The profitability of agriculture continued to decrease in 2016. This is the weakest result in the 2000s. The profitability ratio of agriculture and horticulture decreased from 0.34 to 0.26. The return on assets was negative by over three per cent. The annual entrepreneurial income per farm was a mere EUR 11,200.
According to the profitability statistics of Natural Resources Institute Finland (Luke) for 2016, the gross revenue for agricultural and horticultural enterprises decreased by 0.7 per cent to EUR 154,200. In the same period, costs rose by 0.6 per cent to EUR 185,800. Losses, as calculated from revenue and production costs, amounted to EUR 31,600.
Entrepreneurial income sinks further
With the imputed costs of entrepreneur families’ personal labour and capital excluded, the average annual entrepreneurial income per enterprise was EUR 11,200. Entrepreneurial income is down 26 per cent from 2015. Entrepreneur families obtained EUR 4.1 in compensation for every hour worked and a 1.0 per cent interest on equity.
– This was a quarter of the target, EUR 15.8 per working hour and 3.88 per cent interest on equity, giving a profitability ratio of 0.26, says Arto Latukka, senior scientist in charge of profitability bookkeeping at Luke.
The profitability ratio for cereal farms fell to 0.03, leaving practically no compensation for the entrepreneur’s work and equity. The situation is as dire for lamb and goat farms and mixed-production farms. The profitability ratio of pig farms was reduced heavily to 0.36. The profitability ratio of dairy farms and other cattle farms fell slightly to between 0.31 and 0.39.
As an exception, the profitability of poultry farms increased to 0.78. The profitability ratio of greenhouse enterprises grew to 0.95. Nearing a ratio of one, these enterprises almost reached an hourly compensation of EUR 15.8 and an interest rate of 3.88 per cent on equity.
Organic production was more profitable than conventional production in nearly all production areas. This was due to higher subsidies and partially higher product prices, as well as the fact that organic farms were typically larger than their conventional counterparts.
The production area comparisons in previous years have indicated that larger farms are more profitable than the average. This trend was not so evident this time, as the finances of larger enterprises were weighed down by investment costs due to expansion. However, the differences in profitability remain notable within farm size categories. Some of the large farms have long since completed their expansion and amortised their expansion costs. Smaller farms are typically less profitable, but these also include some that continue production on modest building stock and hence a limited cost structure.
The equity ratio, the ratio of equity to total assets, was 72 per cent in agriculture and horticulture.
– In agriculture, capital remains tied up in buildings and machines for a long time, so production requires a relatively high equity ratio compared to many other industries, says Latukka.
The average for EU countries was 84 per cent with Denmark at 40 per cent.
The production areas with the weakest profitability, such as cereal farms and mixed-production farms, have avoided taking on debt, resulting in an equity ratio of about 80 per cent. The equity ratio for greenhouse enterprises and poultry farms was between 41 and 47 per cent. The equity ratio for dairy farms was around 63 per cent.
Information in the Economy Doctor online service
This information is based on the results of Luke’s annual profitability calculations. For 2016, the calculations were based on the figures of some 800 selected farms and the results were weighed to reflect the 36,200 largest agricultural and horticultural enterprises in Finland. The results are available at luke.stat.fi with more details available in the Agriculture and Horticulture section of the Economy Doctor service at www.luke.fi/economydoctor/