Farm Business Survey
Rural Business Research

Description of terms

These descriptions will give you a better understanding of what is included under each item for those figures taken from the FBS (Farm Business Survey) and displayed by the program.

Click "here to go to the FBS farm business benchmarking - gross margins help notes"

Conventional or Organic farms

Organic farms are classified as those which have more than 70 per cent of their utilized agricultural area reistered as fully organic (no longer 'in conversion'). The vast majority of these are 100 per cent organic. Conventional farms are all others (with less than 70 per cent of their utilized agricultural area registered as organic). With an extremely small number of exceptions, these conventional farms have no organic land at all. And most of the exceptions would be typical of their farm type (rather than typical of organic farms).

Total farmed area

This is the area that is farmed by the business, including land hired in for less than one year and land farmed under a contract farming agreement for another party and land that you farm under a share farming agreement with another party. It does not include: farm buildings, woodland, all farmland let out by your business (even if let out for less than one year) and land that is farmed under a contract farming agreement by another party.

"Total area of farm" - used only the Balance Sheets pages - is a different measure and includes, in addition to the above, woodlands, buildings, gardens, roads, water and other areas not used for agriculture. Total area of farm is typically the area that is quoted when a farm is bought or sold (where no land is rented in or farmed on contract).

Sales

Livestock sales plus crop sales plus total financial output from miscellaneous activities (see list below) provided these activities are integrated into the farm business:

1. Processing and retailing of farm produce

2. Agri-environment type payments, e.g. management agreements, agri-environment scheme payments (e.g. ESA, Countryside Stewardship),

3 Any other miscellaneous subsidies.

4. Any rents received on farm house, cottages and buildings .

5. Recreation, tourist accommodation and catering, rural crafts.

6. Revenue from hiring out machinery or labour.

7. Any other miscellaneous receipts.

Subsidies

Livestock subsidies plus crop subsidies plus single farm payment.

Cost of sales

Opening valuation plus purchases less closing valuation.

Opening valuation

Opening value of crops, by products and fodder in store plus opening value of feedstuffs, agrochemicals, fertiliser, and vet and med materials plus opening value of livestock.

Purchases

Purchases of livestock, crops, by products, fodder (including keep for less than one year and agistment or away wintering), feedstuffs, agrochemicals, fertiliser, vet and med expenses, livestock purchases.

Closing valuation

Closing value of crops, by products and fodder in store plus closing value of feedstuffs, agrochemicals, fertiliser, and vet and med materials plus closing value of livestock.

Gross profit

Sales and subsidies less cost of sales

Fixed costs or overheads

These are described below. Use these descriptions as a guide to what each cost item covers when the FBS results are displayed.

Wages and salaries

(This includes casual as well as regular labour and also includes the farm manager)

It includes:

a) The cash payment made to the worker including overtime plus premia, bonuses and the employer's and employee's shares of social security contributions and employer's common law liability insurance.

b) The cost of perks such as payment of council tax, cottages or board, milk, potatoes etc, which are provided for farm workers and their families, whether they form part of the contract wage or not.

Machinery repairs

These are the cost of repairs and servicing (including replacement parts) to implements, machines, vehicles and equipment (including farm cars, electric motors, petrol engines, tools with a value over £200 at purchase, coolers, bulk tanks, tenant-type poultry houses and incubators, spray lines, cold frames and glass cloches). The costs are net of any insurance receipts. It also includes small tools, tyres etc.

Machinery fuel and oil

Petrol, diesel oil, paraffin, lubricating oils and greases.

Contract work

Total expenditure on work carried out by agricultural contractors. Cost of materials is also included here, unless it can be estimated reasonably accurately (in which case it is recorded separately under crop protection, fertiliser or other crop costs). Contract labour is only included under this heading when associated with the hiring of a machine. Otherwise contract labour is included under "casual labour".

Other machinery and motor expenses

Equals machinery rental (i.e. cost of hiring machines driven or used by the farm's labour, and machinery under contract hire or similar rental agreements) plus vehicle tax.

Rent

The actual rent paid less any allowances given by the landlord by way of reduction of rent. Where rent is paid partly by transfer of farm produce or services, the value of the farm produce or services should be included in rent and as a contra item in sales and subsidies above. Rent includes any charges the landlord makes on new equipment, new buildings or improvements before these charges are incorporated in the normal rent for the farm. Any sum paid by the tenant but normally the responsibility of the landlord, e.g. fire insurance premia for farm buildings, is also included in rent. Rent paid for land under an agreement for less than one year is also included, (eg grass keep rented for less than one year and other 364 day agreements).

Rates

Includes:

  • Council tax payments paid by the farm business, eg in respect of cottages let to farm workers. Does not include personal council tax payments, eg as paid by the farmer or members of the farmer's family, as they are private expenditure.

  • Uniform Business Rate of an activity - if the income from that activity is included in Farm Income (eg a farm shop or a caravan site).

  • Rates to local councils or water authorities for regional drainage schemes or effluent disposal.

Power, electricity and heat

Includes:

All electricity used in the farm business including that used for heating glasshouses, drying cereals etc.

All the heating fuels (except electricity) for all farm purposes, including the fuel used for heating glasshouses, drying cereals etc.

Property repairs

This includes the cost of repairs to tenant type items such as hedges, fences (including fencing wire), ditches, gates etc. and the estimated cost of all landlord type repairs, including the cost of major structural repairs to buildings (e.g. the re-instatement of roofs and walls).

Labour costs should only be included if the labour is provided by non-farm labour.

The cost of repairs carried out by the landlord on tenanted property is not included.

Professional fees

These include:

  • Safe custody fees
  • Accountants/auditors fees
  • Valuation fees
  • VAT recording and secretarial charges (including travelling secretaries)
  • Legal fees (relating to business activities)
  • Land agent fees (relating to business activities)
  • Advisory and consultancy fees (if not specifically allocated to crop or livestock costs).

Bank interest and charges

Interest

Interest on bank overdrafts, hire purchase, leasing agreements, merchants' and other trade credit and interest on bank loans, loans from AMC, building societies, insurance companies, and similar institutions, and loans from private sources and from the family.

Bank charges

Include:

  • Bank commission on current account (but not interest)
  • Management fees relating to loan accounts
  • Overdraft charges

Insurance costs (excluding labour)

Insurance premia covering farm risks, such as the holder's third-party liability, vehicle insurance, fire, flood, insurance against death of livestock and damage to crops etc, hail and fire insurance of buildings, premises, glasshouses and frames on an owner-occupied farm and for any buildings owned by a tenant on a tenanted farm. Excludes: premia covering accidents at work and private insurances of the farmer and family.

Depreciation of machinery

In addition to general agricultural machinery and tractors, machinery depreciation includes farm cars, electric motors, petrol engines, tools with a value over £200 at purchase, coolers, bulk tanks, tenant-type poultry houses and incubators, spray lines, cold frames and glass cloches.

With machinery depreciation, you have two options: you can either allow the program to calculate deprecation for you to make sure the value is comparable with machinery depreciation as recorded in the FBS. If you choose this approach the program calculates the machinery depreciation charge for your business over the last 12 months.

Alternatively you can enter the value for machinery depreciation direct from the accounts for your business. If you do this, however, there is a strong probability that the value in the accounts will not be on the same basis as the FBS and will therefore not be comparable with the FBS. This is because depreciation in the FBS is on the current replacement cost basis, whereas in financial accounts it is often on an historic cost basis.

Calculate machinery depreciation

If you want the program to calculate machinery depreciation for you on the same basis as the FBS you will need to click on 'Calc' (on top of the box in which to enter your value). There are then two methods by which you can enter your data:

Method 1
By entering values for each machine category.

Method 2
This is the most accurate method. Under this option you click on an underlined machine category to display a form that enables you to enter values, machine by machine. This method also allows for situations where machinery is shared with other farmers or is used, in part, for private use, eg farm cars.

Method 1

This form lists five machinery categories and comprises of a set of boxes into which you enter the following:

Opening value of machinery:
The market value of machinery at the opening valuation. This is the market value at 12 months ago. For example, if you are using the program at 1st June 2008, it would be the market value of machinery at 1st June 2007. All machinery that the business owned at that point in time should be entered, including that under hire purchase, lease purchase/finance leasing agreements. Market value is the value on the open market taking into account the age and condition of the machine.

Machinery under contract hire or similar rental agreements should not be entered here (see description of 'other machinery and motor expenses').

Purchases:
The purchase cost of any machinery purchased in the last 12 months is entered in the second column.

Sales:
The sale value of any machinery sold is entered in the third column.

By clicking on the 'Total' button the total depreciation will then be calculated.

Clicking the 'OK' button will then place this value into the box for machinery depreciation on the comparative analysis page.

Clicking the 'Cancel' button ignores all entries and totals and closes the form.

Method 2

This form is similar to that in Method 1 except that you are now entering values for individual items of machinery that fits the category. More significantly, for each item of machinery you will also indicate the percentage used on business to allow for situations where machinery is shared with other farmers or is used, in part, for private use, eg farm cars.

As in Method 1 you will see a set of boxes into which you enter the following:

Opening value of machinery:
The market value of machinery at the opening valuation. This is the market value* at 12 months ago. For example, if you are using the program at 1st June 2004, it would be the market value of machinery at 1st June 2003. All machinery that the business owned at that point in time should be entered, including that under hire purchase, lease purchase/finance leasing agreements. Market value is the value on the open market taking into account the age and condition of the machine.

Machinery under contract hire or similar rental agreements should not be entered here (see description of 'other machinery and motor expenses').

Purchases:
The purchase cost of any machinery purchased in the last 12 months is entered in the second column.

Sales:
The sale value of any machinery sold is entered in the third column.

Percentage used on business:
This is to allow for situations where machinery is shared with other farmers or is used, in part, for private use, eg farm cars.

For each machine you will need to enter the 'percentage used on business'. This will normally be '100%'. If the machine's ownership is shared with at least one other business the percentage used on business is entered accordingly. For example, if a machine is half owned by another farm business, then the share would be 50%.

With Cars, utilities and commercial vehicles, the 'percentage used on business' reflects the approximate share of the vehicles use that is for farm business. For example, if the 'farm car' is used for the farm business 60% of the time, and private use 40% of the time, then '60%' is selected.

By clicking the 'Enter more' button a total of the values you have entered, according to the percentage used on business, will be displayed. Your entries will then be cleared for you to continue with additional items.

Clicking the 'OK' button totals all the entries just like the 'Enter more' button but then closes the form and places the totals into the respective machinery category row for the form in Method 1.

Clicking the 'Cancel' button ignores all entries and totals and closes the form.

NB: Once the form has been closed or you click the 'Enter more' button, it will not be possible to go back to the values you have entered.

Depreciation of buildings and works

This covers buildings, premises and land improvements, e.g. fencing, draining, irrigation for buildings, premises and land improvements owned or paid for by the occupier.

Depreciation of glasshouses

This covers glasshouses and walk-through polythene tunnels (including any associated boilers and irrigation lines) which are owned or paid for by the occupier.

Depreciation of permanent crops

These are crops with a life of not less than 5 years, such as orchards, vineyards, hop gardens and hardy nursery stock stock-plants (i.e. hardy nursery crops which stay in the ground and from which output is taken in the form of cuttings, fruit etc). Hardy nursery stock with a production cycle of more than 5 years, where the mature plant is eventually sold, is not included here, nor are strawberry plants and rhubarb (which have a life of less than five years.

Other overheads

Includes:

Water charges: covers cost of water for irrigation, drinking, cleaning, cooling etc. on the farm, also includes all charges and licences payable for connection to a water supply and for the abstraction of water for irrigation where they relate to the farm business.

All other overheads: all taxes and other dues relating to the farm business, subscriptions, advertising, telephone and postage stamps, periodicals, pest clearance and shot-gun expenses (farm share), travel and subsistence (farm share), stationery, sporting costs (if there are any sporting rights), general chemicals, fines and compensation paid to a third party arising from civil and criminal legal action relating to farming activities, cost of hiring a building for less than one year for some other purpose than for keeping crops or livestock.

The following are excluded from 'all other overheads':

  • Drainage rates payable to Local Authorities or River Boards (these are recorded under 'rates')
  • Vehicle tax (this is recorded under 'other machinery and motor expense')
  • VAT
  • Taxes etc levied on labour such as Social Security contributions (these are included in 'wages and salaries')
  • Personal taxes of the farmer (this is regarded as private expenditure)
  • Council Tax paid by the farmer (this is also regarded as private expenditure)

Total overheads

Total overhead costs

Tenant-type capital

Includes closing valuations for: machinery, livestock, glasshouses, permanent crops, crops, forage, cultivations, stores, liquid assets, and Basic Payment Scheme entitlements

Basic Payment Scheme entitlements

BPS entitlements - market valuation of all Basic Payment entitlements, for all categories (moorland, SDA, other) and payments (normal, set-aside, and other). (discounted)

Liquid assets

Includes cash, deposits, short term loans, and monies owed (debtors - including suspended debtors)

Net worth

Total assets less total external liabilities

Gearing ratio

Total liabilities as a percentage of net worth

Liquidity ratio

Current assets as a percentage of current liabilities. Also known as the 'current ratio'. Current assets include inventories (and are calculated in Balance Sheets). Current liabilities include: hire, leasing, trade creditors, bank overdraft, and other.

Return on tenants capital

Farm business income as a percentage of tenant-type capital

Return on total capital

Farm business income as a percentage of total assets

Labour costs per £100 turnover

Wages and Salaries per £100 Farm business turnover

Machinery costs per £100 turnover

Machinery costs (including: 'repairs'; 'fuel and oil'; and 'depreciation') per £100 Farm business turnover

Standard Livestock Units

Livestock Units are 'Metabolic Equivalents' of one standard dairy cow. Estimated from average livestock numbers over the year, using coefficients given below.

  • Pigs Livestock Unit = 0.35*boars + 0.44*breeding.sows + 0.20*(gilts in pig) + 0.18*(maiden gilts) + 0.17*sows.for.slaughter + 0.17*store.pigs + {0.01*weaners only if breeding.sows are zero}
  • Poultry Livestock Unit = 0.017*laying.flock + 0.003*(pullets not in lay and other poultry) + 0.0017*broilers + 0.004*(other table chickens) + 0.005*turkeys
  • Dairy cows Livestock Unit = 1.00*dairy.cows + 0.8*heifers.in.calf
  • Grazing Livestock Unit = 1.00*dairy.cows + 0.8*heifers.in.calf + 0.75*beef.cows + 0.8*other.cattle.over2years + 0.65*bulls + 0.65*other.cattle.1to2years + 0.34*other.cattle.under1year + 0.11*lowland.ewes + 0.06*lfa.ewes + 0.06*ewe.hoggs + 0.08*rams + 0.08*other.sheep.over1year + 0.04*store.lambs + 0.8*horses + 0.16*breeding.nanny.goats + 0.11*all.other.goats

Farm business turnover

Total output from all crops and livestock enterprises plus set-aside payments, Single Payments, and other income from agriculture and related activities, plus income from semi-integrated non-agricultural activities: [Sales + Subsidies]

Farm business income

Farm business turnover, less farm business costs, plus profits from sale of farm business assets

Net profit

Gross profit less total overheads

Profit before rent, interest and bank charges

Net profit plus rent plus interest and bank charges

Compare with FBS

For 'All Performers' the FBS data displayed for comparison with your data will be average results estimated for the entire FBS population. If you select 'High Performers' the FBS data displayed will be for farm businesses which are estimated to be within the top 25% of the population of farms with that enterprise (for enterprise gross margins) in terms, of gross margins (per hectare, or per head as appropriate); or in the top 25% of the population of that type (for profitability, balance sheets, and performance ratios) in terms of ratio of total output to total input.

Once you have chosen which category you want the comparison to be based on, i.e. 'all performers' or where there are enough farms in the sample, 'high performers', the program will compare your results with the FBS and it will describe how your figures compare with the FBS results by using one of five terms; 'low', 'low to average', 'average', 'high to average' and 'high'. It will do this for each of the items for which you enter data.

What do these terms mean? Lets look at a couple of examples. With 'sales and subsidies' for example, a 'low' comment means that the level of sales and subsidies in your accounts falls within the range estimated to be shown by the 25% of farms in the population of the FBS with the lowest level of sales and subsidies. If your score was 'low to average', the level of 'sales and subsidies' in your accounts falls within the range shown by 15% of the population with the next highest sales and subsidies. If 'average', your sales and subsidies figure falls within the range shown by the next 20% and so on up to the 'high' group which is estimated to be in the final 25% of the population with the highest sales and subsidies.

Similarly with costs, in the case of 'contract work' for example, a 'low' comment means that the level of contract costs in your accounts falls within the range shown by the 25% of farms in the FBS with the lowest level of contract costs - for farms that have contract costs. If your score was 'low to average', the level of contract costs in your accounts falls within the range shown by 25th to 40th percent of farms with the next highest contract costs. If 'average', your contract costs figure falls within the range shown by the next 20%. 'Average to high' is estimated to fall in the 60th to 75th percent of the population. And up to the 'high' group which is estimated to be in the final 25% of farms with the highest level of contract costs.

Remember, if you are doing the comparison on the basis of 'high performers', the comments will describe how your figures compare with those from the 'high performers' sample, i.e. farm businesses which came within the top 25% (as above).

All the figures that the program displays are important, including 'net profit', but the most important one is the 'profit before rent, interest and bank charges'. This figure will provide a more meaningful comparison with the FBS results because it is before rent, interest and bank charges are deducted and thereby enables your results to be compared on a 'level playing field' with farms in the FBS, regardless of whether they are tenanted or owner occupied.



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