Farmers will lose an average £86/ha (£35/acre) next year just by growing crops and rearing livestock, according to a survey from Deloitte.
The consultancy group predicted that its average farming client with 400ha would be losing £101/ha on food production by 2006/07.
Though the single farm payment and earnings from diversification provide farmers with a profit margin, net income would decline in the future.
Deloitte expects average profit before drawings to fall to £153/ha (£62/acre) in 2005/06 and £119/ha (£48/acre) the following year.
Consultant Richard Crane said the question was why farmers continued to produce.
“In 2004, the cost of production exceeded selling price, as it did in 2002 and 2003.
“This is the subsidy gap: without EU aid, food production doesn’t make sense for the majority of our farmers.
“And if the SFP is hammered in the way politicians seem to want, it may no longer fully cross subsidise food production.”
The survey claimed potato and sugar beet farms had seen the best overall return, as good yields made up for weaker prices.
All the same, farms growing root crops saw net income halve in 2004/05 to £160/ha.
Combinable crops farms returned £119/ha as low wheat prices eroded profitability. Further falls were likely, Mr Crane said.
Not surprisingly, dairy and mixed farms had the weakest balance sheets.
Costs were found to vary from 15p/litre to 20p – the same range as milk prices.