How did ornamentals production fare in 2016?

Survey highlights growing importance of ensuring profitability in uncertain times.

Following Brexit "ensuring farm businesses are profitable is of even greater importance given the uncertainty that now exists in the industry", according to the latest Farm Business Survey on horticulture production in England. It found that horticulture accounted for 13% of the UK's total agricultural output last year. Horticulture businesses generated a total revenue of £3.1bn, a 3% rise on the previous year.

Hardy nursery stock growers' incomes dropped by 4% to average £38,000 per business in 2016. Although output fell across the sector, growers responded by cutting back on spending, on both direct inputs and fixed costs. This helped to prevent a greater hit to income as output shrunk by 26% to average £260,000 per business.

Farm Business Survey provides information on the physical and economic performance of farm and horticulture businesses in England, to inform policy decisions on matters affecting farm businesses. It also collects financial performance information from 1,900 farms across England.

The report is carried out by Rural Business Research (RBR), a group of researchers from the Universities of Cambridge, Newcastle-uponTyne, Nottingham and Reading as well as Askham Bryan College and Duchy College.

University of Cambridge rural business research and communications officer Rachel Lawrence warns that rising labour costs caused by threats to foreign workers brought about by Brexit could hit profitability in the future, although the weakness of sterling will help UK production.

"We know the horticulture industry is very reliant on non-British labour and if these (labour) costs are going up that undermines the profitability of these businesses," she says. "It's very frustrating because often horticulture is one of the most profitable of the sectors we survey. In the short term, as market conditions stand it is going well. Everything currently would imply that 2016-17 will be quite a good year. The impact of rising inflation is yet to fully hit."

RBR chief executive Professor Paul Wilson points out: "Brexit will also bring opportunities and those seeking to make the most of the opportunities will need independent data to support effective decision making. Businesses need to understand the impact of exchange rate movement on the costs incurred and a greater focus on budgeting and cost management will be the order of the day in order to capitalise on the exchange rate benefit."

In 2015 the UK was 38% self-sufficient in vegetable production, 18% in fruit and 51% in ornamentals, all in terms of value. For ornamentals, the level is up by 7% on 2006, with the annual 10-year average at 48%. The year-on-year value of imports and exports fell by 4% in 2015. The value of home production in actual prices was up by 56% between 2006 and 2015, to £1.148bn. The total value of horticultural produce in 2015 amounted to £2.984bn, with non-edibles growing at nearly £1.2bn. Field vegetables were in decline at less than £900m, while protected vegetables were rising at almost £400m, as was soft fruit at a similar level. Orchard fruit was rising at a level of just under £200m.

Specialist glass area

In the specialist glass area, farm business income increased by 25% to £43.912bn, with this increase derived entirely from the ornamental sector. Specialist glass in the mainly non-edible sector increased profitability by 32% to £58,114 per business.

The research by Richard Crane, David Deans and Thomas Wedd found vegetable production accounts for 41% of UK output and 76% of total productive horticultural area but has reduced from 56% in 1985-94, with output from non-edibles (37%) and fruit (22%) increasing in 2015. Specialist non-edible crop glass businesses growing 90% plus of crops from glasshouses averaged 0.65ha productive cropping area, down from 0.89ha in 2014-15.

Variable costs of seeds and young plants fell from £103,000 to £77,000 per business. Fertiliser and compost costs fell from £18,000 to £13,000 while crop protection decreased from £2,900 to £2,300. Glasshouse fuel costs fell from £15,000 to £5,000. Labour costs were down by a quarter as were power and machinery costs, as fixed costs fell from £276,000 to £206,000 and variable costs dropped from £217,000 to £151,000. Gross output fell from £523,000 to £388,000.

Intensive hardy nursery stock nurseries with output of more than £175,000 per hectare saw gross output fall from £633,000 to £488,000. Seeds and young plant costs were down by a third but fertiliser and compost costs were up by a quarter. Regular paid labour costs decreased from £165,000 to £93,000.

"A lot of this is linked to revenue," says Lawrence. "When revenue and contracts are not there, there will be a lot less inputs. Businesses often have capacity to increase or decrease quite significantly year on year."

- See also How did fresh produce fare in 2016.

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