Economic Report on Scottish Agriculture 2015

3.8 Cost centres (Table B13)

The purpose of cost centre analysis is to identify the contribution to the overall business profit or loss of different sources of income within the business. All inputs and outputs have been counted against one of five cost centres: agricultural; agri-environment (land management to support environmental objectives); diversification; agricultural contracting (off-farm use of farm business resources); and income from the direct payments scheme (costs could be incurred against this centre if, for example, accountants are hired to manage claims).

Chart 3.11 below shows the overall average income from each cost centre in 2012‑13 and 2013-14. In both years, losses were accumulated against farming activity (the agricultural cost centre) and it is this activity which sees the most fluctuation between years.

In 2013-14, losses made against agricultural farming activities were partly off-set by income generated through diversification, contracting and agri-environment activities, though the profitability of the average Scottish farm business is heavily reliant on income from the Direct Payment Schemes. In 2013-14, losses from agricultural farming activities were comparable to that seen in 2012-13 (-£21,000 on average), although the average farm business still made a loss even after accounting for diversification (£3,000), contracting (£3,000) and agri-environment activities (£8,000), indicating that farm businesses were reliant on subsidies (£38,000) to make a profit.

Chart 3.11 shows that while farm businesses are generating profits, agricultural activities on their own are generating losses and suggests that farm businesses are heavily reliant on subsidies.

Chart 3.11: Farm Business Income by cost centre, 2012-13 and 2013-14

In 2013-14 the average income to Scottish farm businesses from direct payments was £38,000, down two per cent on the previous year. There was little change in the value derived from agri-environment schemes and contracting in the latest year, with these activities generating an average of £8,000 and £3,000 respectively. In 2013‑14, diversified activities generated around £3,000 on average, as described below, though there was not the apparent premium in incomes for farms engaged in diversified activities that was seen in 2010-12: this is expected to be due to high depreciation rates associated with early years of investment in renewables.