Farming’s share of the profits from the food chain continues to wane, forcing some industry figures to question its sustainability.

Figures collated by DEFRA show that in 2004, agriculture added just £7.6bn to the economy – less than 10% of the value added by the whole chain, from input suppliers to retail outlets.

And, since the decoupling of CAP support, farming’s contribution has slumped even further to £5.2bn, DEFRA says.

As that contribution falls, so does the chance of making a profit.

Looking at the value of a typical basket of indigenous products, the Office for National Statistics has calculated that UK farmers’ share has fallen from about 47% in 1988 to just 36% now – a fall of nearly a quarter.

And their share of the nation’s entire household food bill is only 26%.

A case in point is the dairy industry, according to Richard Weaver, chairman of farmer supply group Dairy Crest Direct.

“Ten years ago, milk prices stood at 26p/litre with costs lower than they are now.

Today farmers are being paid around 18p/litre.

We’re balanced on a knife-edge where further cuts in milk prices will reduce our production base.”

Grocery retailers on the other hand managed to add £20bn to the value of food between warehouse and shoppers’ trolleys, leaving plenty of opportunity to rack up good returns.

Andersons’ Francis Mordaunt said the situation was not sustainable.

“Tesco’s profits in 2005 were over £2bn.

Compare that with total income from farming of £2.5bn for the whole of the UK – before costs have been deducted.

Agriculture needs to have a bigger share out of the food chain.”

Cheaper food

Self-sufficiency has also continued its decline since 1995, with only 73% of the food that could be produced in this country actually coming from UK farmers.

Now only 60% of food consumed in the UK is grown here.

The price of food did rise in 2005, but, at 0.8%, that rise was outstripped by inflation, making food seem cheaper than it was a year ago.

Kevin Pearce, head of food chain at the NFU, said inflation since 1990 stood at 48%, but food prices had only risen 27% during the same period.

“It is a sign of the disconnection from the food chain,” he said.

“It is a difficult argument for us to say retail prices should go up, because consumers don’t expect it.

But how much longer will the industry be able to sustain this short-term view of the chain?”

Andersons estimate that diversification and non-farming income now outweighs farming income, at more than £3bn.

David Oglethorpe at English Farming and Food Partnerships said the message was stark as the rest of the food chain grew, leaving farming behind.

But he said farmers could regain some market share through effective collaboration with manufacturers, processors, distributors and retailers.

“Ultimately, this will mean investing away from the farm into innovative products and partnerships that can bring a greater share of value added back to the farm.”

Arable co-operative Grainfarmers is looking to do exactly that by getting more involved in first-stage processing to bolster margins for members, according to deputy director of grain groups, Rob Sanderson.

Some grain processors were also realising that growers now needed an incentive to plant crops, he added.

sam.fortescue@rbi.co.uk