39,443

General Cropping

60,862

18,332

44,979

-1,294

78,980

69,238

Dairy

78,446

58,746

64,050

42,696

86,629

63,937

Lowland Cattle and Sheep

23,969

30,294

19,167

18,821

26,287

33,865

Mixed

45,317

40,185

32,461

25,351

52,5402

51,539

All Farm Types

39,271

34,365

28,453

21,314

47,676

48,935

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