Farmers in the north of England are depending on subsidies for their survival, according to new research from rural business advisers.

Many would not be viable without income from regular subsidy cheques, which currently exceeds profit, says the annual farm profits survey from the Institute of Chartered Accountants’ Farming & Rural Business Group (FRBG).

Average net trading profits are now just over £40,000, less than the average subsidy income of almost £46,000, according to the FRBG. This is proving an unhealthy situation for the long-term sustainability of farm businesses, as future subsidy levels will decline as part of EU policy.

The emphasis of subsidies will continue to move from production/land-based subsidies such as the Single Payment Scheme to rural development schemes, says the survey. Understanding and adapting to this shift will be important for the survival of farm businesses

Average net borrowings in 2006 were almost £230,000, up from just over £200,000 the previous year, almost certainly as a result of the delayed 2005 Single Payment. Meanwhile, the survey showed average total drawings of £50,500, which although less than 2005, were nevertheless greater than net trading profit – another warning that many of the farm businesses were not sustainable in the long term.

All this points to the continuing need to develop alternative incomes to traditional family farming, says the FRBG, with the vast majority of accountants (88%) reporting that their farming clients were looking at diversification.

The most popular options were letting land/property (67%); holiday accommodation (64%); letting of storage space (49%); tourism/leisure (48%) and sports activities (32%). In practice, three in 10 (29%) of farms within the scope of the survey had already diversified, mainly into letting property and farm contracting. On average, the net profit was over £11,700 higher on farms which had diversified.

Almost half of the farms had introduced capital from a non-farming activity such as paid employment off-farm – a further indication that traditional farming activities were no longer being relied on as the sole income source.

FRBG North East spokesman Andrew Ayre, a partner at Greaves West and Ayre, Berwick, said: “The survey confirms the continuing pressure on cash flow of the long-delayed 2005 Single Payment Scheme.

“It is also evident that the long-term survival of farm businesses depends on adapting and understanding the evolving subsidy schemes over the next few years. The survey shows that the long-term sustainability of the farming sector depends on second incomes from non-farming sources.”

The survey covered a total of 207 farms, comprising over 40,000 hectares. Of these 30% were in the North – 11% in the North East and Cumbria.

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