Costs rise while incomes fall

28 November 1997

Costs rise while incomes fall

RISING costs must be tackled urgently as the beneficial effects of previous CAP reforms begin to wain.

That is one of the key findings of the latest Farming in the East Midlands report from the University of Nottingham, covering 242 farms with average financial year endings in Mar 1997.

"The results very graphically demonstrate that costs have risen at a faster rate than returns," says Martin Seabrook of the universitys Rural Business Research Unit. "On average, costs have increased by some 5%, while output has either declined or increased by at best 2%."

Comparing net farm incomes for various enterprises, it is clear that the greatest declines from harvest 1996 have been on arable farms with roots and vegetables, plus those with pigs and poultry.

Surprisingly, the results show only a marginal fall for arable units with beef and sheep. This reflects the fact that better sheep prices in 1996/97 helped offset the effects of the BSE crisis on cattle prices, while increased compensation measures also helped.

The only sector to show an increase in net farm income was the dairy sector, as farm gate prices lagged behind the drop in dairy commodity prices. "But there is no doubt that 1997/98 will begin to show a reduction in the financial returns for the dairy sector," says Dr Seabrook. "Figures coming in now also show a further increase in costs, associated with capital investments for various quality assurance schemes."

The same is true of the "mainly cereals" group of arable farms. The early signs of the decline in fortunes are evident in the Nottingham University report, with output edging up 1.9% year on year, but being eroded by a 4.5% increase in total costs. Further falls in net farm income are inevitable following this seasons sharp drop in cereal prices and lower area aid.

But as with all surveys of this nature, the variations in performance are considerable. For specialist dairy farms over 50ha, the average net farm income came to £424/ha in 1996/97, while the top 25% achieved more than double this at £935/ha. And on mainly cereal farms over 200ha, the average net farm income was £275/ha, compared with £385/ha for the best.n

Net farm incomes on East Midland farms (£/ha)

Specialist dairy486515+695

Arable with dairy419403-495

Arable, mainly cereals333278-17116

Arable + roots/vegetables394235-4071

Arable + beef/sheep183170-13106

Arable + pigs/poultry755355-5372

*Rolling average of previous three years = 100.