Farm Business Survey
Rural Business Research

Description of terms in gross margins

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.

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Crop Sales

the value of sales from the crop plus the market value of any part of the crop used on farm

Area Payments

Includes: (the former) protein crops supplements

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 help notes

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.

What will happen to gross margins now that subsidies are decoupled and the farmers get the single payment.

From 2005/06 FBS year onwards, the gross margin will fall for enterprises that have received subsidies (support payments) because the output will no longer include the support payment.

Does the new (decoupled) single payment get counted within the gross margin?

No, the single payment is not attributable to any particular enterprise, and therefore does not appear in the gross margin.

Does that mean gross margins might be very low from 2005/06 onwards?

In some cases yes – which is why it is important for people to see the 2004/05 figures on the current benchmarking program and judge for themselves how much their gross margins will be once the support payments are excluded.