Economic Report on Scottish Agriculture 2015

3.5 Enterprise gross margins (Table B12)

The purpose of enterprise analysis is to provide a basic assessment of financial performance of the main farm enterprises in Scotland. By “enterprise” we mean, for example, analysing just the sheep farming part of a sheep farm, rather than including any other farming or other activities carried out by the business. This allows individual farmers and others with an interest in the agricultural industry to compare individual enterprise performance against sector averages. As more results become available in future years it will also provide a useful guide to performance over time.

The performance of an enterprise is difficult to assess and relies on a number of factors that cannot be identified through this analysis, such as natural constraints (e.g. quality of land, weather, etc.), reason for farming (e.g. financial, personal satisfaction, etc.), methods of farming (e.g. organic versus conventional production methods), fixed costs of the whole farm business, the interaction of other enterprises within the farm business, and many other factors.

The results are presented as gross margins, as no account has been taken of fixed costs of the enterprises: those costs which are not attributed to a specific enterprise. These costs could vary greatly depending on the size or type of farm or enterprise. The results are from the 2013-14 Farm Accounts Survey (FAS), which centres on the 2013 crop year.

Results are provided as un-weighted group averages for each enterprise and within each enterprise (where sample size allows) to identify differences between relatively high performers (those achieving the 25 per cent highest gross margins), the average for the whole enterprise group and relatively low performers (those achieving the 25 per cent lowest gross margins). Enterprises have been classified as high or low performers based on their gross margins, though this does not necessarily mean that high performing enterprises are being managed more effectively. The intentions, attitudes, reasons for farming and factors outside the control of farmers and farm managers have not been considered in this analysis.

The analysis examines three measures of financial performance, the main measure is the enterprise gross margin per head or per hectare, which shows the gross income (before accounting for fixed costs) from a single unit of output (per head for livestock and per hectare for crops). Additional measures are the overall enterprise gross margin, which shows the overall balance of the enterprise, and the output:input ratio, which shows how much gross return is achieved per pound (£) spent per single unit of output (head per hectare). Enterprise output includes the market value of the output retained on the farm.

The three measures each provide a different insight into the performance of the enterprise. Taken in isolation, these figures may provide a misleading impression of the performance of an enterprise relative to high, low or average performers, or to different enterprises. It is intended that each measure be taken into consideration when drawing comparisons based on this analysis.

Analysis for crop, cattle and sheep enterprises are presented in sections 4.5, 5.2.7 and 5.3.6 respectively. More detailed results, including sample size information, are available from the agriculture statistics web page, Enterprise Performance Analysis^[8].