Underlying farm fortunes are 'encouraging'
FARMING AND RURAL AFFAIRS
FARMING'S recent financial performance has been better than farmers might realise, Professor Donald MacRae suggested yesterday.
"Aggregate income has increased by almost 2.5 times in the past six years," said the chief economist with Lloyds TSB Scotland. "That is a remarkable financial performance."
Comparing total income from farming in Scotland since the 1995 peak of £682 million, he notes the deepest trough was £212m in 1998 with a steady rise each year from the £242m of 2000 to last year's £505m.
Over the same decade, the volume of cereal production has stayed much the same, finished cattle numbers were 19 per cent down by 2004, sheep 16 per cent down, pigs 41 per cent down, but milk production - in spite of a steady decline in cow numbers - was up 12 per cent.
In his latest detailed economic bulletin, MacRae also points out that return on a farmer's notional tenant's capital - which does not include any land value - might not seem remarkable, but many other types of business would find it satisfactory for 2004.
"The average for all types of farm was 15 per cent return on £133,000 capital. Although that is below the return on equity of many FTSE 100 companies, it is well above the return in many other businesses," he said.
Specialist hill sheep farms had the lowest tenant's capital, £57,000 with an average return of 17 per cent. Dairy farms averaged £176,000 (return 14 per cent), mixed farms £162,000 (return 12 per cent) and general cropping £149,000 (19 per cent).
In his usual comprehensive study of all available statistics, he points out that there are indicators of confidence in farming. Bank lending has been largely static in the past five years while, in spite of concerns and uncertainty about big changes to Europe's common agricultural policy, land prices rose 10 per cent last year. Dairy land prices rose 9 per cent and mixed farm land rose 18 per cent.
But the question is whether historical figures will be a guide to the future. MacRae concludes that, at least in the early stages, CAP change will not mean a reduction in production, but in the next few years a concentration of the industry into bigger farms will continue.
There will also be increasing diversification to the extent where some farms have only a vestigial interest in production.
He said: "Farming's share of the total economy will continue to decline, as will its share of employment - but it can look forward to maintaining its overall financial good health if agricultural production is combined with countryside maintenance."
. The Institute of Chartered Accountants of Scotland has issued guidance notes for its members on likely Inland Revenue treatment of the new single farm payment for tax purposes.
The gist of it is that the single payment must be recognised in the profit and loss account of the calendar year in respect of which it is paid, with possible complications when the conditions for the SFP are not met until after the end of the financial year when it should be recognised at the end of the chosen ten month period for rented land.
Agricultural law specialists Anderson Strathern said yesterday that single farm payments will not be subject to stamp duty land tax when transferred with a farm, which could mean significant tax savings.
. Strutt & Parker's latest figures indicated twice the area of land for sale as at this time last year. More than 5,000 acres are on the market compared with 2200 in 2004.
Source: Scotsman.com, June 10th, 2005
