Marginal Improvement in Scottish Livestock Profitability

In general Scottish beef and sheep producers saw some improvement in margins during 2009, according to a report published today.

However, many parts of the industry remain under severe financial pressure and far from profitable according to “Cattle and Sheep Enterprise Profitability in Scotland 2010”, commissioned by QMS and compiled by SAC.

“There has been some improvement in the profitability of cattle production but there are still very few suckler herds making money,” said Stuart Ashworth, Head of Economics Services, Quality Meat Scotland.

“While some suckler herds and rearer/finishers have seen performance improvement, genuine LFA hill herds have seen little improvement since 2004 - highlighting the vulnerability of this sector.

“We have seen a decline in suckler cow numbers since 2004, with north-west Scotland hardest hit, and the stark reality is that to survive the only option for these producers is to perform exceptionally well,” said Mr Ashworth.

The LFA hill suckler herds surveyed had an average gross margin of £145 per cow but of the fifteen producers surveyed, only one had a positive net margin, emphasising the challenges of farming in an extensive way on severely disadvantaged land.

In comparison, rearer/finisher businesses had gross margins ranging between £133 and £599 per head and averaged £366.50 per head and a third of the enterprises surveyed reported a positive net margin for the year.

Across all suckler herds surveyed, 22% made a positive net margin which is just 1% more than last year. Fifty percent of finishing enterprises sampled achieved a positive net margin, the same as in the 2008 survey.

“In the sheep sector the average producer is making a modest return for his labour and capital investment. However, the hard hill units are the exception. Those trying to make a living working in the most disadvantaged areas have seen very little improvement to their base level of profitability,” observed Mr Ashworth.

Among the lowland ewe enterprises 86% achieved a positive net margin compared to 73% in 2008. Similar improvement was seen among upland ewe flocks where 71% made a positive net margin compared to 56% in the previous year’s survey.

However, it was more difficult for LFA hill breeding ewe businesses to break even with only one-third of the sample making a positive net margin. This still compares favourably with the results reported in this category in both 2007 and 2008 where just 14% and 20%, respectively, made a positive net margin.

The results show that the top farmers have successfully stepped up output during 2009 by carefully increasing spend on inputs.

“One area of concern going forward was the substantial reduction on fertiliser spend. While this does not seem to have affected performance over the past year, it may be that this is due to a residual effect and the full impact has still to be felt,” said Mr Ashworth.

Those in the top-third of sheep producers achieved higher stock performance - 20% more lambs reared than the average at slightly heavier weights, although not significantly heavier than the average. They also achieved better market returns and reduced costs per kg of lamb reared.

LFA hill sheep enterprises in the survey achieved an average gross margin of £23 per ewe. The top-third benefited from higher prolificacy and average lamb weights, but had a higher cost base including greater expenditure on concentrates. Consequently, some of their financial advantage from higher output was eroded but nevertheless they achieved a gross margin nearly £17 per ewe better than the average.

Upland ewe enterprises surveyed reported an average gross margin of £60 per ewe. Once again, higher lambing percentages and heavier lamb weights helped the top-third of enterprises to return £16.50 per ewe more from the market place. This combined with more efficient cost management gave the top-third a £21 greater net margin per ewe than the average enterprise.

Lowground breeding ewe businesses in the survey averaged £70.50 for their gross margin. Gross margins ranged from a minimum of £52 a ewe to a maximum of £113 a ewe. Again the top-third achieved the best financial performance as a result of strong technical performance, with each ewe producing 0.65kg more lamb than the average enterprise. Those in the top-third yielded £12 per ewe more than the average net margin of £27 per ewe.

The report is available free of charge from Quality Meat Scotland tel: 0131 472 4040 and can be downloaded here.