IJAM Volume 8

VIEWPOINT DOI: 10.5836/ijam/2019-08-01 Observations on Moving away from Direct Payments (Defra, 2018a) JEREMY FRANKS 1 The Agriculture Bill (2018) was published in September 2018 (House of Commons, 2018). At about the same time Defra published an evidence report Moving away from Direct Payment: Agriculture Bill: Analysis of the impacts of removing Direct Payments (Defra 2018a). This view- point article argues that this document does not clearly de fi ne Farm Business Income (FBI), the measure of income chosen in the analyses, and that this makes it harder for the reader to understand the possible impacts of the withdrawal of Direct Payments on returns to ‘‘ farmer, spouse and unpaid labour ’’ for their labour and managerial input into the business: an issues of key concern for the future structure of the sector. The use of Farm Business Income as a measure of ‘‘ net profit ’’ or ‘‘ profit ’’ The Summary section of Moving away from Direct Payments (Defra, 2018a) states: ‘‘ Farm Business Income (FBI) is a measure of net pro fi t , calculated as Farm Business Outputs (rev- enue) minus Farm Business Inputs (costs). Between 2014/15 and 2016/17 the average pro fi t for all farms was d 37,000 ’’ (p 5, italics added). Immediately below this statement is this comment: ‘‘ Across all farm types, over the period 2014/15 to 2016/17, Direct Payments were equivalent to 61% of Farm Business Income ( pro fi t ), but this varies greatly by sector, being most signi fi cant for Grazing Live- stock and Mixed farms ’’ (p 5, italics added). Therefore, early in the document, and indeed in the very same paragraph, and on the very same page, FBI is described as a measure of both ‘‘ net pro fi t ’’ and ‘‘ pro fi t ’’ . This raises the question, what does FBI really measure? Page 19 informs the reader that: ‘‘ FBI equals farm business output less farm business inputs ’’ (p 19). And that farm business inputs include: ‘‘ feed, materials, labour and machinery, measured in physical or fi nancial terms ’’ (p 19). Why an input cost might be measured in physical terms is not explained. However, this statement implies that all labour costs are paid, but a further statement on the same page states that: ‘‘ FBI is the amount that a farm business has left after costs to invest, pay taxes and pay salaries ’’ (p 19). In fact, Moving away from Direct Payments does not explicitly stated which labour costs are deducted to arrive at FBI and whose salaries need to be paid out of FBI. To answer the question, the reader needs to look elsewhere. For example, Defra (2018b) de fi nes FBI as representing: ‘‘ the fi nancial return to all unpaid labour (farmers and spouses, non-principal partners and their spouses and family workers) and on all their capital invested in the farm business, including land and buildings ’’ (p 11). This makes it clear that FBI does not represent ‘‘ pro fi t ’’ in the sense a layperson would understand the term: total revenue less total costs. Defra also de fi nes and uses another measure of farm income, Farm Corporate Income (FCI). FCI subtracts an imputed value for ‘ farmer, spouse and unpaid family labour ’ from FBI (Franks, 2009) to give an alternative measure of income, and one that better re fl ects ‘‘ pro fi t ’’ as it is more commonly understood. Moving away from Direct Pay- ments makes no reference to FCI. The choice of income measure used to analyse the impacts of the withdrawal of Direct Payments is important because, as Table 1 shows, the difference between FBI and FCI can be large. For example, the average charge made for ‘ farmer, spouse and unpaid manual labour (excluding unpaid managerial labour) ’ for farms in England (2015/16) was d 28,452, and for hill farms in England (2016/17) d 25,726/farm. This viewpoint presents two examples that shows how the misrepresentation of FBI as ‘‘ pro fi t ’’ makes the impacts of the withdraw of Direct Payments on farm businesses presented in Defra (2018a) more dif fi cult to understand. This is important because, as argued, it will have a signi fi cant in fl uence on the future structure of farm businesses. 1 Corresponding author: Jeremy Franks, Ph.D, Newcastle University, Newcastle upon Tyne, UNITED KINGDOM. Email: Jeremy.Franks@newcastle.ac.uk Original submitted November 2018; accepted November 2018. International Journal of Agricultural Management, Volume 8 Issue 1 ISSN 2047-3710 & 2019 International Farm Management Association and Institute of Agricultural Management 1