Summary of the 2004/05 Farm Accounts Survey ( FAS) Results
Net Farm Income ( NFI) estimates are produced annually from the Farm Accounts data with the main aim of providing information on trends across years. NFI is calculated by subtracting inputs (i.e. what is used to produce a farm's output including labour, feed, machinery etc) from output (i.e. crops, cattle output and also grants and subsidies).
A summary of NFI and Cash Income results, sample sizes and weights used for 2003/04 and 2004/05 are shown in Table 1. Table 2 1 shows actual NFI and direct subsidy figures for 2003/04 and 2004/05. Table 3 2 shows the outputs, inputs and NFI by size group for each farm type for the 2003/04 and 2004/05. The proportion of farms in different NFI ranges is provided in Table 4. Table 5 displays the average figures for tenant's capital.
The following commentary relates to the detailed figures in Tables (3a) to (3i).
All Types
Overall, Net Farm Incomes ( NFI) fell by 33.5% from £19,870 in 2003/04 to £13,220 in 2004/05. Farm incomes across nearly all sectors were lower, particularly in the cropping sector, due to a combination of lower prices and higher inputs. Cereal and potato prices for the 2004 harvest were lower than the previous year whilst input costs such as fuel, fertilisers and agrochemicals increased. Dairy farmers saw a small increase in NFI despite increased costs. This was primarily due to receipt of the dairy premium.
Specialist Sheep ( LFA)
Total output for this farm type increased slightly by 1% in 2004/05. There was a modest increase in cattle output of 14% and the 1% increase in sheep output was underpinned by an 8% increase in direct subsidy payments. However, there were reductions in other outputs, including miscellaneous items and LFASS payments. Total inputs rose by 4.3%, with increases across most expenditure categories. This lead to an overall fall in NFI of 14.5% from £9,780 in 2003/04 to £8,360 in 2004/05.
Specialist Beef ( LFA)
Total outputs increased by 2.5% in 2004/05, mostly due to increases in direct subsidy payments for cattle and sheep, as well as increases in LFASS payments. Output values for total crops reduced by 6%, mainly due to cereals, although there was an increase in other crops. Inputs increased by 4.7%, with the largest absolute increases in feed, other livestock expenses, labour, machinery and miscellaneous costs. The increase in input was greater than the increase in output values, leading to a 6.6% decrease in NFI from £20,840 in 2003/04 to £19,470 in 2004/05.
Cattle and Sheep ( LFA)
LFA mixed cattle and sheep farms saw a 2.3% decrease in outputs and a 4% increase in input costs, leading to a drop in NFI of 28% from £21,590 in 2003/04 to £15,585 in 2004/05. Both cattle and sheep output decreased by about 3.5%, despite increases in direct subsidy payments. There were increases in all other livestock outputs, total crops and miscellaneous items. The largest absolute increases in input costs were for machinery costs, feed, other livestock expenses and fertilisers. There was however a decrease in labour costs.
Cereals
NFI for cereal farms fell sharply by 92% from £17,020 in 2003/04 to £1,430 in 2004/05. Cereal output decreased by 12.7% and there were similar decreases for other crops. There was also a fall in livestock output of 11.2%. Total output decreased by 9.3%, as there was an increase in non-direct grants and subsidies of 22.8%. Total inputs increased by 2.5%, with the largest absolute increases in fertilisers and machinery costs. There were decreases in feed and other livestock expenses and machinery depreciation also decreased.
General Cropping
NFI for general cropping farms fell sharply by 84% from £25,330 in 2003/04 to £4,085 in 2004/05. There were substantial decreases across all crop outputs, with cereal output falling by 11.3%, potatoes by 8.9% and other crops by 39.9%. This lead to a decrease in total output of 12.1%. Total inputs costs increased marginally by 0.8%. Increases across inputs, especially for machinery were offset by a large decrease in crop expenses (other than fertilisers), miscellaneous and labour costs.
Dairy
For Dairy farms, there was a 5.1% increase in milk output, which more than off-set the decreases in cattle and sheep output of 9% and 7% respectively. Payments of Dairy Premiums in 2004/05 along with increases in total crops and miscellaneous outputs, lead to an overall increase in total output of 4.9%. Total inputs increased by 4.5%, with the biggest absolute increases in machinery, labour, land and building costs, feed and fertilisers. The absolute rise in outputs was greater than for inputs, leading to an 8.1% increase in NFI from £22,740 in 2003/04 to £24,570 in 2004/05.
Lowland Cattle and Sheep
For lowland cattle and sheep farms, the increase in cattle output of 6.9% was greater in absolute terms than the decrease in sheep output of 10.2%. With a decrease in total crop output and increases in non-direct subsidies and miscellaneous items, total output rose by 3.2%. There were increases in inputs for machinery, labour, feed and other livestock expenses and decreases for fertilisers, other crop expenses, seed and miscellaneous items. Overall input costs rose by 9.1%. As the increase in input costs was greater than the increase in outputs, NFI fell by 15.9% from £20,130 in 2003/04 to £16,940 in 2004/05.
Mixed
For mixed farms there was a 17.9% decrease in crop output; a 1.8% decrease in livestock outputs, mostly due to a 14.1% decrease in milk; and an increase in miscellaneous items and non-direct grants and subsidies. This lead to a decrease in total output of 6%. There was a marginal decrease in inputs of 0.8%. Decreases in feed, fertilisers, land and building costs were matched by increases in labour, machinery, non-feed livestock expenses and other inputs. NFI for mixed farms decreased by 35% from £22,400 in 2003/04 to £14,570 in 2004/05.
Distribution of farms by net farm income, net profit and cash income
Table 4(a) shows the variation in NFI between farms in 2004/05. Around 27% of all farms in the sample had a negative NFI, which ranged by farm type from 15% for dairy farms to 51% for cereal farms.
A greater proportion of large farms were in the higher income ranges, with 24.7% with an NFI of over £50k, compared to 1.6% of medium farms and 0% of small farms. Small farms were more likely to have a negative income, with 35% compared to 20.4% medium farms and 17.6% large farms.
Tables 4(b) and 4(c) show the variation in net profit and cash incomes between farms in 2004/05 respectively. 11.3% of farms had a negative net profit in 2004/05, and 5.9% had a negative cash income. As with NFI, there were a greater proportion of large farms than medium farms, and of medium farms than small, in the highest net profit and cash income ranges.
Tenants Capital
Table 5 displays the value of capital investment by farmers as tenants for 2004/2005. Machinery is shown at depreciated current values. It should be noted that while breeding livestock appreciation had been omitted from NFI, it has been included in the calculation of average capital. Therefore, the two sets of figures are not on the same basis.
Overall, capital investments were up by 3.6% in 2004/05 compared to 2003/04. However, there were some decreases in capital investment for specific farm types and farm sizes between 2003/04 and 2004/05.
Balance Sheet Data
The opening and closing balance sheets from the 2004/2005 accounts sample are shown in tables 6(a) to 6(d). These show the average results by farm type for owner occupied, tenanted and mixed tenure categories and for all tenures.
There was a decrease in the value of total assets of owner-occupied farms of just under 1% during the year, while total external liabilities increased by just over 3%. Thus, net worth fell by 1.4% from £579,350 to £571,020. All types of farms, apart from specialist sheep ( LFA), saw net worth fall over the year.
Net worth also fell for tenanted farm types by just over 10%. All farm types saw net worth fall. For mixed tenure farms net worth increased by nearly 3.5%. Within mixed tenure farms net worth increased for specialist sheep ( LFA), cereals and general cropping farm types but decreased in the other types of farms.
Cash Income, Flow of Funds, and Net Profit
Tables 7(a) to 7(d) give an analysis of the flow of funds and net profit for farm businesses by tenure and type. In this income measure the assumption that all farms are tenanted that is made in the net farm income calculation is disregarded, and interest paid and net investment spending are charged but depreciation on plant or machinery, and other imputed costs are not deducted. This provides a flow of funds more directly related to farmers' financial situation.
The average cash income of owner-occupied farms decreased by nearly 5% in 2004/2005. There were decreases of 55% for general cropping and 14% for cereals. This compares to increases across all other farm types ranging from 1% for specialist beef ( LFA) to 31% for mixed farms. Overall there was a 25% decrease in the flow of funds, which was affected by a reduction in net cash from non-farming resources, especially by dairy farms, and an increase in net investment spending. The 22% decrease in net profit, reflected the 39% reduction in NFI for owner-occupied farms.
For tenanted farms the average cash income decreased by 2% in 2004/05. There were decreases of 43% for general cropping and 36% for cereals. For specialist sheep ( LFA) and specialist beef ( LFA), cash incomes remained similar to the previous year, whilst there were increases for other farm types ranging from 12% for cattle and sheep ( LFA) to 24% for dairy. Overall there was a 19% increase in the flow of funds, which was influenced by an increase in borrowing in 2004/05, compared to a reduction in the previous year. For tenanted farms, the decrease in net profit was the same as the 24% decrease in NFI.
Overall, across all farm types and tenures cash incomes fell by 4.5% in 2004/05. The flow of funds decreased by 10%, as the increase in borrowing was more than offset by increases in net investment spending particularly by cereal and dairy farms. NFI fell by 33%.
Net Farm Income Ouput and Input Performance by Quartile
Tables 8(a) through to 8(d) show output and input values by farm type categorised by lower quartile, upper quartile, and all farm performance. The tables have been included to show how output, inputs, NFI and cash income vary according to whether the farm is in the highest or lowest performing 25% of the farms accounts survey sample.
As in the previous year, NFI for the lowest performing quartile across all farm types was negative. In 2004/05, this ranged from -£5,420 for dairy farms to -£33,700 for general cropping. Conversely, NFI for the highest performing quartile ranged from £19,500 for cereal farms to £64,330 for dairy farms.
Interpretation of all the figures is not given in this text for all farm types. However, by way of an example, for general cropping farms, it can be seen that the average area of crops in the lower quartile is slightly higher than for the upper quartile, although the number of livestock is lower.
Total output for the lower quartile was 16% higher than for the upper quartile; however total inputs were 81% higher. For the better-performing groups of farms, input cost was 74% of total output compared to 97% for the sample average and 116% for the lower quartile.
Put another way, for every £1 spent on inputs, the top-performing farms by NFI for the general cropping farm type produce £1.34 of output, compared to £1.03 the sample average and £0.86 for the lower performing farms, with the implication that better performance in relation to NFI is associated with much lower input costs.
The individual output and input value categories may also be used to benchmark individual farm businesses to the better and lower performing categories by farm type. Further benchmarking data using farm accounts data is available at www.defra.gov.uk
Non-Farm Income
This section presents information on the non-farming activities and incomes of farmers and spouses participating in the Farm Accounts Survey. Over 90% of participants provided information of whether the farmer and spouse had other sources of income, either from non-farming activities on the farm or from off-farm activities. Specifically, participants were asked to indicate into which of ten ranges the joint non-farming income of the farmer and spouse fell for each of seven separate sources of income. The sources of income are listed in the Appendix (Part V). Non-farming income information is recorded in income ranges rather than absolute values, so group averages will be less reliable than for other figures presented in this publication, and there is also an unusually high degree of rounding error when comparing non-farming income with its constituent parts.
Table 9 displays the approximate levels of income from non-farming activities according to farm type and farm size. For all farms, the non-farming income of the farmer and spouse both on and off the farm, averaged over £12,000, showing a slight increase from 2003/04. Around half of this was earned from employment and self employment, with just as much coming from investments, pensions and other. About 15% was from on-farm activities that use farm resources, such as small-scale bed and breakfasts. Cereals farms had the highest non-farm income while dairy farms had the least in 2004/05.
Table 10 shows the distribution of this non-farm income by farm type and farm size. As one would expect there is considerable variation between farms, with 17% of all farms have no income other than from traditional farming, and around 14% have a non-farm income of £20,000 or more. The modal range was £10,000 - £20,000, which had 24% of the sample.