Economic Report on Scottish Agriculture 2015

3.4 Income distributions(Tables B4, B8)

Chart 3.6: FBI distribution 2013-14

Chart 3.6 shows the distribution of Farm Business Incomes. Twenty two per cent of farms, or approximately one in five, had a negative FBI. A further 42 per cent had an FBI below £30,000; so, while the average FBI is £31,000, 64 per cent of farms earn less than this. Sixteen per cent of farms achieved an FBI between £30,000 and £50,000. A further 13 per cent achieved an FBI of £50,000 to £100,000, and seven per cent achieved an FBI of £100,000 or more.

Chart 3.7 shows the average FBI of all farm types by quartile, i.e. the average for farm businesses with the lowest 25 per cent of FBI values, the overall average, and the average of those farm businesses with the highest 25 per cent of FBI values.

Chart 3.7: Average FBI by farm type and quartile (lowest 25 per cent, average, upper 25 per cent), 2013-14

Across all farm types there was a considerable difference between higher and lower performing businesses. The overall average FBI of farms in the lower quartile was a loss of -£15,000, while those in the upper quartile generated an average income of £105,000 (more than three times the average FBI).

All lower quartile farms made an overall loss in terms of FBI in 2013-14. The average FBI of lower quartile farms ranged from a loss of -£22,000 for cereal farms to -£6,000 for dairy farms. Dairy farms had the highest average farm business income in 2013‑14 at £80,000.

The average FBI for upper quartile farms ranged from two to eight times the overall average for each farm type. Dairy farms had the highest upper quartile income at £205,000. Specialist sheep (LFA) farms had the second highest upper quartile income, this is in part due to a small number of specialist sheep (LFA) farms engaging in miscellaneous agricultural activities not related to sheep production.

There are many factors which contribute to the relative performance of a farm business, including tenure of the farm (with tenant farms having relatively higher overheads), prices and duration of contract for produce, supply costs and efficiency of application of inputs, level of indebtedness, as well as the motivations for farming and preferences for methods of farming of individual farm owners/managers. The variation seen between the quartiles does not take into account the overall size of farms. Larger farm business will have larger input costs as well as output value compared to smaller equivalent business but both could be working with equal efficiency.

The output to input ratio can be viewed as a measure of productivity, i.e. how much output can be produced per unit of input. Chart 3.8 shows the differences in the relationship between output value and input costs which result in the differences in FBI. 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.

Chart 3.8: Average output:input ratio by farm type and quartile (lowest 25 per cent, average, upper 25 per cent), 2013-14

The average for farms in the upper quartile (relatively high performers) is around £1.46, while for those in the lower quartile (relatively low performers) it is around £0.92; an average loss of £0.08 for every £1 spent.

Table B4 shows that upper quartile specialist sheep (LFA) appear to be more efficient in 2013-14 at producing output than other farm types. This in part is due to a small number of specialist sheep (LFA) farms engaging in miscellaneous agricultural activities not related to sheep production, therefore this farm type is not displayed in Chart 3.8 but has been included in the calculation for average farms. There is however generally a greater variability for this farm type compared to, say, general cropping or dairy farms. As above, the quartiles here have been determined based on FBI, and not on output:input ratio.

It should be noted, however, that a higher output to input ratio does not necessarily lead to a higher FBI when comparing across farm type. FBI depends on both the ratio between and the absolute levels of outputs and inputs. For example, whereas the upper quartile output:input ratio of specialist sheep (LFA) farms, £2.91, was the highest of all farm types, the upper quartile of specialist sheep (LFA) farms, £204,000, was the second highest of all farm types. This was due to the relatively low absolute value of outputs and inputs.