Challenge for sheep farmers
The serious financial challenge facing the English sheep industry in the absence of headage subsidies is reinforced in the latest annual enterprise costings from the English Beef and Lamb Executive available at www.eblex.org.uk.
Without these subsidies, the 2005/06 costings results from 49 lowland flocks show only the best making a positive net margin after all cash-related costs. And more worryingly, even these made an overall loss when the hidden non-cash costs of unpaid family labour, rental equivalent value of owned land and interest on working capital were taken into account.
Altogether in the year ending March 2006 the total costs incurred by the average lowland breeding flock were over £109 per ewe, which at the average 135 lambs reared per 100 ewes would have required a return of more than £80 per lamb sold to breakeven.
With relatively poor prices during the year, returns averaged just under £50 per finished lamb and just over £34 per store. As a result the average costed flock made a loss of over £13 per ewe after cash costs (rising to more than £49 per ewe after the hidden non-cash costs were also taken into consideration).
However, higher outputs and lower costs enabled top third costed producers to perform markedly better than the average to achieve a positive margin of around £5 per ewe after cash costs. But this translated into a loss of over £21 per ewe when the hidden non-cash costs were taken into account.
These costings are a wake-up call for the industry, highlighting the imperative for the sector to prioritise on efficiency improvements. Without significant progress in this area the returns from English lamb production clearly remain insufficient to cover the true cost of production without headage subsidies. All the more so given the fact that the costed flocks as a whole are known to be among the country's better performing businesses.
The performance of the top third flocks provides some valuable pointers to reducing losses and improving profitability through improved efficiency.
The best flocks reared six more lambs than the average at 141 per 100 ewes. They sold fully 57 per cent of these for slaughter and only 20 per cent as stores compared to the average flock's 37 per cent and 40 per cent respectively. As a result they achieved a 20 per cent greater output - an extra £12 per ewe. And this for very similar variable costs.
At the same time, lower fixed and non-cash costs meant overall costs of under £94 per ewe for top third flocks - an advantage of around £15/ewe over the average.
