Farm profits plunged by nearly two-thirds over the last year, research has suggested.
Average profitability dropped by 64 per cent from £15,242 to £5,521 per farm between the financial years 2003-04 and 2004-05.
Once wages for farmers' manual labour were deducted, 62 per cent of the 190 farms in England had average annual losses of £16,625.
Rising costs - including a 17 per cent increase in the price of fuel - were the biggest factor behind the drop in profits.
Specialist producers were hardest hit financially, the University of Reading's Agriculture and Food Investigation Team found.
Small-scale dairy farmers incurred an average loss of £7,000 per farm compared with the large specialist milk producers which generated £43,000 average profits.
The Defra-commissioned Annual Farm Business Survey reports a similar picture among arable farms, where lower prices led to a " significant" drop in overall profits.
Small, predominantly cereal farms suffered average losses of more than £10,000 per farm compared with £12,500 profits enjoyed by their larger neighbours.
Lowland cattle and sheep farms reported average losses of £11,000 per farm - or £13,700 for those based in Government-subsidised "less favoured" areas.
The total costs involved in running farm businesses rose by more than five per cent overall between the 2003 and 2004 harvests, the report said.
Fuel costs rose above this average with a 17 per cent price increase. Seed was up 13 per cent, followed by fertiliser at ten per cent. Rent costs stayed at a similar level.
Afit senior investigation officer John Wright said: "A large proportion of farms are failing to make any profit at all.
"The latest results show that 62 per cent of the farms in the whole sample fall into this category and among the cattle and sheep farms this figure rises to over 80 per cent."
Farmers and their families are increasingly turning to paid work outside the business as a source of extra income, the researchers found. The report was based on a study of 190 farms with an average of 176 hectares per farm. The same farms were compared in 2003 and 2004.