Scottish Government

6. Notes on FBI

6.1 FBI Definition

FBI represents the return to all unpaid labour (farmer, spouse and others with an entrepreneurial interest in the farm business) and to their capital invested in the farm business which includes land and buildings. FBI is equivalent to financial Net Profit although, in practice, they differ because Net Profit is derived from financial accounting principals whereas FBI is derived from management accounting principles. For example in financial accounting output stocks are usually valued at cost of production whereas in management accounting they are usually valued at market price. In financial accounting depreciation is usually calculated at historic cost whereas in management accounting it is often calculated at replacement cost. The FBI measure is designed to capture the return to the entire farm business and therefore also includes income from diversified activities on the farm.

6.2 Farm Type Definition

The farm type classification is based on detailed sub-types as defined in the EC farm typology, which have been grouped together where required to give the types shown below. These groupings were revised in 2002 throughout the United Kingdom such that types are now comparable between countries.

The classification is based on the relative importance of the various crop and livestock enterprises on each farm assessed in terms of standard gross margin (an economic measure of output less variable costs). The method of classifying each farm is to multiply the area of each crop (other than forage) and the average number of each category of livestock by the appropriate standard gross margin, the proportions of the total contributed by the various enterprises determining the type of farm. The list below defines the main types that are dealt with in this booklet.

6.3 Uses of Information

Policy - The primary use of Farm Accounts Survey ( FAS) data is to inform policy decisions and to help monitor and evaluate current policies, especially their impact on different agricultural sectors. The data is also used to model the impact of potential future policy options, such as the different scenarios for area payments modelled to inform the Inquiry Into Future Support For Agriculture in Scotland, chaired by Brian Pack. Furthermore, FAS results also contribute to the compilation of Total Income from Farming ( TIFF) estimates, especially as the source of input costs, which are forecast forward a year to account for the lag in survey results. The prominent profile of FAS in policy issues relates to the nature of the information collected and the scarcity of alternative sources.

EC requirements - The FAS data is also used to meet the EC requirements of the Farm Accountancy Data Network ( FADN). The FADN is the only source of micro-economic data that is harmonised across all EC countries and is used for the formulation and evaluation of agricultural policy as well as in monitoring the farm income levels in each Member State. Further information on FADN and the results for all Member States are available on the following websites:

http://ec.europa.eu/agriculture/rica/index.cfm

http://ec.europa.eu/agriculture/analysis/fadn/index_en.htm

Farm business advice - The FAS provides information on average levels of return and costs faced by farmers. Corresponding information on top and bottom performers are used by farmers and farm advisors to evaluate the viability of businesses and business plans. The FAS also provides data for benchmarking business performance across the UK. Benchmarking data using farm accounts data is available at:

http://www.farmbusinesssurvey.co.uk/benchmarking/Default.aspx

Research - Another important use of the survey is for academic research. The full dataset is made available in an anonymous form and under strict confidentiality conditions for a number of research projects.

A selection of research projects using FAS data are listed below (with links to final report where published):

• Barnes, A.P., Revoredo-Giha, C., Sauer, J. Elliott, J. and Jones, G. (2010). " A report on technical efficiency at the farm level 1989 to 2008. ⁶" Report for Defra, London.
• Sheane, R., Lewis, K., Hall, P., Holmes-Ling, P., Kerr, A., Stewart, K., Webb, D. "Identifying opportunities to reduce the carbon footprint associated with the Scottish dairy supply chain" Awaiting publication
• United Nations Environment Programme - World Conservation Monitoring Centre ( UNEP- WCMC): National Ecosystem Assessment Project
• University of Dundee: Improve the targeting of decoupled direct payments to producers by moving towards a flatter rate of aid project.
• Brian Pack Inquiry, Final Report of the Inquiry Into Future Support For Agriculture In Scotland⁷

6.4 Methodology

The survey covers farm businesses with a Standard Labour Requirement ⁸ of 0.5 and above and covers most main farm types in Scotland, excluding horticulture, specialist pig and specialist poultry producers. The survey covers both physical and financial data and the information is collected annually for Rural and Environment Analytical Services ( REAS) of the Scottish Government ( SG), by the Scottish Agricultural College ( SAC). The survey is stratified by farm type and size and, once recruited, a farm can stay in the sample for a number of years. If farms drop out of the survey replacements are selected at random.

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. For example, the 2009/10 accounts all centre on the 2009 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 2009/10 accounts relate to the 2008 winter whilst others relate to that of 2009.

Results are weighted averages based on the June Census distribution of agricultural holdings in Scotland in the relevant year, by farm type and size.

6.4 Data Quality

The quality of information collected from each farm is very high, based on fully reconciled farm accounts. Data for each farm is also validated against a comprehensive set of quality assurance checks. Some information on non-cash items, such as input of family labour, is estimated. The survey has been designed to be representative at the national level; however results by each of the eight farm types reported by the survey ought to be treated with some caution, especially when based on small sample sizes. The majority of farms participate for a number of years although farms entering and leaving the survey will introduce increased variability in the results when comparing annual trends.

6.5 Revisions

Revisions have been made to the 2008/09 FBI estimates published in June 2010. These revisions are due to:

(a) the inclusion of an additional 8 farms in the results, whose accounts have been finalised since the previous publication.

(b) Amendments to farmer estimates of the closing valuation of stock with actual sales data.

The scale of the revisions are shown in the table below: