Improved Margins For Scotland’s Top Livestock Producers Despite High Input Costs

Despite soaring input costs in 2008, Scotland’s top livestock producers improved their margins through strong technical performance, according to the annual analysis of performance and profitability by red meat promotion and development body, Quality Meat Scotland.

Stuart Ashworth, Head of Economic Services, QMS, pointed out the price of many inputs rose steeply over the first half of the year and there was little respite in input prices until late 2008.  Fertiliser prices increased more than two fold during 2008 while feed and energy costs increased by over 20%.

These higher input prices led to some reduction in input use.  Many suckler herds made savings of over 10% in the quantities of feed used and reduced fertiliser applications by more than 25%. Despite these physical changes in input quantities, variable costs typically increased by more than 15%.

Top breeding herds and flocks had lower replacement rates and all have strong control over variable and fixed costs meaning they spent less per kg of output. Top-third producers also made greater use of family and/or paid labour in running their enterprises.

“Looking at the general picture, 21% of suckler beef enterprises made a positive net margin, compared with only 4% last year. Fifty per cent of finishing enterprises made a positive net margin, an increase of 19% from last year but only six per cent higher than in 2007,” said Mr Ashworth.

“All store lamb finishers surveyed achieved a positive net margin, up from 80% last year. Nearly three-quarters (73%) of lowland ewe enterprises achieved a positive return with 56% of upland ewe enterprises also returning a positive margin,” he added.

However, he pointed out that hill farms found it more difficult to achieve a positive margin with only 20% of breeding ewe enterprises breaking even.

“Despite being lower than the other enterprise groupings, this is still an improvement from the 14% of LFA hill ewe enterprises that returned a positive net margin in 2007.”

Average net margin for hill sheep units was -£1 for the top third producers, down to -£39.15 for the bottom third.  Bottom third producers suffered considerably from lower lamb sales.  Gross output for bottom third producers was 32% of the average and subsequent savings on costs did not suitably offset the low sales figures.

The results also reveal significant variation in the levels of financial and technical performance within the industry - for example the gap widened considerably in the case of LFA hill suckler herds, where gross margin ranged from -£126 to £355 per cow.

Mr Ashworth said that in 2009 prices have held up with producers feeling the benefit of easing input costs - such as fertiliser and fuel - and low finance charges.

The findings were published in the 2009 edition of ‘Cattle and Sheep Enterprise Profitability in Scotland’, today (Wednesday 18th November 2009) at the AgriScot farm business event at Ingliston, Edinburgh.

The publication gives the 2008 crop year results of the annual benchmarking exercise of cattle and sheep enterprises throughout Scotland. A full copy of the report is available to download now.