Economics 2003-04 seasonThe overall wholefarm performance of the group of network farms in 2003 was very poor. Farms had, on average, a net farm income (NFI) of £1,846, whereas the national average is £24,300. In addition, all farms were lower than this national average, which mainly comprises conventional farms. Average management and investment income per hectare (MII/ha) and average return on capital (R on C) were both negative.
There was a large variation between farm types, with the subgroup of arable farms being the worst performer with negative NFI and this affected the overall average. Mixed and intensive farms had positive NFI, but the intensive farms had negative MII and R on C.
A combination of factors was responsible for such performance, including the weather, as 2003 presented a dry and hot summer, which resulted in overall higher yields, but also high variable costs. Indeed, output has risen in comparison with the previous year due to higher yields, despite lower prices. Costs, in turn, have been higher on irrigation, pest control, harvesting, crop protection and marketing. The rise in output that resulted from higher yields was eroded by higher variable costs and produced lower gross margins than those in the previous years.
Organic vegetables made a significant contribution to output in all farms, especially so on the intensive holdings. Indeed, although farms have, on average, only 14% of their land under organic vegetables, 51% of their output comes from them, which shows the high importance of organic vegetables in the farm economics and their disproportionate land use.
Labour was the highest cost on all farms, accounting for 33% of total costs. Indeed, labour is a very important input on all farms, particularly on intensive farms. It accounts, on average, for a third of all inputs. Arable farms are the ones that use most labour and are also the worst in labour use efficiency (Table 3).
The tenants’ capital was relatively low and had, on average, a negative return, and only the mixed farms seemed to have success (although low) with their investments. The level of capital invested might have been under the threshold above which it starts having positive returns. As such, more capital invested could result in higher returns.
Arable farms showed a poor performance. This resulted from lower prices and losses on livestock enterprises, as well as being the highest user of labour and showing low labour efficiency. Without livestock these farms would still have shown a negative figure, but only half as bad. Again, it is important to note that these farms correspond to 90% of the sample and therefore influence it accordingly (i.e. proportional to their size and not to their number).
Mixed farms had a relatively good performance; with positive NFI, MII and R on C. Mixed farms show a profit on their livestock enterprises. Vegetables were an important contribution to output, although these show low gross margins relative to the other two farm types. Subsidies were also a significant contribution to output. Relatively lower costs and relatively lower outputs show the extensive nature of this farm type.
The performance of intensive farms benefited from higher yields and prices, which the direct market outlet allows. As opposed to the mixed farms, intensive farms are high output / high input systems, which result in a high NFI/ha. However, intensive farms have a big proportion of their labour as unpaid, as they are highly dependent on family labour, and the only reason why NFI/ha is positive is because of the unpaid labour of farmers and their spouses. Once this is taken into account, management and investment income is negative and so is return on capital.
From the above, the key factors which contribute towards economic viability (or sustainability) of the farms were summarised as yields, farm size, prices and market outlet, costs, investment levels, existence of livestock enterprises and labour-use efficiency.