The government has received calls from Britain's farmers urging help after last year's poor weather resulted in a £1.3 billion 'black hole'.
The National Farmers' Union (NFU) said both the adverse weather and widespread concern over feed bills are denting farmer confidence, which is also backed by recent surveys.
The union estimated that £600m of lost output had been due to the extreme levels of rainfall which affected wheat and potato harvests.
NFU chief economist Phil Bicknell said the results came as 'no surprise'.
"The challenging year we’ve had makes it easy to forget that farming has been something of a success story in recent years, increasing its contribution to the economy, creating jobs, and seeing improvements in farm profitability, as well as underpinning one of the most successful British industries, food and drink" he said.
Results from the survey, now in its third year, show that only 22 per cent of farmers surveyed are confident about the year ahead, compared to nearly one in two twelve months ago.
NFU President Peter Kendall has called for 'fresh thinking' from government on farm policy as farmers enter 2013. The union has called for an 'extreme weather payment' insurance scheme to prevent the damage that many farmers endured last year.
"Climate change scientists have long predicted that agriculture will face major challenges from global warming. However 2012 has starkly demonstrated the cost that extreme weather events can wreak on farmers and the food supply chain" Kendall said.
2013 is likely to see the conclusion to the protracted negotiations for both the EU budget and a reform of the Common Agricultural Policy.
Campaigners have called for an even reduction in payments across the single market.
"Recently, we have heard Government representatives refer to these support payments as ‘worthless’, arguing that payments should only go to environmental goals" Kendall said.
"With the possible exception of Sweden, the UK government is the only one out of 27 member state countries in the EU arguing in this way."
"I firmly believe the only likely outcome of this strategy is further discrimination against English farmers. What is more, this ideologically-driven approach is outdated given the increasing volatility in global prices and the challenging global climate."
The NFU say 2013 is an important year for farmers with protracted negotiations for both the EU budget and a reform of the Common Agricultural Policy (CAP), which has provided crucial support for British farmers throughout the year.
Paul Laird, partner at The Fish Partnership, said: "The government needs to fight hard for the rights of British farmers in Europe."
"It is already acknowledged that British farmers are the poor relations in the EU, with CAP payments being significantly lower than competitors."
"With a reform of the CAP now well underway, the government can show that it values our farmers, and ensure that it gets the best deal possible."
"An awful 2012 has hit British farmers hard in the pocket. With a good deal from Brussels, our farmers can look forward to a solid base for future growth and prosperity."
Peter Kendall said: "Related to this point we are asking MEPs to fight for a fairer allocation of EU money for our rural development schemes. The UK currently receives the lowest per hectare allocation of pillar two funds of all member states, which is an unacceptable position given the scale of our industry."
The NFU say that if there is a reduction in payments from CAP then this should take place evenly across Europe’s single market.
According to the NFU, an English dairy farmer, on a typical 100 hectare farm, receives €20,000 a year less than a Danish or Dutch competitor.
Peter Kendall, NFU chairman, said: "It would be helpful if ministers could explain how they think English farmers can face the challenge of more hostile weather events with only a fraction of the support given to their closest competitors in Europe."
