INTRODUCTION
Background
This report contains the latest financial results from the Farm Accounts Survey ( FAS) relating to the farming years 2004/5 and 2005/6. The information is collected annually for the Environment & Rural Affairs Department by the Scottish Agricultural College ( SAC) and individual records are submitted anonymously to the Department. The results are used to aid administrative and policy decisions and the Department are very grateful to the participating farmers for their continued co-operation with SAC and for the detailed information that they provide.
Changes to the farm accounts survey sample
The NFI estimates are produced from an analysis that relates to two samples of farms of 481 in 2004/05 and 474 in 2005/06, representing full-time farms of all of the main types in Scotland (excluding horticulture, specialist pigs and poultry farms). The majority of farms participated in both years, although there were some small changes to the sample of farms in 2005/06, which introduces a small amount of sample variability.
Update to 2004/05 results
This report contains an update to the 2004/05 results published last year. This update is mainly due to the availability of a further 21 farm account records for 2004/05, which were not available at the time of publication last year.
The Time Period Covered by the Survey
The survey is not carried out on a calendar-year basis but based on farms' financial years. The exact period covered by the survey for any given year will vary across the sample depending on individual businesses' accounting year ends, although they all centre on the same cropping period (see diagram in Annex 1). For example, the 2005/6 accounts all centre on the 2005 production and subsidy year. The spread of closing valuation dates from the autumn of one year to the spring of the next means that (unavoidably) some of the 2005/6 accounts relate to the 2004/5 winter whilst others relate to that of 2005/6 (and the corresponding split applies to the 2004/5 accounts as well).
Measures of Income
The main income measure reported is Net Farm Income ( NFI). NFI is defined as the returns to the farmer and spouse for their manual and managerial labour, and for the tenant-type assets invested by them in the business (see flow-chart in Annex 2). It is before the deduction of any interest payments. All farms are assumed to be tenanted in order to put them on the same basis when assessing their performance, and so an appropriate rent has been imputed and charged on owner occupied holdings. The principal advantage of NFI as an indicator is that it can be compared across all farms as it takes account of the different tenure, labour supply and finance arrangements of different farms. Machinery depreciation is calculated on current values and breeding livestock stock appreciation is excluded from net farm income in accordance with established practice. NFI is a narrower income measure than the aggregate-level Total Income From Farming ( TIFF) estimate, and as a consequence the annual percentage change in NFI is more volatile, especially at relatively low levels of income.
NFI is a very different concept to Net Profit, which is a measure commonly used by farm businesses for management purposes. Net profit (or loss) equals the total farm gross margin minus fixed costs (where farm gross margin = total output - total variable inputs). NFI can be reconciled to net profit by:
- Adding back imputed labour for family and partners, rental value, imputed rent on improvements and ownership income.
- Deducting interest payments, depreciation on tenant's improvements and ownership expenses.
Agriculture in the United Kingdom 2006 was published on 29 March 2007 (available from the Stationery Office and also on the Internet at www.defra.gov.uk). It will highlight the main events of the year, include balance sheets for each of the main commodities and provide full details of the aggregate agricultural account.
Public Consultation on Measures of Farm Income
The Scottish Executive Environment and Rural Affairs Department ( SEERAD) published a consultation document on 'Measures of Farm Income' on 30 November 2006. Similar consultations were also undertaken in other parts of the UK. One of the main proposals in the consultation document is to replace Net Farm Income, as a headline measure, with 'Farm Business Profit', which will provide a more relevant measure of farm business level incomes and be more closely aligned with the aggregate TIFF measure. It should be noted however that SEERAD has no intention to stop publishing NFI results in the medium term, but does intend to give it lower prominence than the new measure.
The consultation document, a summary of responses and individual responses to this consultation are available at the following web address : http://www.scotland.gov.uk/Topics/Statistics/Browse/Agriculture-Fisheries/Consultation
A government response to the consultation will be published in due course.
NOTES
1. Due to rounding, sub-totals in the tables may not exactly equal the sum of the component items.
2. Some of the size groups contain only small numbers of farms, and the results may not be very reliable. Results are not shown for size-groups of fewer than five. Where this is the case the symbol " is used.