East Midlands Region Commentary 2011/2012 This report includes data collected from the Farm Business Survey for the 2011 to 2012 financial year, relating to the 2011 crop harvest. The Farm Business Survey is conducted on behalf of, and financed by the Department for Environment, Food and Rural Affairs, and the data collected in it are Crown Copyright. Nature of Farming in the region The broad range of soil types and varied topography found in the East Midlands region, results in an agricultural industry that contains a wide variety of farming types. As identified in Figure 2.1, dairying and upland and lowland grazing livestock is found mainly in the west of the region, moving to more mixed farming in the central areas, with arable and horticultural production dominating the north east and south east of the region. Pig and poultry farming is an important agricultural activity in the eastern areas. Figure 2.1 Agricultural Land Use by Farm Type in the East Midlands
Contribution of farming to the regions economy Production and Income Key summary measures in 2011 were as follows (Table 2.1): agriculture contributed 2,581m of gross output to the East Midlands economy. Compared to 2010, this represents an increase of 283m (12.3%) and builds upon a similar increase (11.6%) in 2009 gross value added (GVA) at basic prices in the East Midlands was valued at 954m ( 837m in 2010) total income from farming (TIFF) in the East Midlands was 666m; an increase of 102m (18.1%) compared to 2010, whilst TIFF for England increased by 38.0%. The region s below average increase in TIFF for 2011 compares to the well above average TIFF from three other regions (North East, 61%; North West, 114%; South West, 67%) where the livestock sector witnessed a much improved performance Table 2.1: Summary measures of the production and income account for agriculture by region in 2011 Gross output at basic prices Intermediate consumption Gross value added at basic prices Total income from farming million million million million North East 592 296 296 232 North West 1 746 1 045 702 297 Yorkshire and Humberside 2 177 1 229 948 702 East Midlands 2 581 1 627 954 666 West Midlands 2 014 1 154 860 480 East of England 3 412 2 108 1 304 973 South East & London 2 115 1 180 935 480 South West 3 148 1 816 1 332 732 England total 17 786 10 455 7 331 4,562 Defra 2011
Contribution of region s farming to farming in England The information in this section is taken from the latest available at the time of writing: Labour Land Cropping In 2010, the region s share of England s total agricultural workforce was 11.4%, compared with 11.1% in 2009 (Table 2.2) in 2010, agricultural holdings in the East Midlands occupied 1.18 million hectares, which was 13.2% of the total area on holdings in England (Table 2.2) in 2010, arable farming accounted for 18.7% of the England total area and 59.9% of the total agricultural area in the East Midlands (Table 2.2) horticultural production in the East Midlands accounted for 23.8% of the England total area (Table 2.2) Livestock In 2010, the East Midlands were home to 9.5% and 18.8% of England s total headage of pigs and fowl, respectively. For cattle and sheep, the figures were 9.2% and 7.9%, respectively (Table 2.2) Production and Income Key summary measures in 2010 were as follows (Table 2.1): the East Midlands produced 14.8% ( 2,298m) of the total gross agricultural output for England 14.3% ( 837m) of the GVA for England can be attributed to the East Midlands Table 2.2 East Midlands Agriculture at a Glance Land Use Hectares % of England Crops 704,852 18.7 Bare Fallow 25,545 17.1 Grass under 5 years old 51,659 8.8 Grass over 5 years old 286,966 8.7 Sole right rough grazing 29,773 6.0 All other land 53,804 17.8 Woodland 24,208 8.2 Total area on agricultural holdings 1,176,807 13.2 Crops Cereal crops 444,620 17.8 Other arable crops 229,900 21.0 Potatoes 16,225 16.2 Horticulture 34,537 23.8 Livestock Cattle & calves 510,715 9.2 Sheep & lambs 1,125,773 7.9 Pigs 344,131 9.5 Fowl 21,460,546 18.8 Labour Persons % of England 33,280 11.4 Defra June Survey 2010
2011/2012 FBS year Weather The chief anomalies concerning the climatic conditions affecting the 2011 cropping year were as follows (figures 2.2 and 2.3): below average rainfall in spring 2011 below average temperatures in November and December 2010 above average temperatures in February to May 2011 (inclusive) The average precipitation levels in September and October 2010 resulted in the good establishment of winter cereals and oilseed rape crops. November and December 2010 witnessed extremely low temperatures (2 to 5 degrees C lower than the average) which caused havoc for sugar beet harvesting. Many hectares were left unharvested in frozen ground and significant losses occurred when factories rejected crops that were unsuitable for processing. The spring of 2011 was exceptionally dry and warm with 20% less rainfall than average being recorded, plus temperatures that were 2 to 4 degrees C higher than the average. The consequences of this were difficult germination conditions for spring sown arable crops and a deterioration of the prospects for 2011 winter sown crops that had generally over-wintered well, except for some instances of frost damage. The drought conditions continued throughout the key growing months resulting in lower than average yields for cereal crops, although oilseed rape yields held up well. Forage conservation in 2011, although generally unhindered by untimely rainfall, were affected by the extreme dry and warm conditions that resulted in very low yields of silage, hay and maize. First cut silage was either low in yield if taken at the normal time or late if farmers held off in order to boost yields. Subsequent grass re-growth was slow which impacted on the timing and yields of second cut silage making operations. At the end of the 2011 forage making season, farmers were faced with the prospect of having to purchase extra bulk and / or concentrate feeds or reduce livestock numbers throughout the winter period. Figure 2.2: Sunshine and Rainfall Anomalies in the East Midlands: September 2010 to August 2011 % 160 140 120 100 80 60 40 20 0 September October November December January February March April May June July August sun rain
Figure 2.3: Temperature Anomalies in the East Midlands: September 2010 to August 2011 6 4 2 0-2 -4 September October November December January February March April May June July August -6 [ C]
Economic Background The following section examines the economic conditions during ; a period that witnessed lower commodity prices in the arable sector, increased prices for milk, finished cattle and lambs, whilst key input costs all saw increases when compared to the previous year. In particular, the price of gas oil reached record levels which were maintained throughout the year. Figures 2.4 to 2.6 illustrate that in the average prices for feed and bread wheat, plus feed barley, were all below those achieved in but were still significantly higher than the prices from and. Feed wheat averaged 158 per tonne (cf. 174 per tonne, 2010), bread wheat averaged 168 per tonne (cf. 195 per tonne, 2010) and feed barley averaged 152 per tonne (cf. 156 per tonne, 2010). For all three cereal crops reported here, there was a return to a less volatile pricing trend throughout the marketing season, contrasting with the wide disparity in the peak and low prices achieved in 2010. For example, the differential between the price highs and lows for feed wheat, bread wheat and feed barley in were 41 per tonne, 53 per tonne and 26 per tonne respectively, compared to 68 per tonne, 64 per tonne and 47 per tonne respectively, in. As a consequence of the dry 2011 spring (mentioned above), average yields, although not disastrous, were down on the previous year s performance. This proved to be problematic for some cereal growers who were committed to contracted tonnages only to be faced with the prospect of not fulfilling their contracts. As a result, it has been noted that more caution was exercised in 2011 with farmers committing lower percentages of predicted total tonnages to contracted sales. Figure 2.4: Feed Wheat Prices to per tonne 220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 70 Feed wheat Aug Oct Dec Feb Apr June
Figure 2.5: Bread Wheat Prices to per tonne 230 220 210 200 190 180 170 160 150 140 130 120 110 100 90 Bread wheat Aug Oct Dec Feb Apr June Figure 2.6: Feed Barley Prices to per tonne 190 180 170 160 150 140 130 120 110 100 90 80 70 60 Feed barley Aug Oct Dec Feb Apr June Two of the region s main combinable break crops, namely oilseed rape and field beans, both realised average prices in 2011 that were identical to those achieved in 2010, i.e. 360 per tonne and 203 per tonne, respectively (Figures 2.7 and 2.8). Thus, the improved prices when compared to 2008 and 2009 were maintained (oilseed rape, 251 per tonne, 240 per tonne, respectively; field beans, 132 per tonne, 128 per tonne, respectively). Price volatility for oilseed rape was reduced in 2011 but there was still a significant difference between the price peak and low for field beans.
Figure 2.7: Oilseed Rape Prices to Oilseed rape per tonne 410 390 370 350 330 310 290 270 250 230 210 190 Aug Oct Dec Feb Apr June Figure 2.8: Field Beans Prices to per tonne 250 240 230 220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 Beans Aug Oct Dec Feb Apr June The average price of potatoes in 2011 ( 108 per tonne) was slightly below the average for 2008 and 2009 ( 127 per tonne and 117 per tonne, respectively) but was significantly lower than the 161 per tonne average achieved in 2010. The 2011 maincrop price started off approximately 40 per tonne lower than the corresponding 2010 price and this price deficit was maintained and then further increased as the marketing season progressed (Figure 2.9).
Figure 2.9: Maincrop Potato Prices to Potatoes per tonne 200 190 180 170 160 150 140 130 120 110 100 90 80 Aug Oct Dec Feb Apr June Figure 2.10 illustrates a continuation of the upturn in farmgate milk prices that originated in February 2011. The milk year ending price was 28.6 pence per litre (ppl), compared to the previous year s equivalent price of 26.6ppl. The average milk price throughout was 28.0ppl compared to 25.7ppl, 23.6ppl and 25.1ppl in, and respectively. Figure 2.10: Milk (farmgate) Prices to Milk Pence per litre 30.00 29.00 28.00 27.00 26.00 25.00 24.00 23.00 22.00 21.00 20.00 Apr June Aug Oct Dec Feb Figure 2.11 shows that for the price for finished steers began the year at recent record highs and continued along this course throughout the year, achieving a peak price (December 2011) of 344.6 pence per kilogram deadweight (ppkg dw). This compares with the peak prices achieved in the three previous years of 287.8 ppkg dw, ; 286.0ppkg dw, and 282.3ppkg dw,. The average price in of 318.9ppkg dw, was 52.1ppkg dw higher than the previous year s average. Figure 2.12 illustrates that in similar vein to fat cattle prices, record prices were achieved throughout the year. A peak price of 559.0ppkg dw was recorded in May 2011, compared to the previous year s peak price of 443.0ppkg dw (April 2010). The average price of finished lambs has increased year on year since when the average price was 319.3 ppkg dw, compared to the, and average prices of 375.7ppkg dw, 387.4ppkg dw and 439.6ppkg dw, respectively.
Figure 2.11: Finished Steer Prices to 370 Finished steers Pence per kg deadweight 350 330 310 290 270 250 230 Apr June Aug Oct Dec Feb Figure 2.12: Finished Lamb Prices to Pence per kg deadweight 570 550 530 510 490 470 450 430 410 390 370 350 330 310 290 270 250 230 Finished lambs Apr June Aug Oct Dec Feb Figures 2.4 to 2.12 illustrate commodity prices for the four year period to and for the year show a fall in prices within the arable sector and improved fortunes within the milk and livestock grazing sectors. It is interesting to put these price movements in context with the price movements of three key input costs, namely feed (soya), gas oil and nitrogen fertiliser and then consider these findings in relation to the analyses of income results by farm type sector, to be found later in this report.
Figure 2.13: Soya Meal Prices to Soya 340 320 per tonne 300 280 260 240 220 200 Apr June Aug Oct Dec Feb Figure 2.13 shows that the price of soya was very volatile throughout the years shown with differences of up to 100 per tonne between trading year highs and lows. However, the average price of soya across the four years illustrated is very similar ( 273 per tonne, ; 288 per tonne, ; 287 per tonne, and 288 per tonne, ). This indicates that there were opportunities for farmers to buy well and average out the cost of soya with potential for reducing the cost of their purchased feeds. Figure 2.14: Gas Oil Prices to Pence per litre 75 70 65 60 55 50 45 40 35 30 Gas oil Apr June Aug Oct Dec Feb Figure 2.14 illustrates that the price of gas oil has been on a continuing upward trend since February 2009. The price at March 2012 eclipsed 72.0ppl (a record) and the average price in was 67.4ppl compared to 44.4ppl in. In the East Midlands region, fertiliser is a key input with a high usage occurring on arable and lowland grazing farms; therefore the price of fertiliser is very influential regarding farm business profitability. Figure 2.15 shows that for the year, the price of nitrogen fertiliser increased compared to and prices but remained below those of. In average price per tonne terms, the recent price high was 344 per tonne () whilst the recent price low
was 206 per tonne (); in the average price was 329 per tonne. It is instructive to note that the crop year in question in this report (2011), will have coincided, to a large extent, with purchases of fertiliser that fell into the 240-310 per tonne bracket, compared to 185-235 for 2010 crops, representing a considerable increase in fertiliser expenditure. However, as for feed purchases, the volatility associated with fertiliser prices means that the date when fertiliser was bought will have had a significant impact on margins and incomes. Note: fertiliser for 2012 crops will generally have been purchased in a period of reduced price volatility so opportunities for cost savings may have been reduced for this particular harvest year. Figure 2.15: Fertiliser (34.5%N) Prices to per tonne 400 380 360 340 320 300 280 260 240 220 200 180 160 Fertiliser (34.5% N) Apr June Aug Oct Dec Feb
Key events and Issues The Government, after reviewing Feed-in Tariff (FIT) rates, decided to cut the rates payable for solar photo-voltaic generated electricity but did improve slightly the rates payable for electricity from anaerobic digestion plants A NFU survey produced findings that stated 51% of the farmers questioned had more optimism for the industry over the next five years compared to the situation a year ago From October 1 st 2011, agricultural wages increased by 2.5% for the lowest grade workers and by 2.9% for all other grades In October 2011, EU CAP reform proposals were announced, prominent amongst which are moves to replace the Single Payment Scheme (SPS) with a Basic Payment Scheme (BPS) with all UK countries receiving payments based on a flat-rate regional level by 2019; currently, only England uses the flat rate system, with Wales, Scotland and Northern Ireland operating a historic based system of payments. The BPS will be similar to the SPS in many ways but will begin with a completely new allocation of entitlements (Agro Business Consultants, October 2011) New English Grant Scheme launched (November 2011) 2011 Single Payments (SP) benefited from a more favourable Euro to Sterling exchange rate with most farmers receiving more SP in sterling terms than in 2010 EU ban on battery cages came into force (January 2012)
FBS Results by Farm Type 2011/2012 Analysis of Farm Business Income All Farm Analysis Table 4 summarises the performance of East Midlands farms in 2011 alongside the results from 2005 to 2010. This edition of Table 4 is the first that features years when support payments were solely in the form of the Single Payment Scheme (SPS) as opposed to direct area and headage payments which came to an end in 2004. The all farms average FBI performance within the East Midlands for 2011 was 81,920, compared to 76,601 in 2010. This represents the best FBI performance in the seven year period shown in Table 4. All the sectors shown in figure 2.16 achieved an improved FBI with the exception of the general cropping group. Figure 2.16 shows the significance of the SPS, as a component of total FBI, to the various farm types found in this commentary. As mentioned above, SFP rates were boosted in due to favourable movements in the Euro to Sterling exchange rate and thus added to the significant influence that this branch of income already had on total FBI. To illustrate, in the SFP contributed 32.0%, 42.7%, 24.1%, 33.4%, 76.9%, 67.8% and 40.9% of total FBI to the cereals, general cropping, horticultural, dairying, livestock (LFA), lowland livestock and mixed sectors, respectively. Figure 2.16 Farm Business Income by Cost Centre ( per farm) 160000 150000 140000 130000 120000 110000 100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0-10000 cereals general horticulture dairy LFA grazing Lowland mixed cropping grazing agriculture Single Payment Scheme Diversification Agri-environmental Cereals The output, inputs and incomes for cereals farms in the East Midlands are shown in Table 9. In 2011, the average FBI for cereal farms was 111,877 which represents an increase of 9.1% from the previous year. As noted in figures 2.3 to 2.6, cereal prices were lower in 2011 when compared to 2010, as was the case for oilseed rape prices (figure 2.7). Generally, yields of cereal crops in 2011 were lower than those achieved in 2010 and so this sector s increase in total output and FBI was largely due to a notable increase in yield of oilseed rape in 2011, especially given the crop s significant influence due to it being the chief break crop in the region. Table 15 shows that total
variable costs for cereal farms were on a par with 2010 figures and total fixed costs increased by a modest 4.3%. General Cropping Table 4 illustrates that for general cropping farms in the East Midlands, average FBI decreased from 152,877 in 2010 to 128,002 in 2011. Broadly speaking, general cropping farms are distinguished from cereal farms by the inclusion of sugar beet and / or potato enterprises and as can be seen in figure 2.9, potato prices were notably lower in 2011 (cf. 2010) and were influential in the sector s fall in income. However, some farms witnessed a benefit from the much more favourable outcome of the 2011 sugar beet crop which achieved similar prices to those from 2010 but, importantly yielded much better than in 2010 when the crop suffered under the harsh winter conditions. Horticulture (England) Table 4 reveals that for horticultural businesses in the East Midlands, the average FBI in 2011 was 115,892, compared to 102,456 in 2010. However, the diverse nature of businesses within the horticultural sector means that year on year comparisons of incomes, outputs and inputs should be made with caution due to changes within the sample. Figure 2.16 shows that horticultural businesses are more reliant on income gained from their core activities compared to cereals and general cropping farms and their respective incomes from agriculture. Dairy (lowland and LFA) Table 4 shows that in 2011, the average FBI for dairy farms in the East Midlands was 75,973 compared to 59,440 in 2010, representing an increase of 27.8%. As was noted in figure 2.10, the average milk price in was 2.9ppl higher than in, which contributed to the 15.5% increase in livestock output (Table 15). The dairying sector also benefitted from the increase in beef prices (figure 2.11) with those producers with beef enterprises seeing significant increases in their outputs from rearing and fattening enterprises. Total variable costs increased by 13.0%, with an increase in purchased feed costs contributing significantly to this. Total fixed costs were held mainly in check when compared to 2010. Grazing Livestock Less Favoured Area (LFA) The average FBI for LFA grazing livestock farms in 2011 was 20,185 compared to 9,908 in 2010. This significant increase in income stemmed largely from the increase in the price of finished lamb referred to in figure 2.12 and also from stable variable and fixed costs when compared to 2010 results. Once again, the significance of the Single Farm Payment and income from agrienvironmental schemes to this sector in particular, is illustrated in figure 2.16. The agricultural component of total FBI was - 2,451 (cf.- 10,496, ), whilst the SFP and agrienvironmental schemes contributed 15,515 and 6,258, respectively. Diversified activities, for so long also a notable contributor to total income, remained at relatively low levels with the downturn in tourism that has accompanied the overall decline in the general economy, probably being a significant factor in this. Grazing Livestock Lowland Table 4 shows that in 2011, the average FBI for lowland grazing livestock farms in the region was 25,295 (cf. 18,598 in 2010). An improvement in the return of income from agricultural activities to a positive sum of 3449 (cf. - 586, 2010) meant that this sector was less reliant on the SFP as a contributor to total FBI, although at 67.8% of FBI, the SFP remains an important component of the business.
Pigs (England) This commentary is based on the national sample of 74 pig farms across England. The report includes all types of producer; independent and contract units, and all combinations of breeding through to finishing. The average pig farm was stocked with 2,362 pigs, little changed on the previous year. However the average size of farm increased from 44.7 ha to 63.4 ha with more land used for home produced feed and cereals grown for straw. The FBI of specialist pig farms averaged 37,980 in 2011/2012 ( 44,439 in 2010/2011). Pig output at 419,787 was lower than the 424,270 achieved in 2010/2011. The deadweight average pig price (DAPP) 1 was 144.27 pence per kilogram at the end of April 2012, having peaked at over 145 pence in July 2011 and fallen to a low of below 137 pence in February 2012. Overall, pig producers have faced high production costs again this year, with high grain prices having the biggest impact. However British weaner prices remained relatively stable throughout this period at 43.75 per head at the end of April 2011 to 45.35 per head at the end of April 2012. With the lowest price dipped to 39.98 per head in October 2011 (DAPP) 1. With the ban of sow stalls in the EU coming into force in January 2013 it is expected that several member states will not be fully compliant with only 12 out of the 27 on course to meet the deadline. 2 Pigmeat production in the EU is expected to fall as some European farmers might see this as an opportunity to leave the industry avoiding investment in new equipment. 3 (3) This is expected to place the British pig industry in a much stronger position, with prices to match, following a run of difficult years since the ban took effect in Britain in 1999. Poultry (England) The average Farm Business Income for this sector was 41,110 representing a 40 per cent reduction on the previous year figure. The nature of this sector means that the income of individual farms can change considerably from year to year. This, along with the relatively small size of the sector and of the sample in the survey, means that our estimates are subject to greater levels of fluctuation and uncertainty than in other sectors. The livestock output was 578,702 of which 26 per cent was from eggs and 74 per cent was from broilers (32 per cent of this came from eggs and 68 per cent from broilers in 2010). Egg production was dominated by the transition from caged to enhanced pens under the 1 st January 2012 ban. The UK cost of moving to enhanced cages has been quoted as 400 million; more than 25 per hen housed i. Ahead of the cage ban, there was a continued gradual reduction in the UK flock during 2011 and the strategy of earlier culling of older flocks meant the size of the UK layer flock dropped to 31 million birds in January 2012 ii. Production fell; in 2011 26.9 million cases of eggs were packed a decrease of 2 per cent on the previous year iii. The average price per dozen eggs also fell slightly to 69.9p in 2011, from 70p in 2010 iv. In early 2012, the market rallied due to reduced supply. Rapid culls in Europe to meet the cage ban are illustrated by the case of Spain which was 120 per cent self-sufficient and exported 20 per cent to the UK, but is now a net importer v. Eggs classed as seconds have seen a price increase, for example Stonegate packers gave an additional 14p per dozen to reflect processor demand vi. Pressure from imports remains strong with confusion over caged eggs from other EU countries entering the UK as processed product. Higher feed prices were a matter of considerable concern to the industry in 2011. In turn these also led to higher costs of production for pullets and so increased prices to egg producers. 1 BPEX website for DAPP 2 Farmers Weekly 16/3/12 3 Farmers Weekly 16/4/12
Wholesale prices for chicken meat have remained reasonably stable in the face of rising input costs 2. Demand has grown for speciality birds such as wild guinea fowl and poussin, the fastest growing meat on sale in the UK, as more consumers seek roast dinner alternatives vii. Costs to the poultry sector continue to increase, feed accounted for 61 per cent of overall agricultural costs and 86 per cent of livestock specific costs making it very difficult to find any cost saving measures that have any real impact. Mixed As befits a sector of agriculture that encompasses all categories of enterprises, the average FBI for mixed farms in the East Midlands followed the trend of the majority of the region s farming sectors by recording an increase in FBI from 47,116 in to 59,232 in. In accordance with the commentary above, total output from crops increased largely due to the excellent performance of oilseed rape in 2011, whilst improved prices for beef and lamb sales contributed to an improvement in total livestock output. Total input costs show a small increase on those from the previous year. Summary The FBI performance within the East Midland s region for the year was one of general improvement on the levels achieved in ; however, there were some variations in performance across the farm type sectors. In the arable sector those businesses more reliant on cereal and oilseed rape crops recorded notable increases in FBI, whilst those with rotations that incorporated more root crops did less well and as a group recorded a decrease in FBI. Within the livestock sector, the grazing element, i.e. beef, sheep and dairying, FBI performance increased in significant proportions on the back of improved commodity prices which outweighed the increases in input costs. The pigs sector fared less well, despite an increase in the average price of pigmeat; suffering at the hands of increased production costs, in particular, purchased feed costs. In the poultry sector, market distortions that were led by the change from caged to enriched cages, were significantly responsible for falls in incomes from eggs. Poultry meat producers maintained their output prices but like their egg producing counterparts saw cost of their primary input, i.e. feed, increase by levels that continue to cause concern. FBI is the total income generated by four key business activities; namely agriculture, diversified activities, agri-environmental schemes and the SFP. The SFP continues to be a major income driver and significantly, a constant and relatively stable source of income that, for some sectors, can dwarf the total income from the other three elements of the business. Unless something radical occurs in the market place in the form of greatly improved output prices, then the SFP, or its replacement, the Basic Payment Scheme, will remain key to overall income and farmers will be watching the progress of CAP reform with interest. i Defra.gov.news 21/2/11 ii GB emerging threats report, avian diseases, Vol. 15, No. 4, Oct-Dec 2011 iii The ranger.co.uk/marketdata/eggthroughput iv Defra.gov.uk/statistics v Fwi.co.uk, 9/3/12 vi Fwi.co.uk, 22/3/12 vii Fwi.co.uk, 5/12/11