22 October 1999

Average income halved for second year running

By Robert Harris

AVERAGE net farm income has halved for the second year running, according to new figures from accountant Deloitte and Touche.

A survey of clients accounts for the year to June 30, 1999, covering the 1998 harvest, shows income plunged to just £57/ha (£24/acre).

For an average client, that leaves just £17,000 before tax and personal drawings, leaving little for reinvestment, says partner Mark Hill.

A closer look shows big differences between the best and the worst performers, he adds.

Deloitte and Touches figures, gleaned from 109,000ha (269,000 acres), show that farmers in the top 25% bracket achieved a net farm income of £326/ha (£132/ha) (see graph), just 3% down on the previous year.

But the bottom 25% lost £200/ha (£81/acre), marking a 70% drop on the previous year to make the heaviest losses in the decade, says Mr Hill.

Dairy/arable farms suffered a 91% drop in net farm income mainly due to milk prices falling from 23p to 20.4p/litre. "Overheads did not increase that much," says Mr Hill. "The farming industry has been quite effective in controlling them." But with production costs totalling 16.3p/litre, that left just 4.1p to cover rent, finance and quota leasing costs.

Cereal farmers were also hit hard, with income falling by almost two-thirds. Again, falling prices rather than increased costs were to blame, with wheat averaging £76/t, compared with £85/t the previous year.

The only bright spot was the potato sector, where growers achieved an average net farm income of £178/ha (£72/acre). This strong performance meant that potato growers were predominant in the top 25% of farms.

With no sign of commodity prices improving in the short term, and with sterling likely to stay strong for the foreseeable future, farmers must focus on marketing and seek further efficiencies, says Mr Hill.

Increasing the scale of business can help – provided no further strain is put on cash flow. "Cost reduction is probably best achieved through co-operation and mergers," he advises.

"That will also help farmers focus on markets. With a growing corporate culture among both suppliers and customers, there is a need for farmers themselves to form larger structures that can negotiate on similar terms. Farmers must secure greater influence over prices to prevent being casualties of the retailing price war."

While the figures confirm the trouble the industry is in, more concerning is the psychological effect it is having on farmers, says Mr Hill.

"For evidence of the dramatic decline in the purchasing power of agriculture, in 1995 a three-bedroom house in Fulham would have cost the equivalent of 4000t of wheat; it now costs 11,000t. It is little wonder that there is a loss of self-esteem among the agricultural community when you look at how their produce is valued." &#42

Trends in net farm

income (£/ha)

97/98 98/99 99/00* Combinable 129 47 36

Potatoes and

other roots 72 178 (18)

Dairy and

arable 165 15 (60)

Average 123 57 (34)

*Forecast.