The conflict in Ukraine has hit Scotland’s agricultural sector hard, leading to some significant changes to gross margins referenced within the 2022/2023 edition of the Farm Management Handbook.
The annual publication is edited by Scottish Agricultural Colleges (SAC) Consulting on behalf of the Scottish government’s farm advisory service.
It confirms that input costs have risen sharply during the past 12 months, with the hike in fertiliser and fuel prices hitting all farm enterprise types and increased feed costs affecting livestock margins.
However, while farm input costs have increased, ex-farm prices for milk, beef and lamb have also risen, leading to higher output values and some significant changes to the gross margins listed in this year’s handbook.
Handbook detail
The publication also highlights, how due to Russia’s invasion of Ukraine, fertiliser prices have more than tripled since 2021 and, with the risk of a Russian blockade on grain exports from the ‘bread basket of Europe’, grain prices are elevated well above last year’s prices.
Higher energy and fuel costs are also taking their toll on farm businesses.
However, while input costs have risen, the value of outputs has also increased for milk, beef, and sheep. Despite this, gross margins for beef enterprises in Scotland have reduced across the board.
This is because the increase to variable costs has more than outstripped the increased beef price.
Gross margins for sheep and tillage enterprises show mixed results depending on the system or crops being grown.
It is only in the dairy industry that gross margins have improved during the past year, with increases to farm-gate milk price more than covering the variable cost increases.
Other costs
But gross margins only account for output minus variable costs, including those for vet and medicine bills, feeds, fertiliser, silage, seed and sprays.
Fixed costs such as power and machinery, labour, rent and finance are not included in these figures and, therefore, improved gross margins are not necessarily an indicator of improved overall profitability.
Editor Alastair Beattie, from SAC Consulting, commented:
“Just when it appeared life was beginning to return to some form of normality in the wake of the Covid-19 pandemic. February 2022 saw Russian forces invade Ukraine.
“This triggered turmoil in gas and energy markets around the world, and raising concerns over food security.
“The Russian invasion of Ukraine has hit the agricultural sector hard, most notably because of the high level of reliance on Russian gas for energy requirements in western European economies.
“It has also produced serious knock-on consequences for agricultural supply industries, such as the fertiliser trade,” he stated.
