Farmers will lose an average 86/ha (35/acre) next year just by growing crops and rearing livestock, according to a client survey from accountant Deloitte.
The consultancy group’s annual farm income survey, which covers 100,000ha (247,000 acres) of mainly lowland farms in eastern England, found that losses from food production for its average client on 400ha (988 acres) would deepen to 101/ha (41/acre) by 2007/08.
This will be partially offset by the growing revenue from diversified businesses, which is forecast to grow by a healthy 10% a year for the average farmer.
Nonetheless, Deloitte says the outlook for net farm earnings is in marked decline as the single farm payment is eroded by modulation, and cross-compliance costs rise.
Profit before drawings and tax is expected to fall 10/ha (4/acre) to 153/ha (62/acre) next year and just 119/ha (48/acre) in 2007/08.
Partner Richard Crane said the question was why farmers continued to produce. “In 2004, the cost of production exceeded selling price.
Without EU aid, food production doesn’t make sense for the majority of our farmers.”
Of the three main sectors Deloitte works with, potato and sugar beet farms had seen the best overall return, said Mr Crane.
But though good yields had made up for weaker prices, growers had still seen net farm income halve this year to 160/ha (65/acre).
Potato costs per tonne averaged about 90, meaning that only free buy sales made money.
Arable farms saw net income slide 38% this year to 119/ha (48/acre), which Deloitte blamed in part on lower wheat values.
The trend towards stronger yields had taken the edge off falling incomes, but a weak outlook on commodity prices meant further falls were likely, Mr Crane said.
Growers would need to harvest more than 10-11t/ha (4-4.5t/acre) if they were to recover the costs of production.
Mr Crane said: “There is no sign yet of croppers responding to decoupling.
Farmers need to compare current economic reality with long-term strategy, and that doesn’t mean hoping the commodity price will get better.”
Dairy and mixed farms had the weakest balance sheets.
Costs before rent and leasing varied from 15-20p/litre – the same range as milk prices.
Crucially, however, costs per litre were lower for less intensively milked herds in the Deloitte survey.