Why are some upland farms more financially resilient than others?

Andrew Barnes in our team has collected financial data from upland farms with a view to identifying characteristics of disadvantage that make farms more or less vulnerable. The findings are fascinating, if in some ways counter-intuitive.

The good news is that some farms, even in remote and otherwise disadvantaged areas, are able to survive, if not thrive.

What did Andrew and his team do?

They collected Farm Business Survey Data from Scotland (a similar exercise is being repeated with English data) during the period 2003 to 2016, and extracted just the farms which had Less Favoured Areas (LFA) land and specialised in beef and sheep production – close to 300 farms per year. They then examined the farm family income (which is the return to all unpaid labour used on the farm) and related this to the minimum agricultural wage. They then identified five different groups based on their business’ viability. The proportion of the sample that fell into each viability category is detailed in the table below for the 2003-2009 and 2010-2016 periods.

2003-2009 2010-2016
Vulnerable farms that do not meet the minimum wage threshold and do not have any off-farm income 37% 28%
Sustainable farms that do not meet the minimum wage threshold but have at least 50% off-farm income 6%, 6%
Viable farms where the hourly farm income less costs of own capital (including land) is greater than the minimum wage 34%, 29%
Resilient farms are viable farms that maintain this status for three years or more 21% 28%
Robust farms, those viable farms that are still viable for at least three years if 50% of the subsidy is removed 3% 8%

Not surprisingly, these data suggest that many farms in Less Favoured Areas (upland farms by implication) struggle for financial resilience.

What did Andrew and his team learn about resilience of farms from this study?

Firstly, tenanted farms were more viable than owner-occupied farms. Other research evidence suggests this is because tenanted farms are more flexible and the external demands of tenancies drive tenanted farms to be more efficient.

Secondly, most of these farms are family farms, and where a succession plan is in place it appears to lead to greater business viability. Similarly (and in contrast to some other research data), in situations where the farmer is due to retire, business viability tends to be maintained, perhaps sustaining asset value for future sale.

Thirdly, specialised farms, with a narrow range of activities (90% or more of their income from one farming enterprise) are more vulnerable. This suggests that business viability of upland farms can be improved through enterprise diversification to manage income streams.

Fourthly, farms with a larger proportion of poor quality land (i.e. rough grazing) are more likely to have vulnerable businesses. This does not mean, of course, that the land is not producing other ecological benefits. On its own, indicators of remoteness (distance to urban centres) were not a useful indicator of business viability – but when mixed with other disadvantage indicators it helped explain some of the variation in viability status. It was also apparent that within each of the classes of remoteness and agricultural land capability, there was considerable variation between farms, suggesting that some businesses are better able to overcome the disadvantages than others.

Government support for farming in upland areas is often argued for on the basis of; the positive ecosystem services provided by extensive grazing systems, to reduce the abandonment of High Nature Value land by providing employment opportunities, and providing income support to compensate for the biophysical disadvantages suffered in these areas. In other words, to provide some grounds for economic stability for farms that implicitly manage important environmental systems. The proposed changes to agricultural policy rationale away from income support towards greater ‘public money for public goods’ to reward good environmental stewardship may miss a trick with respect to these LFA areas.  Payment for public goods would still not compensate for the disadvantages experienced by these farms, and may not prevent land abandonment, with environmental and social consequences. Perhaps this is something that could be taken into account in the current debate over how apportioning the convergence monies recently allocated to Scotland by the UK Government.

Ann Bruce, Andrew Barnes, Steven Thomson 14/10/19

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