Improved incomes needed for farmers to deliver in food production challenge

Huge hikes in animal feed bills are driving the dramatic downturn in the incomes being forecast for Englands farmers according to the NFU, as Defras Farm Business Income forecasts for 2010/11 were published today.

According to Defras figures, dairy farmers are expected to see a 24 per cent fall in incomes. Grazing livestock farms also look set to see farm incomes decrease, compared to the previous two years, with a massive 48 per cent drop predicted for lowland grazing units.

Although sustained sheep prices are currently cushioning the drop for livestock producers in less favoured areas, farm incomes are still forecast to fall by a third. From these initial forecasts, year on year, poultry farmers incomes could see a fall of six per cent with the average poultry farm seeing less than half the level of income recorded in 2007/08. Pig farmers could also face a huge drop in income of two thirds as a result of higher feed costs and lower prices.

Figures show a 73 per cent increase in farm incomes in the cereal sector. This years positive forecast follows a fall in cereal sector incomes of 34 per cent in 2009/10 when, without Single Farm Payments from the CAP, many arable farmers would have faced losses.

NFU President Peter Kendall said: In a week where Government was urged to increase food production by its chief scientific adviser Professor John Beddington, to feed a growing world population estimated to reach nine billion by 2050, todays farm income figures are bitterly disappointing.

For Englands farmers to play their part in meeting our future food production challenges, they require sustained investment in productive capacity. For many sectors, the indications are that the current returns from farming barely cover the costs of production, let alone provide the cash for re-investing in farming businesses. This is economically unsustainable.

Farmers cannot carry on producing at little or no profit indefinitely. Like any business they need to turn a profit and soon.

NFU senior economic adviser Phil Bicknell said: Arable incomes are the obvious bright spot yet even these need to be considered in context.  The global supply situation has led to stronger grain prices, boosting Englands arable incomes while the headlines focus on the current high prices of commodities. However, it is important to remember that a significant amount of grain will have been sold forward or under contract at prices nearer to last years lows in March of 92.50/t rather than the highs of 201/t in January 2011.

A major consequence of higher cereal prices for agriculture is higher livestock feed costs. While Defras forecasts dont provide a breakdown of input costs, buying feed typically represents the primary cost for livestock farmers and higher grain prices will have exaggerated feed bills still further.

This situation has been further compounded by a severe lack of fodder crops from last summer and the extended winter feeding needed in 2010 due to bad weather and a prolonged winter. Farmers already predicted this increased need for purchased feed and for many these forecasts wont come as too much of a surprise.

However, rising costs for farming dont stop at animal feed. NFU members have seen rocketing input costs over the past 12 months across the board from increases to bank charges through to other major inputs costs such as fertiliser.

Farm gate prices are the other obvious factor impacting on farm incomes and many farmers have seen revenues weaken. Beef prices for much of 2010 were down on 2009 levels, and pig prices spent much of the year under pressure. The NFU has well-documented the situation in dairy where, despite rising global commodity prices, the price paid to farmers for their milk remains painfully slow to increase.

• Farm Business Income represents the financial return to all unpaid labour and on their capital invested in the farm business, including land and buildings.
• Further data on farm incomes by sector will be available later in the year. This will use actual farm accounts collected via the Farm Business Survey, rather than a set of assumptions that underpin the current farm income forecasts.
• The Global Food and Farming Futures final report, which was published on January 24 by the government’s Foresight unit, attempts to provide solutions to how to feed a growing world population while using fewer natural resources. It consider the challenges of making global food supply secure and affordable at the same time as reducing inputs and emissions and protecting wildlife.