Importance of Direct Payments for Farm Incomes

UK - Farm incomes in England and Scotland have decreased over 2009, whilst incomes in Northern Ireland increased, however Single Farm Payments has played a major part in all countries.
calendar icon 29 January 2010
clock icon 6 minute read


National Farmers' Union (NFU) Scotland believes the publication of Scotland’s farm income figures for 2009 has highlighted another turbulent year for Scottish agriculture, one that has seen a disappointing decline in the total value of Scottish agricultural income for the second consecutive year.

The statistics published by Scotland’s Chief Statistician, show that Total Income From Farming (TIFF) decreased by £20 million to £589 million between 2008 and 2009. This represents a fall of 3.2 per cent before inflation is accounted for and a fall of 2.6 per cent in real terms. It comes on the back of an eight percent decline in TIFF between 2007 and 2008. Combined, the figures show that the fall in total income to Scotland’s farmers is more than £75 million in the past two years.

Scottish agriculture remains subject to varying degrees of volatility. The higher farmgate prices some farmers received last year for their beef, sheep and pigs were overshadowed by a steep decline in returns from cereals and milk while the costs of key inputs such as fuel, fertiliser and animal feed remain historically high. As a result, the average income on Scottish farms for 2008/09 fell by £2200 to £38,700 compared to the previous year.

NFU Scotland’s Policy Director Scott Walker said: “To put things in context, this fall in income is set against the favourable exchange rates seen throughout the whole of 2009 which will have undoubtedly assisted farmgate prices in all sectors. The lift in the value of the Single Farm Payment (SFP), brought about by the improved exchange rate, has been a significant factor in underpinning the risks in the marketplace.

“The income figures highlight the ongoing importance of public support to the industry. Without the benefit of SFP and monies delivered through the Less Favoured Areas Support Scheme, the majority of Scottish farm businesses would have at best broken even or operated at a loss.

“The future delivery of support to the Scottish industry is currently open to debate around the country as farmers discuss the initial findings of an independent inquiry into the delivery of agricultural support in Scotland, produced by leading industry expert Brian Pack and his inquiry team. The initial report makes a strong case for the ongoing support of farming and food production and that without such assistance, ongoing market failure and volatility would leave the country's food and drinks supply vulnerable and undermine the environmental and social benefits delivered by the industry. "


Total Income from Farming (TIFF results)* show a decline of 6.7 per cent although the NFU say this is far from a return to the low levels of income seen in the decade up to 2008. Overall, income from farming per full time equivalent is estimated to have fallen by 8.7 per cent to £20,955. Incomes, especially in the grazing livestock sector remain low compared to wider average household income of £30,000.

According to the report, Farm Business Income is forecast to increase in 2009/10 on specialist pig, specialist poultry, LFA and lowland grazing livestock and mixed farms. This reflects firmer prices for finished and store livestock combined with lower input costs. However, incomes on specialist cereal and general cropping farms are expected to fall as a reduced cropping area combined with lower average yields and prices led to a lower crop output. This drop in output was only partially offset by a fall in costs.

The NFU says that TIFF data for 2008 has been revised significantly to take account of increased data availability, impacting the value of cereal output and key agricultural costs in the accounts. The intra-year volatility in commodity and input prices clearly presents challenges for any data reliant on an element of forecasting, hence Defra’s revisions. The change between the revised 2008 figure and 2009 TIFF is in line with NFU expectations.

NFU senior economics adviser Philip Bicknell said: “For the second year in succession we have seen the beneficial impact of the weak pound on farm incomes. This has partially offset the decline in dairy and cereal commodity prices, increased the competitiveness of UK red meat and poultry and, more significantly, the value of farmers’ direct payments through SPS. Indeed, the increase in SPS has gone some way to making up for the 3.1 per cent decline in output value across agriculture as a whole.

“The reality is that if the single payment was removed completely, a large proportion of farming profit would be wiped out. This demonstrates the real challenge which is in generating profitable returns from food production, as well as the need for appropriate policy measures in the short to medium term.

“Exchange rates will continue to play an important role in determining the fortunes of the farm sector in 2010. With improving commodity prospects, especially for the dairy sector, farm incomes are likely to remain resilient. Although costs fell by 1.2 per cent according to the 2009 data, feed prices remain relatively strong while fuel costs appear to be on an upwards trend. Margins will also come under increasing pressure from regulatory compliance, whether that’s EID impacting sheep producers or the poultry industry preparing for the Laying Hens Directive.”

Northern Ireland

Agriculture income in Ireland has increased over 2009 according to DARD figures published earlier in the week.

Commenting on the figures, Minister Michelle Gildernew said: "The agricultural income estimate for 2009 indicates a modest increase compared with 2008. This is almost entirely due to a favourable pound/euro exchange rate which resulted in a significant increase in Single Farm Payments and had positive price effects in some commodity sectors as well. It should be noted once again that without the Single Farm Payment, farm incomes would have been negative. This illustrates how important this mechanism is to local farmers.”

The Minister continued: “However, the aggregate figure masks the difficulties in the dairy sector. Farm level figures show a forecast fall in dairy farm incomes of 30 per cent. Throughout this challenging year, I lobbied hard on behalf of the dairy industry. The lobbying had a successful outcome and the EU provided a number of support measures, including the re-introduction of export refunds and intervention purchases for dairy products.

Thankfully, world commodity markets have improved more recently and this is being reflected in the prices paid to producers, although the latest milk auction price shows that the recovery is fragile and that markets remain volatile. I hope there are better times ahead for the dairy sector and I will certainly continue to do all that I can to help improve the position of all farmers in the coming year.”

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