Farm Profits Dip for 2014

DEFRA is indicating that farming profitability fell by a surprisingly small amount in 2014.  Provisional figures for the last calendar year show a real-terms drop in profits of just 4.4%.  This gives a return to the entire industry of just under £5.4bn.

The data comes from the latest Total Income from Farming Figures (TIFF) figures.  TIFF shows the total profits from all farm businesses in the UK on a calendar year basis.  It is the return to all the entrepreneurs in agriculture and horticulture for their labour, management and capital invested in their businesses.  The series has been running for over 40 years and is generally regarded as the benchmark for the financial health of the sector.  Despite the use of the word ‘income’ it can be thought of as the overall profit of the farming industry.

The TIFF figures have presented a number of surprises over the last few years.  The 2013 figure was the best for over 15 years, higher even than 2011, which seemed slightly odd.  The TIFF for 2013 has now been revised downwards (as we thought it would), but only by 2%.  This still leaves it at a historical high. 

With prices falling across-the-board in 2014, we would have expected the drop to be far larger than the 4.4% indicated.  Some figures look a little odd; for example, the output from the cereals sector is actually reported to have been higher in 2014 than 2013.  It might have been thought probable that lower prices would have more than offset higher yields.  Milk output also rises significantly between 2013 and 2014.  Again, not necessarily what might have been expected.  These rises offset falls in other sectors (especially cattle and potatoes) and meant output was only 2.2% down in real terms.

On the cost side, the biggest change was a fall in animal feed spending by over £0.5bn.  Most other cost categories were not greatly changed.  But a big shift occurred in the value of subsidies.  The change in the currency meant that the value of the Single Payment fell by over £0.45bn.  The chart below shows TIFF since 1990.  We believe the 2014 figures may be revised downwards (an update will be published in November).  Therefore the top of the column has been shaded.  The £/€ exchange rate has also been plotted on the graph  to illustrate the importance of currency to UK farm profits. 

Total Income From Farming and Currency, 1990 to 2015 – Source: DEFRA

Looking to the current, 2015, year, prices are lower in a number of sectors than they were in 2014.  For example, dairy, pigs and, to a certain extent, combinable crops.  With little cost saving likely (other than the relatively unimportant fuel category), and the prospect of yet-lower subsidy receipts under the Basic Payment, we would expect a substantial fall in TIFF for 2015.  It must be noted however that we forecast this for 2014 and the official figures did not bear it out.  Indeed, we have had to revise our 2015 forecast up on the basis of such a strong performance in 2014.  Nevertheless, we would expect the 2015 figure to be nearer £4bn than £5bn.  Although substantially less than has been seen for the last four years, it should be remembered that this level of return is much better than was seen in the late 1990’s and early 2000’s.

For the full statistics see – https://www.gov.uk/government/statistics/total-income-from-farming-in-the-uk