Wet weather and rising costs contributed to a drop in the profitability of the agriculture industry last year, according to a survey of Scottish farmers.
Just one in nine farmers said they believe the industry to be prosperous, down eight percentage points on the previous year. Across all sectors, 85% of Scotland's farmers said they were profitable over the last full financial year, down two percentage points on the year before.
But despite the dip, confidence in the long-term future of the sector remains high, with optimism levels at their second highest since the survey began. Many predicted future growth and a rise in prices for their produce over the next year.
The mixed findings were contained in the Bank of Scotland's annual agricultural survey. The bank's chief economist, Donald MacRae, said "the recession affecting the most of Scotland's economy for the last five years finally caught up with farming", but concluded that the long term prospects for Scotland's oldest industry "must surely remain bright".
The survey, said to be the largest study of Scottish farmers' views, questioned 474 farmers from a random sample of more than 2,000 full-time producers. Now in its 17th year, it found that the decrease in prosperity was felt across all sectors.
Hill farmers reported the largest downturn, largely because of poor lamb prices over the past 12 months. Overall, 11% of farmers said they believe the industry to be prosperous or very prosperous.
On a more positive note, the study concluded that "confidence in the agricultural sector remains high, despite two difficult years". Agriculture also remains an "attractive and relatively secure" sector for investors. Twenty-eight per cent of farmers said they were optimistic or very optimistic about the industry.
The agricultural industry looks set for a period of growth over the next five years, the survey found, with expansion planned across most sectors. The increasing global population and rising demand for food means that farmers predict prices for all produce, apart from lamb, will rise over the next year.
Mr MacRae found that long term prospects may be healthy, but in the short term there are plenty of challenges facing farmers. He said: "Last year's weather ensured the recession affecting the most of Scotland's economy for the last five years finally caught up with farming. Relatively unscathed until then, the agricultural industry is now coping with rising input costs, depressed lamb prices as a result of falling lamb exports to southern Europe and poor yields of potatoes and cereals."
"Despite the economic climate, agriculture remains an attractive and relatively secure sector for investors thanks to valuable farm assets, positive prices for produce and high levels of support in terms of subsidies. Bad weather might be challenging for farmers in growing crops and tending animals but it does reinforce the world's increasing demand for food. As a result the long term prospects for Scotland's oldest industry must surely remain bright."