Those working in the agricultural sector know that a lot of income coming into farming businesses does not actually come from farming.
Diversification, off-farm employment and investment income have all grown in recent years to offset the widespread fall in agricultural profits.
Defra is working on producing figures that more accurately reflect this situation and has recently published a report on farm household incomes in England for the 2004/2005 year (http://statistics.defra.gov.uk/esg/statnot/householdincome.pdf).
The analysis is based on information gathered from 60,800 farm businesses of a minimum size of half of the standard labour requirement. These businesses actually sustain 79,000 households, because a single business might support two families, for example, a father and son. On average, farm households each drew £29,700 from their farm businesses in 2004/05. However, those same farm businesses only made a profit of £28,200 for the same period. Therefore, in aggregate, farmers are taking more out of their businesses in drawings than they are earning in profits.
In fact, because 61,000 farm businesses are supporting 79,000 households, the situation is worse than these figures suggest as the call on drawings for each farm business is higher than reflected. Based on this, the average drawing from a farm business is £35,300 – resulting in a shortfall of £7,100. On many farms this shortfall is being ‘covered’ through capital transfers funded by increased borrowing or asset sales.
At first glance, one could believe that this is just a one-off phenomenon and that 2004/05 was a particularly bad year for profitability; however, Defra figures show that private drawings have exceeded farm business income for seven out of the last ten years.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
