17 July 1998

Profits slashed for all types

By Suzie Horne

PROFITS before rent and interest almost halved across all farm types in the year to March 1998, according to preliminary annual costings from farm business and rural property consultants AKC.

Results from the Devizes, Wilts-based outfit are split into three groups – intensive livestock, mainly dairy and mainly arable farms, and include final 1997 harvest sales for some of the arable farms.

All farms showed a decreased return on capital due to a rise in capital employed and lower returns, says the report. And all systems increased investment, with tractors accounting for a large part of this.

Power and machinery costs were also pushed up by heavier depreciation following reinvestment after several earlier years of sustained profitability.

Overall, fixed costs changed little but crop variable costs rose by 14% while livestock variable costs were 20% lower.

Dairy farms in the sample included those with year ends between August and December 1997, so the full influence of lower milk prices is not yet showing through.

Once again, the value of achieving top-third status is evident. Apart from taking the usual measures, AKC looks at other details such as the cost of running drying plants. For the top third, that amounted to £3.10/t of crops harvested in 1997, while the average performers spent almost double this, at £5.60/t.

Combine and tractor running costs were about one-third lower for the top third, while grass silage was produced for a total cost of £12.30/t by the best, compared with £16.90/t for the average.

Efficiency measures used by AKC consultants include measuring overheads as a percentage of production (output) excluding interest. For the top third farms across all farm types, this was 5.8%, compared with 9% for the average.

Investment in plant, machinery and equipment on top farms was £298/ha (£121/acre) compared with £425/ha (£172/acre) for the average. &#42

Financial and efficiency results for all farm 1996 & 1997

Difference

1996 1997 £ %

Total production (£/acre) 690 587 -103 -15

Costs before rent and interest (£/acre) 485 482 -3 -1

Profit before rent and interest (£/acre) 205 105 -100 -49

Tenants capital (£/acre) 564 576 12 2

Total production per £100 lab. & mach. 363 296 -67 -18

Total production per £100 tenants capital 122 102 -20 -17

Costs excluding rent and interest per £100

total production 70 80 10 14

Profit before rent and interest per £100

total production* 30 20 -10 -33

Return on capital (%) 36 18 -18 -50

*Production has fallen by 15% in 1997 – costs were also down but only by 1% (£3/acre), which together resulted in profit before rent and interest being almost halved.

Source: AKC.