Defra report outlines plunging farm business incomes

Average farm business incomes, 2014/15. Source: Defra

Average farm business incomes, 2014/15. Source: Defra - Credit: Archant

The punishing effect of low commodity prices on agricultural profitability has been underlined in a government report which shows farm incomes falling across almost every sector.

The survey data published by Defra for 2014/15, which covers the 2014 harvest and includes the Single Payment subsidy for that year, shows average farm business income dropping across every type of operation except grazing livestock farms.

For cropping farms, improved weather and a return to more usual cropping patterns saw an increased area of winter crops compared to the previous year and a substantial improvement in yields. However, the increased production was offset by lower commodity prices due to a strong pound and plentiful supplies on global markets.

On dairy farms, where farmgate milk prices have been falling for more than 18 months, the report says the lower average income was driven by lower output from milk production.

Falling incomes on pig and specialist poultry farms were attributed to a reduced output for pig and poultry meat. The report says the higher value of the pound against the euro led to a lower Single Payment and had a negative impact on prices as domestic production had to compete with cheaper imports and alternative suppliers for export markets.

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The National Farmers' Union's deputy president, Minette Batters called on the government to build a policy framework which would encourage farmers to 'increase efficiency, develop and embrace technological advances, and take a long-term balanced view to investment.'

'It's critical that others in the food chain now recognise the financial pressures that farmers, as suppliers of raw materials, are facing,' she said. 'There are some positive initiatives out there. More widely the supply chain can help by working to put in place the mechanisms that help farmers manage volatility.

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'During these challenging times, it is crucial that there are no delays to CAP (EU Common Agricultural Policy) payments, which would only compound cashflow concerns.'

The NFU said commodity prices had changed markedly since the period covered by the report, with UK farmgate milk prices falling for 21 consecutive months while the May/June average lamb price was at its lowest level since 2008.

Other farming sectors are also feeling the squeeze with wheat prices falling by almost a third over the past two years, pig prices currently at their lowest levels for six years, and the sugar beet price for the 2016/7 campaign the lowest in nearly a decade.

Farm borrowing

Bank lending to agricultural businesses has risen sharply as farmers wrestle with low commodity prices and cashflow concerns, according to financial experts.

Simon Lubbock, NatWest director of commercial banking for Norfolk, said: 'Lending to the agricultural sector across the UK has been strong, with the British Bankers Association reporting that it has increased by 10pc to £13bn over the past year.

'Locally, we have also seen strong demand, having doubled our lending to agricultural customers from 2012-2015.

'This has been reflected across a whole range of uses including new farm buildings and renewable projects as well as the more traditional areas of land purchase and machinery finance.

'Although the published data does not go into detail on the reasons for the additional borrowing, there's concern that in addition to the investment in these types of projects, a higher proportion of the additional debt has been incurred simply to cover the cash shortfall on some farms, due to the difficult trading conditions last year.

'The arable and dairy sectors tend to carry a larger proportion of the debt compared to other sub-sectors. And the past year has been difficult for these types of farms, with milk, grain and potato prices all being weak.

'This is not unusual - farming is known for these volatile trading cycles and farmers' investment decisions tend to follow a similar pattern - investing more in the good years and less when cashflow is tighter.'

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