Returns collapse in wake of sharp fall in output
Returns collapse in wake of sharp fall in output
By Philip Clarke
INPUT costs fell in 1997, but nothing like fast enough to keep pace with the sharp drop in farm output across all sectors of the industry.
The result? A massive 45% fall in net farm incomes (the returns to farmers and their spouses after family labour) to just £2.27bn. This followed a 4% drop in 1996 and, in round terms, UK agriculture is back to where it was in 1992 – or worse, if one takes inflation into account.
According to newly-published MAFF figures, total input costs fell 4% last year to £8.06bn. The biggest drop was in the livestock sectors feed bill – down 12% to £2.44bn – as compounders reacted to steeply falling demand and lower ingredient prices.
The other main saving was on fertilisers (down 4% to £790m), as Russian dumping dragged the whole market down, with domestic AN trading below £100/t for much of the season.
But the real damage was done on the output side of the equation, with 11% wiped off the total value of farm sales, which fell to just under £16bn.
Instrumental in all this was the strength of sterling and the attendant revaluations of the green £. For a trade-based industry like agriculture, the strength of the £ hit in two ways – raising the cost of exports and sharpening the competitive edge of imports. And, over the 12-month period, the green exchange rate worsened by 16%, having a direct effect on the level of support prices and direct income payments for farmers.
Every sector has been hit by lower returns, the effect of which has been compounded by higher overheads. Interest rates were raised five times during the year, explains the NFU, lifting the interest bill 12% to £614m. Labour costs also rose ahead of inflation, by 4.9% to £1.8bn.
After deducting depreciation, rent and family labour, this left a net farm income of just £2.27bn.
Looking at MAFFs "indices of net farm income", which show how individual farm types have fared, it is clear that not one has escaped the income squeeze. (See graph.)
While most attention in recent weeks has focused on the plight of beef and sheep producers (with income down 65% in the lowlands and 39% in the LFAs), significant falls have also been seen on dairy farms (-35%), cereal farms (-41%) and pig and poultry units (-44%).
Converting these into monetary values, FW estimates that net farm income on English dairy farms has fallen to about £19,000, on cereal farms to £24,300 and on pig and poultry units to £27,300. Beef and sheep farms in the LFA are put at £11,000 for 1997, with lowland units making just £2700.
Further income falls are forecast for 1998. *