The 1989 edition of Farm Incomes in the United Kingdom, published earlier this month, paints a gloomy picture. Nearly 290,000 farmers’ incomes were examined in this, the fourth in the series, which shows that the average farm income was £11,400 gross, £8,900 after tax — figures which may be looked on as very modest in many businesses. And a large group, 90,000 strong, earned only between £2,000 and £6,000 before tax, of which a third was “off-farm” income — other jobs, pensions and investments.
Richer farmers with incomes of £50,000 plus had the largest private sources — they earned only 38% from their farms — but even the moderately prosperous took a knock: the net income of large arable farmers fell from an average of £30,000 in 1986-87 to £10,000 in 1987-88.
Agriculture minister John MacGregor attempted, with no great success, to explain away farming’s decline. “The single statistic of aggregate farming income does not give a complete picture and is not an adequate guide for policy,” he argued. “In 1988, this narrow measure of aggregate income fell by 28% in real terms. Other measures of income at the aggregate level, including cash flow, showed smaller although still substantial falls, ranging from 11% to 25%.”
Grasping at what straws of comfort he could find, the minister pointed out that real incomes of dairy and other grazing livestock farms are forecast to increase appreciably in 1988-89. “In contrast, yields of cereals and oilseed rape were due to poor weather and this, together with lower prices, resulted in cropping farms being forecast to have an extremely poor year in 1988-89. The other sectors which contributed to the fall in aggregate income were pigs and poultry, where prices were at a cyclical low point in 1988.”
Mr MacGregor concluded by blaming the figures as having “their imperfections as indicators” — but what they cannot hide are declining profits and continuing political uncertainty.
These same points are taken up in a recent study by Knight Frank & Rutley which charts the fall in incomes over recent years but nevertheless sees some signs of encouragement both for the farming business and for land values.
“Although surpluses and production in the EEC are finally coming into line with requirements, price pressure is likely to erode returns further in the short term,” comments KFR agricultural partner Peter Prag. “Despite this, average land prices will continue to rise during 1989 because production potential and returns from farmland are no longer the determinants of value.” Set-aside and the increasingly green policies being pursued by the Government reinforce the fact that amenity appeal and development potential have taken the place of productivity.
“Existing inadequate set-aside payments are candidates for further increases as part of a more environmentally orientated policy,” Mr Prag continues. “Diversification grants offering farmers the chance to turn to ventures other than agriculture are helpful, but producers must be sure they have done thorough feasibility studies before they launch into new enterprises.”
With planners taking a rather more open-minded approach than previously, the development potential of old barns and other buildings has increased enormously — yesterday’s millstone is today’s asset — and the investment market is showing increasing interest in farmland. Amenity and sporting factors will continue to underpin values, and not just in the affluent South East.
But whereas dairy farms with quotas are still going up in value, the plain arable farms with no amenity appeal will suffer price decreases, particularly if the Government removes the roll-over facility on development gains. “The long-term outlook for farmers is more encouraging than the short term, however,” Peter Prag concludes. “Agricultural returns, boosted by environmental subsidies, will come back as the butter, beef and grain mountains disappear. Productive potential will then re-establish itself as a major factor affecting land values.”
