7 June 1996

Poor sheep profits

CHANGES in the method of sheep support away from the lamb (variable premium) and back to the ewe (SAPS), have encouraged earlier lambing and improved genetics as producers aim to get more.

But, says a new report from Exeter University*, lowland sheep production continues to make only a modest return and only keeps going because of the contribution of family labour.

The study shows that the 1994 lamb crop achieved a gross margin of £42.11 a ewe. But after deducting fixed costs and overheads of £50.69, the net margin comes to-£8.58. This is little better than the -£10.78 recorded when the survey was last done in 1988.

There are regional variations, with English lowland sheep producers losing £8.89 a ewe, compared with -£3.69 for their counterparts in Wales and -£1.52 in Northern Ireland.

And, while flock size makes little difference to gross margins (output less variable costs), deducting fixed costs reveals big differences in net margins.

Smaller flocks have higher labour costs in terms of man hours a ewe. As such, flocks over 500 ewes show a positive net margin of £0.18 a ewe, while those of less than 200 ewes have a negative £19.13.

How then do small flocks survive? The answer, says the report, lies in the contribution of family labour. By removing this charge, even the smallest units generated a net income of £1357.

"This is far from an adequate return, but is nevertheless a useful contribution from what is, on most lowland farms, a subsidiary enterprise," says the report.

Lowland sheep flocks can also be justified in that they may use land unsuitable for other activities, may "fill the gap" for full-time workers, or may provide an enterprise for sons and daughters to learn about business management. "For many flocks, negative net margins may be a theoretical accounting problem, but a practical irrelevance."

* Lowland Sheep 1994: Production Economics and Management. Mark Fogerty (01392-263840).