Direct payments to farmers represented 96% of farm business income, and 56% of cash income generated across all types of NI farms in 2019-2020, a report compiled by DAERA statisticians shows.
The analysis is presented in the latest Farm Incomes in NI booklet published by the Department. It compares incomes across the 2018-2019 and 2019-2020 financial years using data collected in the annual Farm Business Survey.
In total, 325 farms participate in the survey, although the main analysis is undertaken across 247 of these farms that provided data in both years, and have a Standard Labour Requirement (SLR) of at least 0.5.
It means that the analysis tends to relate to larger farms in NI. DAERA estimates that there are 9,865 farms in NI with a SLR above 0.5.
That leaves 14,515 under 0.5, which DAERA refers to as “spare-time farms”.
Farms between 0.5 and 1.0 are classed as “part-time”, with those between 1 and 2 classed as “small”, going up to over 5 SLR which is “very large”.
Each SLR relates to 1,900 hours of labour per year. When classifying farms, each individual animal or area of crops has an associated labour requirement, so for example, a dairy cow is allocated 39 hours per year, which means a farm milking 49 cows would have 1 SLR.
As shown in Table 1, across all farms with an SLR above 0.5, farm business income (sales less expenditure, depreciation and stock value change) decreased from £29,657 in 2018-2019 to £25,935 in 2019-2020.
Only two of the seven main types of farm businesses saw their income go up in 2019-2020. Incomes on pig farms were up 13%, with cattle and sheep farms in less favoured area (LFA) up 7%.
In fact, it is pig farms that generated the highest farm income in 2019-2020 at an average of £59,728, followed by dairy at £51,803, cereals at £30,440, cattle and sheep in the LFA at £15,244, and lowland cattle and sheep with an income of just £11,869.
It should be noted that while all these farms are above 0.5 SLR, they are not directly comparable.
For example, the average dairy farm in the sample has an SLR at 3, while cattle and sheep farms are around 1.
If direct payments are taken off the farm income figures, the data presented in Table 1 also highlight that the impact would be severe on the cattle and sheep farms. LFA businesses would make a loss of £12,787, with lowland farms recording a loss of £8,420.
Cereal farms would have incomes of just £6,113, while dairy would drop to £28,217. The impact would be much less severe on pig farms given that they historically have low payments due to lack of land area.
Nearly 60% of farm businesses in NI have a standard labour requirement (SLR) of less than 0.5, so are only keeping sufficient livestock or crops to justify less than 18.3 hours of work per week.
At the same time, the DAERA report notes that these farms make an important contribution to the overall output of NI agriculture.
Most are managed alongside off-farm employment, and 94% are cattle and sheep farms.
Analysis of the cattle and sheep farms in the Farm Business Survey with less than 0.5 SLR shows that those in the lowland generated a farm business income of only £991, while those in the Less Favoured Area (LFA) had an income of £3,782.
If a farmer was working 18.3 hours per week, the income on the lowland farm is £1/hr, while on the LFA farm it is £4/hr.
But the reality is that for a lot of these farmers depreciation on machinery, etc, is nearly irrelevant, and sometimes any investments made are about managing tax and minimising labour.
Instead, it is cash income that matters (sales (including direct payments) minus direct expenditure such as feed, fuel, contractor charges, etc).
The DAERA analysis shows that these “spare time” cattle and sheep farms in both the lowland and LFA had cash incomes of over £10,000 in 2019-2020, so there is a clear financial rationale for their continued existence.
The vast majority are financially stable
There is an old adage that farmers are asset-rich and cash-poor, and there is nothing in the DAERA analysis to dispute that saying.
Incomes are low on cattle and sheep farms, and while dairy and pigs are usually higher, they tend to fluctuate across the years.
In addition, dairy farms have among the highest borrowings and that can cripple cashflow in low milk price years.
Across the farms in the DAERA income survey, average bank borrowings fell from £44,103 in 2018-2019 to £41,726 in 2019-2020. Dairy businesses had average bank borrowings of £93,404, with lowland cattle and sheep at £20,782. Pigs, cereals and LFA cattle and sheep were all below £12,000.
In total, 47% of farms in the sample had no bank borrowings at all, and just 19% had borrowings over £50,000.
The DAERA analysis also considers the total assets (land, buildings, etc) of the farms in the survey.
Pig farms come out with the lowest net worth at £618,300, presumably due to the lack of a land base.
But the average total net worth for the cereal, dairy, and cattle and sheep farms in the survey are all over £1.2m.
So while the average rate of return to capital and labour is low in farming, and unattractive to a financial investor, 82% of farms in the survey have liabilities less than 5% of the value of farm assets.
In other words, they are in a financially very stable position.