According to the latest analysis, the average production cost of a kilo of output from a hill suckler cow was 304p when taking into account all costs, including family labour and a 5% return on working capital - but the market only returned an average of 133p.

That left only 4% of all suckler enterprises making a positive net margin, slightly down from the previous year. Finishing enterprises fared slightly better with 19% making a positive net margin, a substantial reduction from 44% in 2006.

Similarly, output from an upland ewe cost 208p a kilo to produce, but the marketplace only returned 107p to the farmer. As a result, only 14% of Less Favoured Area (LFA) hill breeding sheep enterprises returned a positive net margin.

More productive upland and low ground sheep breeders fared better, with more than 50% achieving a positive, albeit small, net margin before allowing for unpaid family labour and a return on working capital.

These gloomy findings are from the 2008 edition of "Cattle and Sheep Enterprise Profitability in Scotland", published yesterday by Quality Meat Scotland (QMS).

The publication is now available on the QMS website and gives the 2007 crop year results of the annual benchmarking exercise of cattle and sheep enterprises throughout Scotland. QMS head of economic services, Stuart Ashworth, said: "The figures show that 2007 was a tough year for farmers in Scotland.

"The foot-and-mouth disease (FMD) outbreak in England hammered down producer prices at a critical period, and the steady increase in oil and grain prices made for a very unfavourable business environment."

"Despite this, some of Scotland's best producers just about broke even and they were losing a lot less money than the bottom third producers.

"All in the top third shared the same traits of better technical performance and meat yields, more effective use of food and fertiliser and tighter control on fixed costs."

Whilst the analysis is now historical, Ashworth believes that current financial performance is little different this year.

"As to whether the picture will be any different when we look at 2008, any predictions must be treated with caution but it seems unlikely that the increase in prices will have been sufficient to overcome the sharp rise in output costs," he adds.

Ashworth concludes: "The upland and hill sector stood up better in 2007 than many would have given them credit for.

"They were helped by FMD compensation, but a major part was their response to the difficult economic conditions which saw a drive to reduce production costs, particularly focusing on fixed costs such as property maintenance and contract labour."