Scottish farm incomes halved in four years

The latest reduction in farm business income, a measure of the return to unpaid labour on commercial farms, continues a four year decline in average income.

Estimates from the Scottish Government’s annual Farm Accounts Survey show that average farm business income fell by a quarter (£8,000) between 2013 and 2014, to £23,000; the lowest level of FBI since the measure was introduced. 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 latest figures, released today by Scotland’s Chief Statistician, examine a number of financial indicators for the accounting period 2014-15, which focuses on the 2014 crop year. The results are based on annual audits of 500 commercial farms in Scotland.

The 2014 crop year had the benefit of generally reasonable weather throughout. Cereal production increased compared to 2013 and lamb numbers also rose while longer term declines in other livestock halted. However, market prices for cereals, potatoes and milk were down. These low prices combined with the less favourable euro exchange rate and lower value of subsidy payments caused profitability from agriculture to fall.

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.

Farm business income is the primary measure of farm level income in the UK but has only been calculated since 2009. A related measure, net farm income, has a longer series and shows the average income in 2014 was the lowest since 2005. Farm incomes often show large fluctuations from year to year, but the decline over the last four years is the most severe decrease in income since the BSE outbreaks in the mid 90s

Provisional national level income estimates released in January showed a £60 million decrease in income from the farming industry in 2014, followed by an estimated £110 million decline in 2015, including a £40 million reduction in subsidy levels. While cattle prices remained steady in 2015, milk, potato, cereal and lamb prices fell. This suggests that the fall in farm incomes may have worsened since the period covered by today’s business level estimates.

Not all farming sectors saw lower incomes in 2014. Cattle and cattle and sheep farms benefited from lower input costs such as feed and saw small increases in income compared to 2013. Dairy farms saw the smallest decline in incomes, which fell by 14 per cent and continued to generate higher incomes than 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 - such as farm owners, family members and business partners - shows that the income generated from almost half of farm businesses (47 per cent) 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.

Balance sheets from Scottish farms are also examined in the report. These show that farm businesses are capital intensive and typically have high asset values which are not included in income measures. Average debt levels are fairly low, with liabilities less than 10 per cent of the value of assets. The average net worth of Scottish farm businesses is estimated at £1.3 million.

The report is based on the findings from the Farm Accounts Survey which is used to inform, monitor and evaluate European, UK and Scottish agricultural policy. The survey does not include information on pig, poultry and horticulture sectors.

The figures released today were produced by statistical staff in accordance with professional standards set out in the Code of Practice for Official Statistics.