The Scottish farming industry is anticipating a sharp fall in profits in the current financial year as overall confidence declines following the introduction of the new Common Agricultural Policy (CAP) and weakening prices during 2014.

The latest annual Bank of Scotland Agricultural Survey surveyed full-time farming businesses from all major farm types in Scotland between December 2014 and January 2015.

The survey found that 86 per cent of farming businesses were profitable in the last complete financial year, the second highest level recorded in almost 20 years. This was down to good weather and a reasonable harvest in 2013 as well as strong milk and beef prices for most of the year.

However, expectations of profitability in the current financial year has hit a 12 year low, with 51 per cent of respondents across all farm types (arable, dairy, livestock, mixed and hill farming) anticipating that their business will not be profitable. Fifty-six per cent of farmers surveyed believe that the broader Scottish farming industry is not currently prosperous.

Confidence in the Scottish farming industry also declined to a six year low, with more than half of respondents saying they were not optimistic about the future of agriculture in Scotland.

Reform of the Common Agricultural Policy (CAP), was much maligned, and many farmers said their uncertainty was based on the recent reforms. Just under 70 per cent of farmers rated the reforms as poor or very poor, while two thirds of farmers said the implementation of the CAP rules was unclear. An 80 per cent majority of farmers expect the new CAP to have unintended consequences for their business.

Beef farmers in particular thought their businesses would take a hit as a result of the new rules, with 60 per cent of those questioned anticipating a fall in output.

However, though survey respondents painted a negative overall picture, many said they planned to expand their businesses over the net five years. Here too, beef farmers are anticipating the most changes - 33 per cent of those asked said they are planning to increase their herd, with numbers of sheep and dairy farmers not far behind.

Overall, plans to reinvest in business were lower this year than in 2015. Renewable energy investments are still relatively healthy, with farmers opting most often for wood fuel heating or solar power.

Chief Economist Donald MacRae, who conducted the report, commented, “These are clearly testing times for Scottish farmers. The fall in confidence in this year’s survey reflects the current backdrop of depressed agricultural prices. The broadly negative views toward the implementation of CAP coupled with the support for certain areas of the reforms may appear to conflict one another but this is understandable as the industry continues to grapple with the scope and complexity of the new rules.”

RBS said the outlook for prices in autumn 2015 is mixed with Scottish farmers expecting all product prices to increase this year, excepting milk and pigs. The price of finishing cattle this year is forecast to increase to 377 pence per kg deadweight with lamb at 376 pence. Milk is expected to average 26.0 pence per litre while malting barley is forecast to reach £148 per tonne at harvest.