Post-quota production shields farmers from worst of downturn

The latest National Farm Survey, relesed this week by Teagasc, provides the clearest snapshot yet of how collapsing commodity prices are affecting the livelihoods of Irish farmers.

It shows dairy farmers shielded themselves from the worst of the downturn in 2015 by expanding production, a move that wouldn’t have been possible

The net result was that income on dairy farms, traditionally the most profitbale, fell by a just 4 per cent to €63,020. In the context of a 20-25 per cent decline in prices, this was a pretty good result.

The survey indicates farmers who increased production most were best protected from falling prices. A 20 per cent output jump, which a third of farms achieved, was needed to maintain income at 2014 levels.

All of which goes to show how difficult it would be to introduce a voluntary cut in output as advocated by the Irish Creamery Milk Suppliers’ Association (ICMSA).

The lobby group recently broke ranks with the industry, claiming there was now no alternative but to introduce some kind of a voluntary supply reduction scheme to rebalance the market and bolster incomes. ICMSA president John Comer was unequivocal, describing the current policy of price cutting as "step-by-step destruction" of the industry. The Teagasc survey suggests this would be a difficult to implement, on a voluntary basis at least.

Perhaps the most surprising finding of the survey, which assesses the financial position of more than 800 farms, was that average debt across dairy farms - put at €97,363 - declined in 2015 despite a significant increase in investment.

Farmers appear to have funded their post-quota expansion plans from working capital built up in previous years rather than through debt as many had feared.

While this appears to dampen the likelihood of a bubble, Dr Thia Hennessy, head of Teagasc survey group, said the running down of cash reserves to fund new investment would leave many exposed if the dairy downturn continues into 2017.

Last year, most forecasters wrongly predicted 2016 would see an upturn in prices. The same people are now pointing to 2017. While the latest Global Dairy Market auction offers tentative evidence of a turn with prices climbing 2.6 per cent, nobody’s holding their breath.