Higher input costs wiped £1bn from the profitability of UK farms in 2018, according to revised figures from Defra.
The government has updated its estimate of the Total Income From Farming (TIFF) for 2018, suggesting that the combined profitability of UK farms is likely to be 18% lower than in 2017.
The department suggests that TIFF for 2018 is likely to be just under £4.70bn, compared to a four-year high of £5.73bn in 2017.
The revised 2018 figure is 3% lower than Defra’s first TIFF estimate (£4.85bn), which it released in December 2018.
TIFF is defined as the total profit from all UK farming businesses on a calendar year basis.
The data shows that while gross output rose by 2% in 2018, because of better prices for key commodities, in general, all costs were higher.
The livestock sector saw the biggest increase with the cost of animal feed estimated to be £509m higher in 2018 than during the previous year.
This was due to a combination of farmers needing more feed because of weather-related fodder shortages and the increased cost of that feed, due to higher cereal prices.
Rising global oil prices also had an impact – pushing up fertiliser costs by £116m and energy costs by £113m – despite farmers’ usage of both being down.
The rise in the National Living Wage saw average labour costs rise by £112m putting a further dent in profits.
Defra has also released an update of the figures used to assess the efficiency and competitiveness of the agriculture industry.
The data shows that Total Factor Productivity, which is a measure of how well inputs are converted into outputs, rose by 2.8% between 2017 and 2018.
The department said that productivity had recovered after a dip in 2016 and the long-term trend was one of slow, but steady improvement overall.
Defra is interested in this measurement as it argues that that while weather conditions or disease outbreaks may have a short-term impact, it is developments in productivity that will be one of the main drivers of agricultural income over the longer term.