1. EXECUTIVE SUMMARY
1.1 AIMS
The purpose of this study was to establish gross and net margin data from organic farms for the 2006 calendar year. A minimum of 50 gross margins and 10 net margins were to be prepared from which a technical and economic analysis of the results was to be made.
1.2 BACKGROUND TO THE STUDY
The last decade has seen an increasing awareness of and demand for organic produce. The launch of the Organic Aid Scheme in 1994 recognised the need for organic production within the wider farming sector and provided support to allow new organic farmers to convert to organic production more easily. The scheme provided financial support to cushion them from the income foregone in the early years of conversion as well as additional costs. Ongoing support is also provided through the organic maintenance payments which were introduced in 2004.
There has been considerable volatility in the market for organic produce particularly for milk, cereals and lamb. This was mainly due to temporary demand / supply imbalances, as detailed in section 3.
1.3 PREPARATION OF RESULTS
There were 16 participants in the study who collectively contributed 57 gross margins covering 18 different enterprise types. Net margin information for a further 15 enterprises covering 10 different enterprise types were then collected. Weighted gross margins were produced for each enterprise type. Each participant's whole farm performance at gross margin level was then calculated on hectarage basis with participants ranked in order of performance. This whole farm gross margin was calculated before and after receipt of Organic Aid with the impact of the organic aid on gross margin shown as a percentage. Single Farm Payment was excluded from the margins, however LFASS was included where appropriate. Whole farm net margins were also calculated for those participants that contributed fixed costs.
The farms which participated in the study ranged in size from 0.01ha to 913ha, with an average area of 150.39ha per unit. The average organic holding size in the UK in 2002 was quoted as 180.60ha (From "Organic Farming in Europe" Eurostat, 2005).
A summary of the weighted average gross margin performance for each enterprise type is shown below: -
Enterprise | No. of Enterprises Studied | Weighted Average
Gross Margin | Unit |
|---|
Combined Fruit & Vegetables | 4 | 15,748 | £/ha |
|---|
Potatoes | 2 | 8,209 | £/ha |
|---|
Swedes | 2 | 6,256 | £/ha |
|---|
Parsnips* | 1 | 29,504 | £/ha |
|---|
Beetroot* | 1 | 17,587 | £/ha |
|---|
Carrots | 1 | 5,819 | £/ha |
|---|
Winter Wheat | 3 | 983 | £/ha |
|---|
Lupins* | 1 | -122 | £/ha |
|---|
Beans* | 1 | 808 | £/ha |
|---|
Oat & Bean Mix* | 1 | 471 | £/ha |
|---|
Spring Barley | 4 | 711 | £/ha |
|---|
Spring Wheat | 2 | 958 | £/ha |
|---|
Spring Oats | 8 | 688 | £/ha |
|---|
Sheep | 7 | 45 | £/ewe |
|---|
Suckler Cows | 6 | 349 | £/cow |
|---|
Finishing Cattle | 9 | 219 | £/head |
|---|
Dairy Cows* | 1 | 1,168 | £/cow |
|---|
Poultry | 3 | 26 | £/bird |
|---|
1.4 KEY CONCLUSIONS
- The highest gross margins per hectare were produced by the combined fruit and vegetable enterprise. Followed by field scale vegetable crops, dairying, arable cropping, , suckler cows, finishing cattle and sheep in order of decreasing gross margin per hectare.
- Generally, Gross margin performance of the organic enterprises was significantly above that of conventional enterprises for the period examined.
- The high level of gross margin performance was carried through to whole farm level.
- The participants could be classified into three groups regarding the impact of Organic Aid receipts on their business. Small fruit and vegetable enterprises tended not to receive any aid due to the small scale of the operations also one participant was unsuccessful in applying for maintenance payments.
Those businesses that were able to add value to their produce by direct marketing had a low reliance on organic aid. The Organic Aid only contributed between 1.4% and 3.6% of total farm gross margin for these participants.
The final class was those participants who tended to market there produce via merchants and markets as a commodity. These participants tended to be livestock or arable based enterprises and generally had lower gross margin performance. Organic aid contributed between 5.8% and 18% of total farm gross margin for these participants.
- The success with which the participants were able to market their produce contributed massively to their individual financial performance.
- The most successful participants marketed their produce direct to the consumer via box schemes or farm shops.
- In most cases these marketing initiatives were very small scale with only two participants, (OS12 and OS5) able to market significant quantities of produce sufficient to generate enough income to provide for a family unit.