I retired from a secure, well-paid job as a lecturer at the University of Leeds and began farming full-time. After 26 years of farming in Fife I am supposed to pretend that our farm business is so unprofitable that we are dependent on subsidy income support and make less than the minimum hourly wage and that therefore I am a fool.
The truth is that our farm business is profitable and does not depend on subsidies.
Non-farmers know this instinctively when they estimate the value of the content of car parks adjacent to farmers’ meetings.
FBI
The official statistics of farm incomes, presented as average Farm Business Income (FBI) for 2016- 2017, show that in Scotland it was £26,400 including an average subsidy of £41,300, which means that without subsidy, the average FBI was minus £14,900.
The definition of FBI says that “it represents the financial return to all unpaid labour on their capital invested in the farm business, including land and buildings”. The rate of return on investments used to calculate FBI is 5%.
Taking a 500 acre farm as an example, with livestock and machinery worth £750,000 and requiring a 5% return on capital, means that £37,500 is deducted from taxable income (profit) when calculating its FBI.
The average rent for farms with arable land and under secure tenancies is £85 per acre which equals £42,500 per year. To calculate FBI this sum is deducted from taxable income.
About 70% of farms in Scotland are owner- occupied, they pay no rent and many have no money borrowed. For these farms the true earnings would be £26,400 + £37,500 +£42,500= £106,400 per year. Deducting the average subsidy of£41,300 leaves an FBI of £65,100.
Farmers cannot expect to make a 5% return on the value of their assets. There is either a wage OR there is a return on investment. Seldom is there both.
Farmers who have bought land costing £8,000 per acre cannot hope to make a return of 5%. When they deduct the cost of their investment from their profit, it is no surprise that they are making a loss. The only way to make a profit from land bought at this price is to sell it to someone else for more (land banking).
The average Net Worth (assets- liabilities) of farm businesses in Scotland is £1.3m. Specialist sheep farm businesses in Less Favoured Areas have an average Net Worth of £795,200.
What if it was suggested that income support should be given to everyone with a net worth of less than £750,000?
Most farmers are not as poor as they are made out to be. The figures used to suggest otherwise are worthless.
What both farmers and taxpayers alike really need is a radical restructuring of taxation away from taxes responsible for repressing Scottish wages and trade and which artificially boost land values harvested by land speculators, towards collecting annual ground rents (aka LVT) as state revenue.
Duncan Pickard
Farmer, Fife.