National Farm Survey 2003

Overview of 2003

Family Farm Income (FFI) increased from €14,917 in 2002 to €15,054 in 2003 – an increase of 0.9%. This small increase in 2003 is due to a reduction of 0.8% and 1.5% in direct and overhead costs, respectively. Overall output fell by 0.4% with gross margins declining by 0.3%. FFI on Dairy, Tillage and Sheep farms increased, the largest increase of 22% on the tillage farms, whilst incomes on cattle farms declined. The largest decline in FFI occurred in the Cattle/Other system – a decline of 15 % from € 9552 in 2002 to € 8106 in 2003. Unlike the previous year (2002) when direct payments increased by almost € 2000 or 17% on 2001, direct payments only increased slightly by 0.3% or € 34 per farm and did little to reduce the overall decline in market output. Net new investment per farm accounted for €4,001 (down 19% on 2002) or 27% of farm income in 2003. In relation to off-farm employment the farmer and/or spouse had an off-farm job on 50%of all farms. On 35% of farms the off-farm job was held by the farmer, with the highest incidence of off-farm employment occurring on drystock farms, as in previous years.

Depreciation in 2003

When reviewing the 2003 results, as detailed in Table d, it can be noted that the depreciation of farm buildings fell between 2002 and 2003, from € 1692 to € 1452. This was in large part due to a decline in the rate of increase in the index (CSO building material and Labour index) used in the calculation of current replacement cost. This resulted in the backlog depreciation on buildings declining on the 2002 figure.

As the NFS method of depreciation is a composite item, it includes combinations of indices, the results reflect changes in the indices as well as actual changes in new investment in the assets. Depreciation in the NFS is calculated on replacement cost declining balance method, based on an adaptation of the methodology as published by G.P. Hill (Wye College 1978) and published in 1989 NFS Report.

In the NFS methodology buildings are depreciated by 5% and machinery by 10%, both on a declining balance basis. The NFS depreciation methodology involves increasing the value of the assets each year to account for the increased cost of replacing these assets at the end of their useful life. The values of machinery are increased by applying the CSO Index of Transportable Goods in Agriculture on an annual basis to each farm asset while the CSO building material and labour index is used for farm buildings.

Machinery depreciation contains four components - current depreciation, backlog depreciation, major repairs and adjustment for the sales of any item of machinery. Building depreciation is composed of three items, namely current and back log depreciation and major repairs. Since the NFS uses the replacement cost method, this involves revaluing the assets each year, thereby taking inflation into account. The backlog element of the depreciation is the component that reflects the extent to which previous depreciation has to be modified in the light of inflation i.e. if no change in index between years then this component is equal to zero. This is the element which resulted in the decline in farm building depreciation between 2002 and 2003. Another element of NFS depreciation is that major repairs are added to depreciation in the year they occur, rather than being depreciated each year. The system for calculating depreciation is based on the fact that the total depreciation charged to the end of the current year plus the end of year value of the asset must equal the total replacement cost of the asset. Depreciation charge is equal to total depreciation up to end of current year less the total depreciation up to the beginning of the current year (end of previous year).

Trends in Farm Income

In the Teagasc National Farm Survey (NFS), the principal measure of the income which arises from the year’s farming activities, is Family Farm Income per Farm (FFI). This is calculated by deducting all the farm costs (direct and overhead) from the value of farm gross output. FFI represents the financial reward to all members of the family, who work on the farm, for their labour, management and investment. It does not include income from non-farming sources and thus may not be equal to household income. However where it does represent all the income of the farm family, it is expected to provide for that family’s living expenses as well as being a source of future investment in the farm business.

Since the mid-1960s, the NFS measures farm incomes across the main farming systems and size categories. The exception to this is pigs and poultry which are excluded from the sample. Also since 1995 very small farms (under 2 European Size Units (ESUs) – see Glossary of terms) are excluded from the survey. These exclusions result in the NFS survey representing 114,457 farms in 2003 compared to overall farm numbers of approximately 136,200. Refer to Appendix B for additional details on population distribution and representation of the sample.

Table 1 shows average Family Farm Income (FFI) per farm in current and real terms over the period 1995 to 2003. The base year 1995 was chosen as this was the commencement of the existing sample of farms having a minimum of 2 ESUs.

Source: National Farm Survey, Teagasc (current)

The data shows farm income in 2003 was 6% above that for 1995 in current terms. However when inflation (CPI) is taken into account it shows that FFI has declined from € 14,236 in 1995 to € 11,688 in 2003, a decline of 18% in real terms. The trend in FFI in current and real terms is shown in Fig 1.

Average Family Farm Income

The data in Table 2 summarises the average levels of Family Farm Income per farm which were achieved in 2003 across the range of farming systems and size groups. When evaluated in conjunction with the main tables at the end of this report (Appendix A) the following conclusions can be drawn.

• As expected there is a positive relationship between farm size and FFI. In many instances, particularly in the intermediate size groups, income per hectare also increases with farm size. In these circumstances, smaller farms cannot compensate for their lack of scale and hence extremely low incomes result in the less than 20 hectare group.
• There is considerable difference in the levels of average FFI across the farming systems. As in previous years the average FFI on the Dairy and Tillage based systems are far higher than those on the drystock based systems. Income on the smaller Cattle Rearing System was € 3,000 per farm compared to € 73,800 on the larger Specialist Dairying System.
• The average FFI for many sub-groups, especially in the Cattle and Sheep systems is below the average agricultural wage rate of €13,564 so that those farm families do not receive a full return for their labour and no return on management or investment.

* FFI Figures rounded to €100 (Figures in brackets are coefficients of variation – these

show that within each group there is considerable variability)

Full-time and Part-time Farms

In the NFS Full-time farms are defined as farms which require at least 0.75 standard labour units to operate, as calculated on a Standard Man Day basis (SMD), whilst Part-time farms require less than 0.75 labour units. Farms are therefore divided into Full-time and Part-time on the basis of the estimated labour required to operate their business as distinct from labour available which is often in excess of that required. The presence or absence of an off-farm job is not taken into consideration in the definition.

Full-time farms therefore represent the larger more commercial sector of farming and in 2003 accounted for almost 38% (or 43,300) of all farms nationally. Fifty nine per cent of Full-time farms were in the two dairying systems, with a further 8% in the Mainly Tillage System and the remaining 33% in drystock. The average FFI on Full-time farms in 2003 was € 29,000 compared to € 27,723 in 2002 – an increase of 4.6%. The income situation by system for Full- time farms is similar to that of all farms i.e. specialist dairying and tillage farms obtain the highest incomes at €32,713 and €39,626 respectively, whilst incomes on Cattle Rearing and Mainly Sheep Systems were €16,897 and €21,690 respectively. On 15% of Full- time farms, the farmer had an off-farm job whilst on 33% of farms the spouse had an off-farm job.

Approximately 62% (or 71,200) of farms were part-time in 2003, with 88% in the drystock systems. The average FFI for all part-time farms was € 6,584 and this ranged from € 12,177 on specialist Dairy system to € 4,841 on Cattle/Other system. The average cash income on part-time farms was higher at € 9,082. Average direct payments and subsidies were € 9,798 in 2003 i.e. 149% of FFI, reflecting the general situation on drystock farms where output from the market place is insufficient to cover total production costs. On 54% of these farms either the farmer or spouse had off farm employment and on 93% of farms there was another source of income – either from off farm job, pension or social assistance. The farmers on part-time farms were older (55 years) than those on full-time farms (50 years) and 62% were married compared to 73% on full-time farms. Refer to Table 11 for further details on off-farm employment, output, costs and incomes for this category of farms.

Income Distribution

The variation in incomes is further reflected in the distribution of income as shown in Table 4.

• For 2003, 39% of farms had an income of less than €6,500 which was1% less than that for 2002.
• 19% of farms had an income from farming greater than €25,000. This represents a decline of 1% from 2002. The average farm size for this group was 71.1 ha compared with the overall average size of 36.1 ha. The holder was younger than average at 48 years (overall average 53 years) and 81% were married compared with 67% in the overall farming population. The majority of farms in this group (66%) were in dairying systems.
• In the lowest income group, i.e. less than €6,500 per farm, 86% of farms were in drystock systems. For this group, on 86% of farms the farmer and/or spouse had some source of other income either from off-farm employment, pension or social assistance.
• Also in the lowest income group the farmer and/or the spouse had an off-farm job on 56% of farms, and on 48% of farms the farmer held an off-farm job.
• In the highest income group – those with an income of over €40,000 – 76% of farms were in the dairying systems, a further 11% were tillage farms and the remaining 13% were in drystock farming.

Overall Analysis

Average family farm income per farm in 2003 was €15,054, an increase of 0.9% on the 2002 figure of €14,917. There are many ways of looking at the composition of this increase and the following three approaches, which are summarised in Table 5 have been chosen for the report.

1. The changes in output and costs.
2. The changes in enterprise outputs.
3. The analysis of cash income and inventory changes.

1. The increase of 0.9% in FFI resulted from a decline of 0.8% in direct costs and a decline of 1.4% in overhead costs. Gross output contributed a decline of 1.3% with gross margin also declining by 0.5%.
3. The increase in output from the crop enterprise was the most significant contributor to the increase in FFI, accounting for 2.9%. Dairying contributed to an increase of 1.2% but cattle contributed to a decline of 4.0%. Total livestock therefore contributed 2.5% to the decline, almost offsetting gains of 2.9% in the crop sector. "Other" output contributed to a reduction of 1.7% to the change in FFI - this includes decreased Disadvantaged Areas Compensatory Allowance Scheme (DACAS) payments and a reduction in income from land and quota let.
4. An analysis of the decline in FFI from the cash income and inventory change approach showed that cash income contributed 4.0% to the increase of 0.9% in FFI whilst inventory change contributed to a decline of 1.7% to FFI in 2003.

Analysis by Farming System

• Average FFI per farm on the Specialist Dairy farms increased by almost 7% in 2003. This was mainly due to reduction in direct and overhead costs of 2% and almost 4%, respectively. Output in both years was almost identical.
• In the Dairy/Other System, FFI per farm declined by 2%. This resulted from a combination of lower direct payments (3%) and an increase in overhead costs of 2%. Market based output increased by almost 1%
• Income on Cattle Rearing System was € 7,337 per farm in 2003, a decline of 5% on 2002. This was due to an increase of 2% in overhead costs and a 1% increase in direct costs. Market based gross output decreased by over 1%. Income on Cattle Other System decreased by 15% as a result of gross output going down by 5% and market based gross output declining by 14%. Total costs declined by 0.5%. FFI in 2003 was only € 8,106 per farm. Average incomes on cattle farms continue to be extremely low and 2003 was no exception with incomes on these farms only 57% of the Average Agricultural Wage and 28% of the Average Industrial Wage in that year.
• Income on the Mainly Sheep System increased from €12,373 in 2002 to €12,900 in 2003 an increase of 4% following increases of 2% and 38% in 2002 and 2001 respectively. Market based gross output declined by 1% whilst direct payments increased by 5%. Direct costs increased by 3% while overhead costs declined by almost 2%.
• Average FFI in the Mainly Tillage System increased by 22% in 2003. This was an extremely good year financially for the tillage system, having the largest increase of all categories. The Mainly Tillage System, includes farms which can have a high proportion of output from livestock, as well as from crops, as described in Appendices B and C. Output from crops increased by 9% whilst livestock output on tillage farms declined by 8%. Direct payments increased by 2%. Both direct and overhead costs fell on tillage farms in 2003.

The above summary in relation to farming systems refer to changes in per farm output, costs and incomes and does not allow for year to year changes in farm size. However the effect of changes in farm size is shown in Table 6 which shows average return per hectare of land farmed across the different farming systems. Average FFI/Ha in 2003 at € 417 shows an increase of 3% on 2002 figure. As in previous years dairying yielded the highest FFI/ha, followed by tillage with cattle systems yielding the lowest returns.

Direct Payments and Subsidies

The impact on incomes of direct payments/subsidies to farmers has increased significantly in the aftermath of Agenda 2000. In 2003 these payments accounted for 90% of average farm income (same as in 2002). Average direct payments/subsidies increased only marginally from €13,471 per farm in 2002 to €13,505 in 2002 - an increase of 0.3%. Direct payments/subsidies contribute a higher proportion to net income in the National Farm Survey compared to national statistics as pigs, poultry and other output on which direct payments are not made are excluded from the NFS results. In the lower size groups the respective figures were 105 and 127 % for 2002 compared to 165 and 125% in 2003. All other categories remained relatively comparable.

Note: Direct payments/subsidies account for more than 100% of income whenever market based output is not sufficient to cover total costs.

A more detailed presentation of the impact and incidence and components of direct payments/subsidies can be seen in the Appendix A tables.

The main elements as summarised in Table 7 are:

• The total amount of direct payments/subsidies increased by only 0.3% in 2003, whilst direct payments/subsidies as a percentage of FFI remained at 90%, same as in 2002.

• Direct payments/subsidies accounted for 149% and 178% of average FFI in the Cattle Rearing and Cattle Other Systems respectively, rising to 255% in some subgroups. In the Mainly Sheep System direct payments/subsidies accounted for 121% of FFI in 2003, showing a small increase on the 2002 figure of 119%.

• The contribution of direct payments/subsidies to average FFI in the Tillage Systems declined from 111% in 2002 to 92% in 2003.

• In the past direct payments/subsidies contributed approximately 20% to specialist dairy farm incomes as milk is supported through EU price support mechanisms rather than direct subsidies. However since Agenda 2000 and the change to Area Based Headage System (DACAS) in 2001, a larger percentage of dairy farmers incomes have been coming through the "cheque-in-the-post" system. In 2003 direct payments/subsidies contributed 28% to specialist dairy farmers incomes (down form 33% in 2002) and 69% to the dairying and other farmers incomes, compared to 70% for the previous year. Dairy farmers receive these payments on their drystock.

An estimated 29% of farms received REPS payments in 2003. The average FFI on those farms receiving REPS at € 15,013 was similar to the FFI of € 15,071 on non-REPS farms. Almost 76% of farms which participate in REPS are in the three drystock systems, namely Cattle Rearing, Cattle Other and Mainly Sheep. As in previous years family farm income was higher on non-REPS, specialist dairy, other dairy farms and tillage farms. On REPS cattle farms (Cattle Rearing and Cattle Other) income was higher than on non-REPS farms by approximately the average amount of the REPS payment. In 2003 income per farm for the Mainly Sheep system was higher on REPS farms than non-REPS farms, € 15,029 as opposed to € 11,296 on non-REPS, a difference of € 3,733. A more detailed analysis of REPS farms will be compiled later in 2004.

The following tables present the key information in relation to farms participating in REPS (Table 7(a)) and those not participating in REPS (Table 7(b)).

Gross Output and Costs

An indicator of the efficiency and competitiveness of Irish Agriculture is the cost of production for the main products. Overall this can be examined by calculating the percentage of gross output which is absorbed by input costs in any one year. On a national basis 67% of gross output was absorbed by total costs in 2003. If direct payments are excluded from gross output, then costs as a percentage of the market based value of gross output in 2003 was 95%. The corresponding percentages in 2002 were exactly the same on both counts.

In 2003 only 20% of farms were capable of keeping total costs below 50% of output whereas 40% of farms had costs which were above 70% of output. The corresponding figures for 2002 were also 20% and 40% respectively. Costs as a percentage of output have been increasing since 2000. This is a worrying trend as it reflects what occurs with rising costs and static output, resulting in deteriorating purchasing power for the sector.

Gross Margins

Gross Margin (gross output including direct payments, minus direct costs) provides a useful index of the relative profitability of the various farm systems.

^*Figures may not add to 100% due to rounding

• Overall, 26% of farms achieved a gross margin of over €1,000 per ha (compared to 25% in 2002). The Dairying Systems once again show the higher returns to land, with 47% of those farms that achieved a gross margin per ha of over €1,000 being in the specialist Dairying System and a further 15% in dairying/other system.

• 29% of farms had a gross margin per ha of less than €500 and the majority of these, approximately 91%, were in the drystock systems.

New Investment

Net new investment on farms was €4,001 in 2003 – a decline of 19% on the €4,922 figure for 2002.

(Note: Net new investment is equal to gross new investment in machinery, buildings, quotas and land improvements (including Forestry) minus sales and capital grants received during the year.)

• Overall net new investment in 2003 was equivalent to 27% of total income in farming. Dairying farms contributed 51% of the total new investment, although these farms comprise only 27% of the farming population. 82% of dairying farms invested in new capital structures compared to 44% and 45% on cattle rearing and cattle other farms. Farms in the Mainly Tillage System contributed another 14% of the total net new investment, whilst comprising only 6% of the farm population.

• The drystock systems while comprising 68% of the farming population contributed only 35% of total net new investment.

• 64% of farms made some new investment in 2003. As in previous years, average FFI on these farms which had new investment in 2003 was higher across all systems than for farms where no new investment occurred. Average FFI on these farms for 2003 was €20,368.

Other Gainful Activity

Data on family farm incomes, as presented in this report, are confined to the income earned from on-farm activity. However over the last decade off-farm employment has become more prevalent, making the situation quite different from earlier decades where the main sources of off-farm income would have been pensions and social assistance. The growth in off-farm employment continued in 2003. The incidence of off-farm employment is shown in the following Table 10 (Estimated Percentage of Farms Where Farmer and/or the Spouse has an Off-Farm Job). This table is detailed by size and system of farming while further information is presented in Appendix A.

In general the 2003 data reveal that, in relation to the farmer and /or the spouse:

• An off-farm job existed on 50% of farms - an increase of 2% on 2002 figure.

• On 34% of farms the farmer held an off-farm job compared to 35% in 2002.

• As in previous years, the incidence of the farmer having an off-farm job is highest in the small farm size groups, while the spouse is most likely to have an off-farm job in the intermediate size groups.

• The cattle and sheep systems have the highest incidence of the farmer and/or the spouse having off-farm employment while the dairy farms have the lowest; the same is true in relation to the farmer. However this distinction is not evident in relation to the spouse where the incidence of off-farm employment is higher for the dairying systems, with an overall mean estimate of 29% for all farming systems (compared to 26% in 2002).

• On 79% of farms the farmer and/or the spouse had some source of off-farm income, be it from employment, pension or social assistance.

(Figures in brackets refer to the farmer only)

The data in Table 11, on the following page, shows estimates of the percentages of farmers with off-farm employment, the average off-farm income and the family farm income for 2003. The data refer to farms where the farmer had an off-farm job and also similar data where farms had no off-farm employment. These farmers are further subdivided into full-time and part-time farms as defined in the NFS Glossary of Terms (labour units employed on Standard Man Day (SMD) basis). These estimates should be regarded as indicative of relative levels rather than as accurate absolute levels.

(Figures in brackets are the coefficients of variation - these show that within each group there is considerable variability) Note: The estimates should be interpreted with caution because the underlying data are not always sufficiently robust. This is due to the problem of non-response and the fact that the information is received from respondents without documentary verification.

In 2003 there were 237 farmers (out of total 313 with off-farm jobs) who were willing to disclose their off-farm income of €20,200 compared to 158 farmers in 2002 with an off-farm income of €19,300. The average farm income for these farms in 2003 was €7,700 giving a combined income of €27,900 (€26,300 in 2002).

In 2003, 23% of the population with off-farm employment and income stated were part-time farmers with an average off-farm income of €20,700, whilst only 4% with stated off-farm incomes were full-time farms with an average off-farm income of €17,700. Data in Table 11 shows therefore that nationally 7% of all farm holders refused to disclose their off-farm income in 2003, compared to 16% in 2002.

In 2002, an estimated 65% of farmers had no off-farm employment. This figure has remained similar to level for 2003 at 66% and of those 32% were full-time with FFI of €30,600, whilst the remaining 34% were part-time (as defined in glossary) with a FFI of €7,100.

Table 12 gives population estimates of the incidence of the farmer having an off-farm job broken down by FFI. On farms with FFI less than € 6,500, 49% of farmers had off-farm employment compared to 11% where FFI exceeded € 25,000. On farms where the FFI ranged from € 6,500 to € 13,000, 36% of farmers had an off-farm job.