Subsidy income now represents 97% of farming profit, according to the annual Farm Profits Survey by of the Institute of Chartered Accountants’ Farming & Rural Business Group.
This is in spite of a small increase in turnover and profitability during 2006/2007.
The survey of agricultural accountants revealed that average farm turnover for 2006/2007 was £312,600, yielding an average net profit of £46,300 – up by some £8,600.
This figure coincided with average drawings and was little more than the average receipt from subsidies of £45,000.
“The survey serves to remind us that the farming and rural businesses are still being supported by subsidies and that profits are still not at a level where earnings can be retained,” said Bill Ballard, chairman of the Farming & Rural Business Group.
Better cereal prices currently being seen gave some cause for optimism, he added.
“However, the corresponding increases in animal feed have caused real problems for the livestock farmer. And, since last summer’s harvest, substantial increases in fuel, fertilizer and seed costs will reduce the benefit of the increased grain prices to the cereal farmer in next year’s returns.”
According to the survey the average farm balance sheet showed a considerable improvement in 2006/07, with net assets rising by some £27,000.
However, profits are still not at a level where earnings can be retained, so the increase in balance sheet values reflects things such as the sale of surplus land and buildings, and “non-farm” earnings.
Almost half of the accountants surveyed thought that climate change was affecting their clients’ farming activities – both positively, by providing markets for energy crops, and negatively, by increasing costs such as insurance and adversely affecting crop husbandry.
The survey also revealed that farmers are making substantial changes in response to the Single Payment Scheme – the most widespread being reduction of fixed costs by using contractors, and expansion, whether by renting, buying or collaboration.