Background

It describes aggregate incomes across the whole industry, profitability, prices and trade in the main enterprises, farm business incomes and an indication of agriculture’s contribution to the regional and rural economy. Other topical items are incorporated as appropriate.

The timing and frequency of updates are driven by when data becomes available. The report is updated during February, April, July, September and November and made available in the early part of the subsequent month.

What’s New?

Revised 5 year projections for aggregate agricultural incomes (TIFF) to reflect changes in the sterling-euro exchange rate
Analysis of the economic effects of the CAP reform agreement of 26 June (see page 21)
Headline results of a Survey of Agriculture Computer Usage.
Commodity prices and margins are updated where appropriate.

Aggregate Incomes Across the Whole Farming Industry

• Total income from farming in the UK in 2002 is estimated to be £2.36 billion, a rise of 15 per cent (or 14 per cent in real terms) over 2001. Because of a reduction in the number of farmers, total income from farming per full time person equivalent is estimated to rise in 2002 by 19 per cent or by 18 per cent in real terms to £11,107. Total income from farming more than doubled between 1990 and 1995. Whilst it is now 62 per cent below its peak in 1995 it is 16 per cent below the 1990 level.

• The long term trend in income has been downwards although it rose and then fell dramatically in the nineties due to changes in exchange rates, world commodity prices and the impact of BSE.

• The overall increase in income in 2002 masks variation across the sectors. The value of output of cereals rose as production recovered even though prices were lower. Prices received by farmers for milk were lower. The output of cattle and sheep recovered following foot and mouth disease. The value of output of potatoes was down due to lower prices.

• Beyond 2002, forecasts of the key drivers of future business prospects – in particular commodity prices and exchange rates – are highly uncertain.

• There has been a welcome recovery in the Euro so far in 2003. It has strengthened by 9% relative to £ since the beginning of the year. This has lead to a rise in prices across a range of commodities and will result in higher direct subsidy payments. Most macro economic forecasters are expecting this recovery to be sustained and this has now been built into the baseline projection in the chart below.

• The chart shows a further increase in incomes is expected for 2003 due primarily to the effects of the exchange rate. However, there remains a large level of uncertainty at this stage with this forecast due to the potential impact of unknown factors between now and the end of the year (including further changes in the exchange rate and weather effects upon this year’s harvest).

• Beyond 2003, there is likely to be only a modest recovery in commodity markets over the medium term future. Note that as yet the projections shown below do not incorporate the impact of the CAP MTR outcome which will start to impact towards the end of this projection period. These will be built into the next version of these projections which will be produced in September 2003.

• Projections are also provided to illustrate the effects of further movements in the exchange rate over and above the appreciation of the Euro seen so far this year. The scenarios shown illustrate the effect of a further 5% appreciation in the value of the Euro and the impact of the Euro fallen back to 62p (the average level seen during the 2000-2002 period).

• The other key driver of farm incomes is productivity and if the UK’s lagging productivity performance could be reversed, by sustaining exceptionally high rates of productivity growth which have been achieved recently (under severe financial pressure), income per person could show nearly a threefold increase by 2007 from the low base of 2000. The numbers of farmers (and partners and directors) is projected to fall by 20 per cent under baseline assumptions and by 30 per cent under the high productivity assumptions.

Profitability in Key Sectors

Profitability in the key sectors is measured by the net margin; this provides the return to managerial labour and the return on capital.

Poultry

Laying Hens

Net margins for laying hens are based on data from a commissioned survey into the economics of egg production undertaken in 1992. The lapse in time and changes in the industry that have occurred since that time mean that the margins shown here can only be broad estimates but the trends in margin are robust.

2002 is currently estimated to show a rise in average profitability over the previous year. This reflects reasonably buoyant egg prices (38p per dozen at March 2003) coupled with year on year reductions in feed costs in the second half of 2002 due to lower feed cereal prices.

The value of egg imports has been growing at a slightly faster rate than that of exports since mid 1999.

Table Chickens (broilers)

Net margins for broilers are estimates based on data from a variety of sources - the margins shown here should only be regarded as broad estimates but the trends in margin are robust.

Profitability in the broiler sector is expected to increase in 2002/03. This reflects year on year reductions in feed costs from mid 2002 onwards due to lower cereal and soya prices. Poultry prices are currently 49p per kg.

Total UK broiler production in 2002 was slightly lower than in 2001. Slaughterings in May 2003 were slightly higher than in May 2002.

The value of UK poultrymeat imports consistently exceeds that of exports and the gap has widened in recent years.

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Source: Defra - July 2003