An analysis of wealth and viability of the Scottish agricultural sector

AP Barnes, GF Foreman, KR Bevan

Research output: Book/Report/Policy Brief/Technical BriefCommissioned reportpeer-review

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Abstract

It is pertinent to discuss the viability of Scottish farming to understand how resilient farmers may be to future shocks due to market prices and changes in policy. As we move to leave the European Union Common Agricultural Policy, there are oppourtunities to explore newer arrangements and protocols for promoting sustainability within the rural economy.
Viability embodies this concept by using a threshold to determine whether farming incomes operate above or below the level of a minimum hourly wage and thus infer farmer well-being to determine business planning. However, farming offers a range of non-pecuniary benefits when attempting to compare with other sectors of the economy. Moreover, the ownership of land and the accumulation of this land over successive generations provides an accumulation of capital which may influence farmer well-being and approaches to risk taking. In addition, for tenanted farmers the acquisition and management of livestock and investment into machinery assets may also provide source of liquid assets which are not easily compared with other sectors of society.
With this in mind this report presents a number of approaches to study and compare the viability of the industry. We include proxies for the underlying wealth of the industry in determining its viability status. We analyse a sample of Scottish farms over the period 1989/90 to 2015/16 who provide detailed information into the Farm Business Survey.
Firstly we present a discussion of the issues around incomes and wealth and map general trends by owner-occupier and tenanted farmer status. Land and buildings provides a significant tranche to total assets at farm level and this does determine differences across the different ownership categories but nevertheless do fluctuate as farming weathers the bad years and accommodates the better years within the farm management account.
Secondly we apply a threshold, in this case a minimum wage rate per hour, to impute the viability of the farm in the short term (inferred by cash income) and the long term (inferred by net farm incomes. The converse of asking how poor farmers are is to ask how rich farmers are and we provide a further indicator, referred to as ‘wealth-adjusted’ viability, which tries to accommodate these factors. Hence, a series of states can be identified for each farm and for each year, ranging from viable to non-viable. These are mapped across farm types finding remarkably similar trends and issues other arable and livestock sectors.
Thirdly we ask how do transient is non-viability for the farm, through looking at the persistence of a farm being in one state, e.g. long-term non-viable, over a number of years. We find high probabilities for farms remaining in a particular viability state over the period which infers some level of persistence of non-viability status. To explore this further we examine the key drivers such as policy change, farmer factors such as age, education and farmer attitudes towards farming, biophysical disadvantages and other effects. We find a number of these factors significant in determining viability status and more (entrenched) characteristics, such as owner-occupation, land quality and remoteness, are significant it is notable that others such as education and, even farmer attitude, are also significant in determining the state of viability of the farm economic outcomes.
Finally, we examine inequality through simple indicators of the spread of income across the sector as whole and by ownership category, finding that inequality in incomes has increased and that tenanted farmers experience more inequality than owner occupiers, potentially indicating inability to accommodate market shocks compared to owners of land. We also examine by size, finding that inequality has grown the FBStest in larger farms, as they grow and potentially intensify their operations. Smaller farms show more fragility towards market pressures and, in the period 1999-2007 tended to move to more equality in incomes as incomes generally dipped for the farming population.
Original languageEnglish
PublisherSRUC
Commissioning bodyScottish Government
Number of pages31
Publication statusPrint publication - 21 Mar 2018

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