CSO figures show green shoots in farm sector

The profitability of agriculture is on the rise here, which is very good news for the Irish economy as a whole

 

The positive trend in the profitability of farming has been clearly illustrated in a recent publication by the Central Statistics Office (CSO), according to agricultural economists.

While the price being paid to farmers for the food they are producing has risen by more than 30 per cent in the three years to the end of 2013, the price they have to pay for inputs such as fertiliser and fuel, have increased by about 20 per cent.

Economists who specialise in food and farming, while pointing to the ever-present risks of price volatility, believe it is likely that farm production is likely to grow in both price and volume in the coming years.

This is very good news for the Irish economy overall, according to agri-food economist Ciarán Fitzgerald, who contrasts the extent to which the turnover within the farm sector is spent in the local economy with the same ratio with the multinational sector.

Up to 90 per cent of farm turnover is spent in the Irish economy, in contrast with the 10 per cent of throughput that is spent locally by the multinational sector, he says. Furthermore, the spend by the farm sector occurs in rural areas that IDA Ireland finds it hard to sell as a location to foreign investors.

Keeping it country
“Agriculture and food is the biggest driver of jobs and growth in the Irish economy, bar none,” he says.

Alan Matthews. professor emeritus of European agricultural policy in the Department of Economics, Trinity College, Dublin, says such talk as to the importance of the sector to the economy overall is, “in broad terms, certainly true”. He says the farm sector is responsible for almost 2 per cent of Irish Gross Domestic Product, while the agri-food sector overall accounts for 8 to 9 per cent. “That’s a sizeable chunk.

“A rise in agricultural exports has a bigger effect than a rise in, say, exports by the pharma sector or software.”

The 31.5 per cent increase in output prices in the three years to the end of 2013 is not a misleading indicator of trends in the sector, as is shown by longer term data from the CSO, showing prices over the 2005 to 2013 period, using 2010 as a base year and giving it a value of 100 for index purposes. This reveals that outputs that were at 89.6 in 2005, were 131.5 at the end of last year.

In relation to milk, prices have gone from an index score of 93 in 2005, to 126.6 at the end of last year, while the corresponding figures for cattle are 89.6 and 138.8. The figures for inputs are 84.6 in 2005 and 120.2 at the end of last year.

The increase in the score for outputs reflects the relative importance of the various categories of product. Cattle accounted for 38.5 per cent of all outputs in 2010, while milk accounted for 34.1 per cent, meaning that between them, they accounted for 72.6 per cent of all product.

The EU milk quota regime, in place since 1984, is due to end in April next year. Fitzgerald says this could see a rise of up to 50 per cent in Irish milk production, creating a further €800 million in income for dairy farmers and €1.3 billion in value for the agri-food sector overall.

The markets for this product are likely to be the emerging middle class in the Middle East, Asia and west Africa. The increased dairy production is likely to lead to an additional 200,000 to 250,000 cattle being sent to meat factories per year, as a result of the bigger dairy herds.

He does not foresee any significant shift from beef farming to dairy and says the Department of Agriculture is working on a strategy towards maintaining Ireland’s 1 million beef cattle population.

The market for Ireland’s beef is mainland Europe. It is a high quality, fresh food market and exists in a context where overall beef production in the EU is declining.

Climate change
On climate change, Fitzgerald says grass is a carbon sink and that it is recognised at EU level that Ireland’s agricultural sector, given the extent to which it relies on grass, is carbon efficient. He says Teagasc is working on feed technology which will reduce farmer costs while leading to less belching and farting by farm animals (a contributor to our carbon footprint).

Climate events such as the cold snap two years ago, which reduced the growing season for grass, and this year’s flooded fields, are issues that will have to be managed by the sector.

Matthews points out that it was a drought in the US and the resultant low harvest there that hit global food prices a few years ago, and that the current high price for milk is due in part to the drought in New Zealand, the world’s largest exporter of milk.

While such weather events add to price volatility, the effect of climate change more locally is likely to be a shifting northwards of some European crop production. “In aggregate terms [climate change] is probably not going to affect European agricultural production over the coming 20 to 30 years.”

The CSO data shows that in the three years to the end of 2013 the following farm output percentage price increases occurred: cereals 56 per cent; potatoes 58 per cent; vegetables 7 per cent; pigs 27 per cent; sheep 4 per cent; poultry 16 per cent; eggs 21 per cent; and wool 60 per cent.

In terms of input prices, seeds increased by 28 per cent, energy by 24 per cent, fertilisers by 26 per cent, and feed stuffs by 35 per cent. Veterinary expenses were up by only 0.3 per cent.

The CSO data is available at http://iti.ms/1o3Dv6D