The Scottish agricultural industry faces a “frightening” drop in output after more than 40% of farmers said they planned to scale back production.

A survey by NFU Scotland found 43% of livestock and cereal farmers planned to cut production levels, while only 6% aimed to expand their output.

A further 13% were undecided about their future, and 38% planned to maintain their current levels of production, the survey of 120 Scottish farmers found.

The survey comes after latest census figures revealed a 2.4% decline in the Scottish cattle herd and a 5.4% fall in sheep numbers over the past year.

But the area under cereals rose by 12.9% following last autumn’s high grain prices and set-aside land coming back into production.

Over the past decade, cattle numbers in Scotland have fallen by 10% and sheep numbers are down by nearly one-third.

“The picture painted for the future of Scottish agriculture is very frightening,” NFUS president Jim McLaren told the union’s council.

“It is going to take a Herculean effort by the Scottish government and industry to halt the decline in the amount of food being produced on Scottish farms.”

Mr McLaren said the decline in livestock numbers and the likelihood of a cutback in cereal planting for the 2009 harvest put the the Scottish government’s entire food strategy at risk.

“Failure to address the significant and ongoing decline in Scotland’s livestock base means the volume of home-produced food will simply not be there.”

The major driver for the uncertainty on Scottish farms is increased costs, including fertiliser and red diesel.

The survey indicates that few farmers in Scotland have been asked to reduce their overdrafts, but there is anecdotal evidence of banks cutting back overdraft limits as soon as this year’s grain cheque comes in. Interest rates on loans are being raised by between 0.5% and 4%, with most farmers paying an average of 2% above base rate.

“The message is loud and clear,” said Mr McLaren. “Agriculture continues to be a low-risk sector for our major banks and farming should remain a beneficiary of responsible lending.”

Farming debt in Scotland has increased to £1.4bn, which equates to £70,000 per farming business.