Subsidy values now also form a large proportion of enterprise output in the EU, particularly with beef, sheep and cereal enterprises. Replacement cost, for a breeding enterprise such as dairy cows, is normally entered as a negative output in gross margins. The following points should be noted when dealing with gross margins. Gross margin is not a profit figure. Fixed costs such as labour, machinery and interest payments have to be covered by the gross margin before arriving at a profit figure.
Gross margins can vary widely from one year to the next.
This is due to differences in market prices, weather conditions and efficiency. Gross margins can also differ considerably from farm to farm. This can result from differences in performance levels or differences in the overall system of production or method of recording. For example, one farm who uses a contractor to cut his grain and records this as a variable cost will have a much lower gross margin than a farmer who owns all his own machinery. Comparison to average gross margins can be useful but it should be done over a number of years.