Environmental concern is on the up but farmers are losing money producing food according to Deloitte's latest farm income survey.

The average profit generated by lowland UK farmers in the 2004/05 year was £66 per acre -a 19 per cent drop from last year.

And Deloitte expects this to fall to £62 per acre by the end of 2006.

These results do not give a full indication of the situation, however, since farm incomes are made up of different streams.

For the year ending 2005, with the inclusion of area aid payments, the net profit for food production was £38 per acre.

This was supplemented with income from diversification, ranging from contracting and renting property to discreet businesses, accruing £28 per acre.

However, the Single Farm Payment will come into effect next year, giving farmers three streams to contribute to the expected £62 per acre profit.

Yet, the measure of future subsidies is not guaranteed.

"It is clear that EU support is still vital contributor to our clients overall net farm income," said Deloitte Partner Mark Hill.

However, the fact the Single Farm Payment may halve over the next eight years and likelihood of additional reductions has led Deloitte to predict that the average farm will face significant food production losses unless there is a marked rise in commodity prices.

"There is little sign of commodity prices improving in the short term, yet farm costs, particularly fuel and fertiliser costs, continue to rise," said Hill.

"This will create a squeeze on farm finances that threatens investment in the countryside."

Deloitte is predicting that over the next three years farming incomes for all activities will fall to just £48 per acre and the mix of income streams will change dramatically with little incentive for food production.

"The rational response to this is land being retired from food production unless prices improve in the future," said Hill.

"The likely result of operating at marginal returns is a polarisation of operations, with the broad acres of Britain farmed and maintained in their current state on an increasingly large scale necessary to further drive cost out while some businesses gain the added value of niche markets on relatively small areas."

A serious concern for the industry is the ability to maintain delivery on environmental benefits.

"This will only be sustainable if farm businesses return to generating profits from their core enterprise - food production - rather than recycling EU support," said Hill.

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