4 December 1998

How efficiency lifts income

By Robert Harris

BIG differences in the earning power of well run farm businesses compared with the average highlight the need for better management in these tough times.

Fixed costs especially need to be controlled, says Martin Seabrook of Nottingham University. His comments follow findings in the latest Farming in the East Midlands report which show a sharp fall in farm incomes across the region during 1997/98.

The survey of 250 farms shows mainly arable farms suffered badly, due to a £20/t fall in cereal values over the year and the poor 1997 harvest which hit yield and quality hard.

"By any comparison a drop of 80% in net farm income for the mainly cereals group is dramatic," says Dr Seabrook.

Most other sectors also experienced big declines. Arable farms running a beef enterprise faired almost as badly, with net farm income falling 75%. Not surprisingly, arable units with pig and poultry almost matched that, reflecting the price crash which saw pigmeat fall from a high of 135p/kg dw to under 90p. Arable units with dairying saw income fall by 62%, a level also experienced on arable farms with roots and vegetables.

Specialist dairying came off best, though producers still suffered a 33% drop.

Output on mainly cereal farms in the 100-200ha (250-500 acre) bracket produced a figure of £968/ha (£391/acre), down 18% on the year. Output on dairy farms over 50ha (125 acres) was £2056/ha (£1036/acre), a year-on year fall of almost 11%.

However, difficulty in controlling fixed costs is also to blame for the income drop, says Dr Seabrook. Using the same examples as above, on the arable farms fixed costs rose £48/ha (£19/acre), eclipsing the £30/ha (£12/acre) saving in variable costs. But dairy farmers held their fixed costs at the previous years levels, limiting the damage.

"The results of the survey continue to highlight the very wide range in achievement levels between farms," he notes. "Many of the most profitable farms in any type are more efficient, and have adopted effective record keeping and analysis. They purchase only those items that are really necessary to run a cost-effective business. They have also been in a position to reduce the unit cost of production by reducing overhead costs."

The effect of this good management is dramatic. The best of the large, mainly cereal farms (over 200ha) made £128/ha (£52/acre) net farm income, compared with just £7/ha (£2.80/acre) for the rest. The most efficient of those farming the same area but also milking cows made £217/ha (£88/acre), 45% more than average.

Net farm incomes on East Midlands farms (£/ha)

Farm type 1997/98 1996/97 % change Index*

Specialist dairy 346 515 -33 73

Arable with dairy 153 403 -62 38

Arable, mainly cereals 58 278 -80 21

Arable + roots/vegetables 90 235 -62 27

Arable + beef/sheep 42 170 -75 27

Arable + pigs/poultry 102 355 -71 18

* rolling average for previous three years = 100