Economic Report on Scottish Agriculture, 2016

1. Introduction

1.1 Overview of agriculture in Scotland in 2015

The year 2015 started with wet and windy weather, but nothing as harmful to winter crops or lambing as in 2013. Unfortunately the wet weather continued into the spring, particularly in the west, with Scotland experiencing the second wettest spring on record. The east coast however enjoyed a particularly sunny period. For the north and west, the rain continued to be an issue into the summer months, with above-average rainfall, meaning crops were often late to mature. Eventually September and the start of October saw a period of dry and sunny weather, allowing the cereal harvest to be gathered, though the quality was, in places, affected by the weather.

The year ended with a relatively wet and stormy November and the wettest December on record. Data from the December Agricultural Survey show that winter crop areas were down five per cent on 2014, though livestock numbers were up, except in pigs. The fall in winter crops may have partly been due to difficulties in planting due to the late harvest and ensuing wet conditions.

Unfortunately prices in 2015 were dropping worldwide, particularly milk prices, hitting the profitability of farms. The global fall in milk prices led to the EU providing assistance that was passed on to milk producers. The particularly wet weather led to Government assistance being made available through the Royal Scottish Agricultural Benevolent Institution ( RSABI), and the Government even facilitated the shipment of hay-bales to Orkney to help livestock through the winter.

2015 saw the implementation of the new CAP regime, with some changes seen to planting patterns to meet new greening regulations, and a new software system in place for the Single Application Form, which delayed payments. The less favourable euro exchange rate applied to the new Basic Payment, and the reduction in the original payment amount, also led to smaller incomes.

Other IT developments included the December Agricultural Survey being merged with Sheep and Goat Annual Inventory, which reduced the number of forms for 6,100 sheep farmers, with the survey also being put online.

The total area of agricultural holdings and common grazing in Scotland at the time of the June 2015 agricultural census was 6.2 million hectares, equating to 79 per cent of Scotland's total land area. About sixty per cent of this comprised rough grazing (including 580,000 hectares of common grazing), about a fifth was taken up by grass, and about ten per cent used for crops or left fallow. The rest consisted of woodland, ponds, yards or other uses.

Amongst the crops grown in Scotland (excluding grass), cereals accounted for 75 per cent of the land area, with 69 per cent of that being barley (308,000 hectares). There were also considerable areas growing wheat (110,000 hectares), oilseed rape (36,000 hectares), oats (26,000 hectares) and potatoes (26,000 hectares). Amongst fruit and vegetables, a total of 950 hectares of strawberries were grown, mainly under cover, which was the largest source of income amongst horticulture crops (see section 4).

The June agricultural census results showed increases in cattle, sheep, and pigs, the first time all three have increased since 1991. However, poultry numbers had been hit by major restructuring of the broiler industry at the end of 2014, with over a quarter of table birds being lost. There were 1.8 million cattle, 6.7 million sheep, 318,000 pigs and 13.1 million poultry. Despite the rises this year, cattle, sheep, and pigs numbers remain well below the average for the preceding decade.

Total Income from Farming ( TIFF) was estimated at £777 million in 2014, being made up of £3.1 billion in outputs and £489 million in support payments, offset by £2.8 billion in costs. The initial estimate of TIFF for 2015 was £667 million, though this figure will be revised in January 2017. The decrease in 2015 relative to 2014 was linked to lower prices, particularly in milk, which outweighed small increases in volumes. The longer term trend in TIFF has been rising since the turn of the century, but with fluctuations from year to year, and this was only the second time since then that it had dropped two years in a row. TIFF per annual work unit decreased to £25,000, similar to the value in 2012 (see sections 3.1 and 3.7).

Income from agriculture made up about one per cent of the Scottish economy ^[1] .

The average income of commercial farms in Scotland is estimated to have halved over the six year period to 2014/15 (the 2014 crop year). The latest reduction in farm business income, a measure of the return to unpaid labour on commercial farms, continues that decline.

Estimates from the annual Farm Accounts Survey show that average farm business income fell by a quarter (£8,000) between the 2013/14 and 2014/15 accounting years, to £23,000; the lowest level of FBI since the current measure was introduced in 2009/10. Income has been falling since a peak in 2010. Since then, commercial farms have seen a decrease of 55 per cent (£28,000) from an average of £51,000.

The main factor behind the recent fall in incomes was the reduced value of crops, which fell by £18,000 on average in the year to 2014. The lower value of subsidy payments, which was £7,000 lower on average, also played a large part. Over the longer term, rising input costs for livestock, such as feed, as well as costs for machinery, land and buildings have also impacted on profitability.

Not all farming sectors saw lower incomes in 2014. Cattle and cattle & sheep farms benefited from lower input costs, such as feed, and saw small increases in income compared to the previous year. Dairy farms saw a decline in incomes of 14 per cent, but continued to generate higher incomes than all other farming sectors; with average incomes more than twice that of other farm types. The average income for general cropping and cereal farms fell by 25 per cent and 38 per cent respectively. The largest decline in average income was seen in sheep farms in Less Favoured Areas, where incomes were halved compared to the previous year, and mixed farming where incomes fell by almost two thirds.

Converting the income estimates to hourly income for unpaid labour, i.e. for farm owners, family members and business partners, shows that for almost half of farm businesses (47 per cent) the income generated wouldn't have been enough to meet the legal minimum agricultural wage for paid workers. This includes the one in five farm businesses that made a loss in 2014.

The figures show that many farm businesses rely on sources of income other than from farming, including: contracting work; hosting mobile phone masts; provision for tourism and recreation; and financial support from grants and subsidies. Analysis of the Farm Accounts Survey suggests that, excluding support from grants and subsidies, the average farm made a loss of £17,000 in 2014. However, calculations from TIFF suggest that, excluding support, the agriculture sector as a whole still made a small profit (see sections 3.1, 3.3 and 6).