Hike in income masks lack of profitability

Superficially, the increase in farm incomes last year were welcomed by NFU Scotland policy director, Jonnie Hall. But he warned that, beneath the headline, the lack of profitability on livestock farms in less favoured areas (LFAS) was worrying.

“Scratch the surface, and the vulnerability of many farm types, notably beef and sheep producers in our less favoured areas, remains a significant concern and underlines the fact that the Scottish agricultural industry continues to find itself in a dark corridor of uncertainty,” he said. “Reliance on support payments, together with increasing diversification, are symptomatic of farming enterprises that cannot rely on adequate and stable returns from the marketplace to offset costs that continually creep upwards.”

Hall was commenting on figures released yesterday showing average farm incomes in Scotland in 2017-18 rose 19 per cent to £35,400, the highest level over the last six years.

This upward trend from the previous year showed the farming industry continuing to recover from the low average income of £16,800 in 2015-16.

But subsidy payments from the EU continued to play an important role in farm incomes. Almost two thirds of the farms in the survey would have made a loss without subsidy with the average business losing £7,400 without support

Rural economy secretary Fergus Ewing also welcomed the upturn in farming fortunes while acknowledging the economic fragility of parts of the industry

After describing farming and food production as “the cornerstone of our rural economy” the minister added, “It is pleasing to note that cereal farms experienced a six year high income, while dairy and general cropping farms continue to recover from the problems experience in 2015-16 due to low milk prices and subsidies, though they remain sensitive to market and economic fluctuations.

“But these figures also mask the stress that many individual farmers and crofters tell me about, due to severe financial pressure and thin margins they are facing.”

Ewing highlighted the statistic showing that more than half of farms had significant diversified activities that generated additional incomes to their business. “However, farms with the least opportunity to diversify activity, such as less favoured area sheep farms, are also the most reliant on subsidies for their income.”

Another figure to emerge from the Farm Business Statistics was a slight increase in the level of farm debt although, now valued at 12 per cent of the net worth of individual farm businesses estimated at an average of £1.3 million, the chief statistician reckoned there was no immediate cause for concern.

Hall viewed the rising tide of debt as eating into working capital and cash flow needs rather than investment. As such he questioned the financial resilience of many farm and crofting businesses as they approached Brexit