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The Teagasc annual review and outlook conference this week was hugely informative on a number of fronts, albeit a bleak affair for farmers. With the exception of dairying, it is forecasting that all sectors will either struggle to break even or return a negative margin per hectare in 2017. A forecast 20% increase in milk price and a 6% rise in production at farm level is expected to see net margin in dairy increase by 79% to an average of €1,413/ha.
In tillage, even with a forecast 8% increase in cereal prices next autumn, net margin for the average enterprise in 2017 is estimated to be -€30/ha. Meanwhile, an increase in prime beef production combined with a price-sensitive EU market is forecast to put pressure on factory prices. Teagasc is forecasting a 12% decline in beef price compared to 2016 with weanling and store prices forecast to fall 10%. A single suckling enterprise estimated to return a net margin of €18/ha in 2016 is forecast to see this decline to -€65/ha with net margin on cattle-finishing farms falling to -€151/ha. With the exception of dairying, the only livestock enterprise expected to deliver a positive return is the sheep sector, forecast to deliver a net margin of €67/ha.
Direct supports are not included in the Teagasc figures, and nor should they be in an environment where the link between production and support has been broken. As redistribution continues to erode support for productive farmers, it is difficult to see, based on Teagasc’s figures, anything other than a sharp decline in production across these low-income sectors in the years ahead.
These figures lay bare just how fragile some sectors are in the new CAP environment. When we strip out the noise of Origin Green, Food Wise 2025 and a €19bn food export market supporting 230,000 jobs, what we are left with is an industry where most primary producers cannot generate an income.
The Teagasc figures should serve as a basis for farmers to challenge the industry and policymakers on where farm profitability fits into the sustainability message and growth ambitions for our agri food industry.
In the absence of a clear strategy for the sector with farm profitability at its core, farmers have to question the viability of not just growing but sustaining production levels merely for others to benefit.
As well as the industry forecast, Teagasc also highlighted the effects on Irish farming of the UK leaving the EU. The worst affected area would be beef, where it estimates family farm incomes would fall 37%. Teagasc’s Kevin Hanrahan said there were four components to the estimates: exchange rates, CAP payments, tariffs and UK agricultural policy.
1. Exchange rates. We are already seeing how a weaker sterling affects prices of Irish produce going to the UK. Broadly, a 1% decline in sterling reduces the euro value of exports from Ireland by €45m.
2. CAP. The UK contributes about €10bn net to the EU budget and agriculture accounts for almost 40% of the EU spending, so if and when the UK leaves, there will be less money in the EU budget, unless the other 27 member states increase their contributions. Commissioner Phil Hogan has already indicated he faces a tough fight to maintain agriculture’s share of the budget, so a reduction in CAP payments has been factored in by Teagasc.
3. Tariffs. Beef is an area where significant tariffs apply to third countries exporting to the EU. It is assumed these tariffs will come down on beef entering the UK from the rest of the world and that there will be extra competition for Irish beef in the UK market.
4. UK agricultural policy. What will the UK’s policy be towards its own farmers? In the case of beef, 52% of Irish exports go to the UK and it is a major market for Irish dairy, timber and mushrooms. In total, the UK has a trade deficit of €31.7bn in food.
While beef is likely to be most affected, similar arguments apply to dairy products. The cereal sector is likely to be less directly affected as tariffs are very low and the UK and Ireland are effectively trading at world market prices. The main negative effect is likely to be in the form of reduced CAP payments and downward pressure on beef returns in the case of mixed tillage/livestock farms.
Lamb, on the other hand, should see its main competitor on the French market removed and so the effect could be positive, but for the overall sheep sector, they would be affected by reduced CAP payments and losses in the cattle enterprises that usually coexist on sheep farms.
All of this is, as Kevin Hanrahan put it, a “static analysis”, but it’s the closest indication yet of the dangers for Irish agriculture of the UK leaving the European Union.
Dairy farmers have most to look forward to in 2017
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