Click "here to go to the
FBS farm business benchmarking - gross margins guidance"
Conventional or Organic farms
Organic farms are classified as those which have more than 70 per cent of their
utilized agricultural area registered 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 a 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.
It is expressed in ADJUSTED HECTARES. Which is exactly the above area,
except for any areas of rough grazing, which are "adjusted" to an equivalent area
of good mowable land. This is not unusual in the Less Favoured Areas (LFA's)
where a farm may include large tracts of unproductive hill and moorland,
both sole occupier and commonland.
The adjusted area allows an area of rough grazing to be equated to an equivalent area
of flat, mowable land on the basis of effective stocking capacity. This therefore
reflects the true stock carrying capacity of a parcel of land and allows meaningful
comparisons on true farm stocking rates to be presented. This measure is particularly
important for LFA farms with large tracts of poor quality land
including those with areas of common grazing.
The "adjusted" area of a parcel of rough grazing can be estimated:
- By asking what area would be accepted in exchange for the parcel of "rough grazing".
For example; "What area of flat, mowable land would you swap for this parcel of rough grazing?"
-
Or by estimating what area of flat, mowable land could carry the same number of stock.
Example 1: if a 2000 hectare (ha) parcel of hill commonland carries 500 hill ewes
for a year, the adjusted area (equivalent of flat mowable land) would be: 500 ewes at
0.06 Grazing Livestock Units/ewe (GLU/ewe) at a local hill stocking rate of
0.5GLU/adjusted ha (either from local knowledge or published data) which is 60ha
(i.e. a ratio of about 33:1).
Example 2: if a 22ha parcel of lowland rough grazing carries 100 lowland ewes for
a year, the adjusted area (equivalent of flat mowable land) would be: 100 ewes at
0.11GLU/ewe at a local lowland stocking rate of 1.5GLU/adj. ha which is 7.3ha
(i.e. a ratio of about 3:1).
"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).
Cereals output
Revenue from cereals plus farm consumption or use plus closing valuation of current crop (ie 'enterprise output' from cereals) [a]
Oilseed rape output
Revenue from oilseed rape plus farm consumption or use plus closing valuation of current crop (ie 'enterprise output' from OSR) [b]
Other crops output
Revenue from 'other crops' plus farm consumption or use plus closing valuation of current crop (ie 'enterprise output' from other crops) [c]
Milk output
Revenue from milk and milk products plus farm consumption or use plus closing valuation of milk products (ie 'enterprise output' from milk) (less opening valuation of milk products) [d]
Other livestock output
Livestock enterprise output, less milk enterprise output [e]
Other incomes
Other current crop sales, plus previous year crop sales, plus (other livestock sales revenue and livestock farmhouse consumption and farm use of livestock) plus (diversification, other management, and miscellaneous output, excluding environment output) plus interest received less (crops and livestock enterprise output, and basic (CAP) payment) [f]
BPS and agri-environment payments
Basic payment scheme income plus agri-environment payments [g]
Gross farm output
Sum of the above [a+b+c+d+e+f+g] {called GFO}
Crops direct costs
Crop costs: Opening valuation plus/or/minus (net) purchases, plus/or/minus revaluation, less subsidies, less drawings and private share, less closing valuation. For all seeds, fertilisers, crop protection, and other crop direct costs (including agronomy, and twine or wire). [h]
Livestock direct costs
Livestock costs: Opening valuation plus/or/minus (net) purchases, plus/or/minus revaluation, less subsidies, less drawings and private share, less closing valuation. For all livestock direct costs (including advice, and twine or wire). [i]
Products valuation change and net livestock purchases
Opening valuation of previous years crop less closing valuation of current crop, plus opening valuation of livestock plus net purchases less closing valuation [j]
Gross profit
Gross farm output less above [GFO-h-i-j] {GP}
[OLD / LEGACY] 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.
[OLD / LEGACY] Subsidies
Livestock subsidies plus crop subsidies plus single farm payment.
[OLD / LEGACY] Cost of sales
Opening valuation plus purchases less closing valuation.
[OLD / LEGACY] 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.
[OLD / LEGACY] 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.
[OLD / LEGACY] 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.
[OLD / LEGACY] 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.
Paid wages and salaries
This includes casual as well as regular labour and also includes the farm
manager. It does not include costs for the labour provided by farmers and spouses,
non-principal partners and directors and their spouses
and family workers.
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 Single Payment Scheme entitlements
Single Payment Scheme entitlements
SPS entitlements - market valuation of all Single Payment entitlements,
for all categories (moorland, SDA, other) and payments (normal, set-aside,
and other). (discounted)
Total assets
Assets are anything of value in the possession of the business and claims on
anything of value in the possession of others. In valuing the assets of a business,
current market value is the preferred approach.
Total fixed assets of which:
Total fixed assets include milk and livestock quotas, as well as land, buildings,
breeding livestock, and machinery and equipment. For tenanted farmers, assets can
include farm buildings, cottages, quotas, etc., where these are owned by the
occupier.
Land and buildings
Buildings and land are valued on a replacement cost basis, less accumulated
Depreciation to date of valuation.
Breeding livestock
Breeding livestock are valued at market value, net of marketing expenses. The closing value will
include an element of Breeding Livestock Stock Appreciation, which is the change in value due to
movements in market prices between the opening and closing valuation. It is necessary to identify
the BLSA in order to calculate herd depreciation. Therefore a methodical approach to valuation
is required. To do this it is probably worth dividing the herd into different age groups. Each group
can be valued according to the age of the animals and how the quality and average age of the
herd has changed between the opening and closing value. BLSA should be considered at the time
the valuation is made. The aim should be to get a realistic market value of the herd at the
opening and closing valuation and to then decide how much of the change in value is due to
BLSA, so as to derive a plausible figure for herd depreciation.
Machinery
Plant and machinery (including plant and machinery on hire purchase or finance lease).
Vehicles, machinery and implements (equipment) are valued at current replacement cost (net of grants),
less accumulated Depreciation to date of valuation. The value so derived should approximate to
the market value in it's current condition.
Permanent crops
Orchards, Asparagus, Miscanthus, Short Rotation Coppice (eg Salix), etc.
Basic Payment Scheme entitlements
Market value of BPS entitlement (discounted at 20%, straight line)
Miscellaneous assets
Total current assets of which:
Crops; trading; and livestock
Temporary assets normally intended for conversion into
cash within a short space of time (generally a year or less). Examples are livestock (other than
breeding stock), harvested and growing crops, stocks of livestock produce.
Stores
Other stocks of purchased materials, such as seed, feeding stuffs and fertilisers
Total external liabilities of which:
Bank loans
Includes mortgages and bank term loans, not liable to early recall under normal circumstances.
Non-Bank loans
Hire purchase, finance leases, private and family loans (whether bearing interest or not),
not liable to early recall under normal circumstances.
Bank overdraft
Non-Bank short term loans
Hire purchase, finance leases, private and family loans (whether bearing interest or not)
Current Liabilities
Are claims on the business which may have to be met within a short period
of time, usually not longer than a year. Examples include sundry creditors, bank overdrafts and
short-term loans.
Net worth as % of total assets
Net worth (or, in other words, owner equity) divided by total assets (as a percentage).
Liquid assets
Includes cash (either in hand or at the bank), deposits, short term loans, and monies owed
(debtors - including suspended debtors), pre-payments.
Net worth
Total assets less total external liabilities. Net Worth represents the
residual claim or interest of the owner in the business. It is the balance
sheet value of assets available to the owner of the business after all
other claims against these assets have been met.
Gearing ratio
Total liabilities as a percentage of net worth. (Ratio of Debt to 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 (assets
such as machinery, equipment, glasshouses and permanent crops)
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
Rate of Electricity Consumption
Estimated electricity consumption (estimated from standard price coefficient -
kilo Watt hours per standard Livestock Unit (LU)
or per Utilised Agricultural Area (hectares)).
Rate of Fuel and Heating Oil Consumption
Estimated fuel and oils consumption (estimated from standard price coefficient -
Litres per standard Livestock Unit (LU)
or per Utilised Agricultural Area (hectares)).
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 Income represents the financial return to all unpaid labour (farmers and spouses,
non-principal partners, directors and their spouses and family workers) and on all their capital
invested in the farm business, including land and buildings.
Farm business turnover, less farm business costs, plus profits from sale of farm business assets
Farm Business Income (sometimes referred to as Farm Business Profit) is Total Farm Gross
Margin less the sum of the Fixed Costs incurred, before any charges for unpaid labour or notional
rent on owner occupied land. Alternatively it is Total Farm Output less the sum of Variable and
Fixed Costs. It therefore represents the surplus or deficit before imputing any Notional Charges
such as Unpaid Family Labour Costs and Rental Value. In terms of broad definition, farm business
income is very similar to net profit as used in financial accounts.
Farm Business Income is derived from management accounting principles. Unlike Net Profit, which is based
on financial accounting where for example output stocks are usually valued at cost of production, whereas
in management accounting they are usually valued at market price. In financial accounting
depreciation is usually calculated at historic cost whereas in management accounting it is
often calculated at replacement cost. A further difference is that Net Profit includes breeding
livestock stock appreciation but Farm Business Income excludes it.
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.
FBS: Terms in Farm Business "Gross Margins"
Crop Sales
the value of sales from the crop plus the market value of any part of the crop used on farm
Straw & Sugar Beet Tops
Sales of secondary product (eg straw) and value if used on farm
Seeds and Young Plants
the gross expenditure net of sales of seeds and young plants, except for forest tree seedlings
(but before any subsidy on bought seeds). It also includes the cost of cleaning and dressing home saved
seeds by contractors or merchants and any royalty payments incurred.
And, the estimated ex-farm value of home produced seeds and young plants used on the holding for the
current crops.
Fertilizers
Expenditure, after deductions for discounts. Fertilizers include all straight
compounds and organic manures together with farmyard manure, lime and chalk, peat, soil composts and
combined fertilizer / insecticides, sewage, soot, and all waste products.
Crop Protection
Expenditure, after deductions for discounts but before any subsidies.
All herbicides, fungicides, insecticides, slug pellets and dusts.
Drying & Heating
all the heating fuels for the crop, including the fuel used for heating glasshouses, drying
cereals etc. Any fuel used for chilling produce, or chitting of seed potatoes, on farm
is included here. For fuels used for heating, the gross expenditure (inclusive of
heating fuel tax) less sales is included.
Variable Costs
Variable Costs are costs that are readily allocated to an enterprise and which will vary in
approximately direct proportion to the scale of the enterprise. Examples of Variable Costs are
fertilisers, pesticides, seed, concentrate feeding stuffs (purchased or home-grown), and fodders.
Gross Margin
Output from the enterprise less the Variable Costs, including the allocated
variable costs of grass and other forage
Finished Livestock Sales
Sales of all fat sheep under 1 year. All finished cattle sold for slaughter, except for cull cows,
cull bulls and all calves sent for slaughter. Excludes bull beef cattle.
Store Livestock Sales
All ewe and wether lambs under 1 year sold or purchased for further fattening.
All cattle sold except fat (finished) cattle (above).
Milk Sales
This covers all liquid cows' milk whether sold by wholesaler or retailer producers, consumed
by the farmer or farm workers or used on the farm (e.g. for feeding calves), but excludes
direct suckled milk. Includes the value (as wholesale, to the farmers usual wholesale buyer)
of all milk used for processed farm products such as cream, butter, cheese, etc.
Herd or Flock Depreciation
Depreciation is defined for mature breeding animals* as:
(closing valuation, plus sales, plus transfers out)
minus (opening valuation, plus purchases, plus transfers-in)
minus Breeding Livestock Appreciation (BLSA). (* Only applies to:
bulls and cows; boars and sows; rams and ewes)
Concentrates
The cost (and ex-farm market value) of all bought (or homegrown) compounds and straights consumed;
these include all compound feeds, cereals and other grains, beans, soya and other proteins, dry
sugar beet pulp, maize gluten, milk powder, additives, minerals, vitamin supplements, etc. Wet
feeds, such as wet sugar beet pulp and brewers grains are not included here but are recorded under
coarse fodder along with bulk feeds.
Coarse Fodder
The cost of purchased bulk feeds consumed, such as hay, silage, straw for feeding, wet
brewers grains, wet sugar beet pulp, stock feed potatoes and other vegetable residues.
And, payments for agistment and expenditure on the use of common pastures and grazing land.
Does not include any forage produced on the holding (except for internal transfers of
straw and other by-products for which a market exists - which are included under "own
produce used on farm").
Changes in stocks of all homegrown forages are included under 'cropping enterprises'.
Veterinary & Medicine Costs
The cost of all veterinary fees and medicines. The costs of treating
farm or household pets are not included.
Crop Costs for Livestock
Includes cropping costs of forage produced for this enterprise on the holding
(excluding internal transfers of straw and other by-products, for which a market exists -
which are included under "own produce used on farm"). Changes in stocks of all homegrown
forages are included under 'cropping enterprises'.
FBS Farm Business Benchmarking -
gross margins guidance
These notes can be accessed at any time from the 'Definitions' page
on FBS Farm Business Benchmarking.
What is a gross margin?
It is the value of output from an enterprise less the variable costs of
producing that output
What is an enterprise?
A part of the farms production, eg dairy cows, wheat, sheep, potatoes are all
'enterprises'
What is output?
Crops
For crops it is the value of everything produced, (i.e. grain plus straw in the
case of cereals) plus the area payment (where applicable).
Breeding livestock
For breeding livestock it is the value of milk plus progeny (calves or lambs)
plus any subsidy, less the cost of replacing the breeding animal. With the
breeding livestock enterprises (dairy cows, suckler cows and sheep) , the cost
of replacing the breeding animal is the annualised cost as the animals
normally last more than one year.
For non breeding livestock (eg finishing beef animals) it is the value of the
finished animal plus any subsidy less the cost of replacing the animal (eg
purchasing a store or a calf).
What are variable costs?
Costs that are sensitive to change in the size of the enterprise, in terms of
crop area or livestock numbers, or sensitive to a change in the yield of the
enterprise, eg milk yield per cow or crop yield per hectare.
‘Fixed’ costs (eg rent, labour, machinery) are relatively insensitive to such
changes.
Which are the main variable costs?
Livestock enterprises: Concentrate feed (purchased and home grown), purchased
fodder, vet and med costs, other livestock costs (eg haulage and other
marketing costs, ear tags, bedding, freeze branding, disinfectant), forage
costs (eg seed, fertiliser, agrochemicals, silage wrap, baler twine).
Crop enterprises: fertiliser, plant protection, seed, other crop costs (eg
haulage and other marketing costs, bird scarers, pest control, soil analysis,
agronomist fees for ‘crop walking’).
What is the point of gross margins?
- 1. They enable the farmer to compare the profitability of similar enterprises
(i.e. enterprises that have similar fixed costs). For example, wheat, barley
and oilseed rape all have similar fixed costs and the relative size of the
gross margins helps the farmer decide which one(s) to grow.
-
2. They indicate the potential for increasing farm profitability by improving
productivity from the enterprises already on the farm. This may be by
increasing yields, reducing inputs or a combination of both.
What physical unit do gross margins normally relate to?
Per hectare in the case of crops, per head in the case of livestock.
Are they annual?
Most of them are, apart from rearing and finishing enterprises, eg broilers, pig
rearing and finishing, beef rearing and finishing. These are per finished
animal and this may be anything from a few weeks in the case of broilers, to
several months in the case of finished beef.
What are the shortcomings of gross margins?
Because they exclude fixed costs they cannot be used to compare the
profitability of enterprises that have different fixed costs. For example,
there is little value in comparing the gross margin from wheat with potatoes
because potatoes have much higher fixed costs.
So which measure does show the true profit of an enterprise?
Net margin (i.e. gross margin less fixed costs), but these are much harder to
derive because it is not easy to allocate fixed costs (such as rent, labour,
admin costs, machinery) to individual enterprises.