Economic Report on Scottish Agriculture, 2016

3.9 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. Although referred to as 'cost centres' it is worth noting that these parts of the business also generate income and not just costs. 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 3.12 shows the overall average income from each cost centre in 2013-14 and 2014-15. In both years, losses were accumulated against farming activity (the agricultural cost centre).

In 2014-15, losses made against agricultural farming activities were partly offset by income generated through diversification, contracting and agri-environment activities, though the profitability of the average Scottish farm business was heavily reliant on income from the Direct Payment Schemes. In 2014-15, losses from agricultural farming activities were comparable to those in 2013-14 (£21,000 in 2013-14 and £22,000 in 2014-15).

Chart 3.12 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 3.12: Farm Business Income by cost centre, 2013-14 and 2014-15

In 2014-15 the average income to Scottish farm businesses from direct payments was £31,000, a decrease of 19 per cent on the previous year (due to a less favourable exchange rate and reduction in the Euro value of direct payments). 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 2014-15, diversified activities generated around £2,000 on average, as described below. Despite the low average income from diversified activities, farms engaged in such activities reported notably higher incomes, on average, than non-diversified farms.