Headwinds and High Spots: The Economic State of Scottish Farming

Earlier in April, the Scottish Government published its annual Scottish Farm Business Survey results for 2023-2024. This detailed economic and environmental data is gathered from 400 volunteer commercial farms in Scotland across the traditionally supported sectors. It is representative of two-thirds of Scottish agricultural land, 95% of its standard output, and half of the people working on farms - many of whom are working full-time in their businesses.

The headline figure is that average Farm Business Income (FBI) - the equivalent to net profit, the income left for business owners and reinvestment - dropped by more than 50% this year compared to the ten-year high recorded the year before.

Amid buoyant and continually rising livestock prices in the last nine-12 months, these headlines seem counterintuitive. However, it’s important to note that the survey data spans the crop year to May 2024 only. We will need to wait until next year to see the full impact of the recent strong prices in the livestock sector reflected in the results.

Given that lag, it’s reasonable to ask: how relevant are these figures for the industry? This independently gathered data is widely used by Scottish Government, the broader industry, and our research institutions. It feeds into both short and long-term policymaking and informs the UK’s agricultural statistics, which in turn shape sector-wide and specific policy decisions. In short, these numbers matter because they are used to model the impact of policy change on real farm businesses in various supported sectors.

These results come on the back of significant changes to the inheritance tax (IHT) reliefs in Agricultural Property Relief (APR) and Business Property Relief (BPR), and the ongoing uncertainty around detail in changes in government support for agriculture. If it feels like a perfect storm for the farming industry, then perhaps it is.

As for changes to APR and BPR, the message is clear: farming businesses must prepare. HMRC is undergoing consultation on some of the detail, to be published later this year, which will give more clarity. However, it’s clear that as IHT is a personal tax, succession planning for family farming businesses must come to the top of the business management agenda. As highlighted in my recent Perspectives article, it takes time to get to the right outcome, and involves conversations and agreement between family members, followed by engagement with professionals to put the plan in place.

These conversations may be challenging. However, it’s a once-in-a-generational investment in the future of the business. The sooner they begin, the better.

The headwinds for the industry are not just a family farm issue - this is also a policy conundrum. How can support payments be used to deliver climate and nature goals, while maintaining agricultural production with reduced public funding? The lever of support payments is the one the government wants to pull, hoping to deliver a thriving, resilient sector, able to innovate and adapt, and continue to produce food. Farmers, quite rightly, are scratching their heads and asking, how?

In Scotland, we are fortunate to have an ongoing government commitment to the Basic Payment Scheme. Although conditionality is now established in 2025 with the Whole Farm Plan, and the 410-day calving interval for the Scottish Suckler Beef Support Scheme payments, these payments remain significant contributors to farm business profitability in the LFA Livestock sectors.

 _{Breakdown of contributions to farm income by farm type 2023-2024.}

The challenge for policy makers in agricultural scheme design with climate, nature, and food production goals, is ensuring that most of those farm businesses entitled to receive support payments will comply to do so.

When we look at the trends of the Scottish Farm Business Survey results over the last 12 years, we see that the specialist cereals, general cropping and dairy sectors in Scotland have regularly demonstrated their ability to remain viable without relying on support payments. If compliance requirements become overly burdensome, these businesses might opt to forgo support payments, removing the policy lever and alignment with government climate and nature goals as to how this land is managed.

In the livestock sectors, the long-term trend is that the role of support payments remains significant, as outlined in the figure above, and underlines their importance in maintaining sector viability despite the crop year’s very strong prices in the sheep trade, and high cull cow prices.

Behind the average figures lies a more optimistic picture. Across sectors, the top performing 25% of farm businesses demonstrate profitability - even in livestock sectors. The best-performing specialist beef and mixed cattle and sheep farms are achieving FBI of 22–24% of output.

The survey results are all weighted statistically, so that no one farm very small or large has a disproportionate impact on the group average results. The standout finding is that these higher performing farms have a significantly lower fixed-cost base compared to the average. However, the numbers only tell us so much. What else is going on?

Research by AHDB, drawing on the English Farm Business Survey, reveals the characteristics of high-performing farms. These fall into two broad areas: strategic and day-to-day business management.

Strategic management included setting goals, having a long-term vision, having a mindset for change and innovation, driving technical excellence, a culture of perseverance, and a determination to keep going. Business management themes include engaging in regular business benchmarking, aiming to be the best not the biggest, having a little debt to enforce financial discipline, and having a strong handle on costs, both fixed and variable.

It’s difficult for any farm business to do all of these things at once, and in challenging times it can help to have a trusted team around your business. The role of the agricultural advisor is to help your business plan for the future, as well as manage the day to day.

At SAC Consulting we have lengthy experience in supporting farm businesses to both innovate and excel at the fundamentals. What is certain is that a viable and thriving future is possible, and we look forward to helping support our customers with advice across all those strategic and day to day business management themes.

To find out more or to take part in the Scottish Farm Business Survey contact Sascha.Grierson@sac.co.uk.

Posted by SAC Consulting on 26/05/2025