Why major Irish farm restructuring is on the cards

Why major Irish farm restructuring is on the cards

Perhaps no other sector in the Irish economy is subjected to the same level of scrutiny as our farming sector.

Year after year, National Farm Surveys are published by Teagasc, detailing the profits of each the main farming enterprises carried on in Ireland.

Teagasc monitor farms, and a variety of demonstration farms up and down the country, across a variety of sectors, provide figures with which farmers can compare their own operations.

Indexes for global prices and futures markets are examined, and results extrapolated back home to Ireland, to give us indicators as to the level of profits farmers can expect to enjoy (or more likely, not enjoy) on a regular basis.

Look for any significant loan from a bank, and your application will be assessed against metrics designed to see how your farming business is performing compared to peers, and what your breakeven point is.

It is useful to have all of this information, and some farmers like to peg themselves against others within their industry, to see who’s doing best.

The Department of Agriculture publishes details of direct payments, including basic payment scheme entitlements, each year.

If one were sceptical, one could take the view that the full visibility of farm profit is a negative thing.

Retailers and processors with all this information can fine-tune their payments to farmers, such that the majority of farmers can eke out a subsistence living — in other words, give the farmers just enough that they’ll keep going.

There is a huge cohort of farmers who are farming the best the can, with the land they have, and with the resources they have available to them.

The sad reality though, for our beef and suckler farmers, is that farm profits do not give the farmer a fair return for the amount of time invested, let alone for the land tied up in running that enterprise.

It’s one thing to be running a farm with no profit, and there are plenty of farmers willing to do so, but when it starts to cost you financially, then the medium-term implications are serious.

Nostalgia and tradition go out the window when you are going broke.

Cattle farmers, mainly of the suckler variety, made an average of €8,311 in profits for 2018, having subsidised their farming operation to the tune of €4,700 each (on average) from their basic payment scheme entitlements in the process.

The net return to these farmers was a little over €100 per acre for the year.

Data from Bord Bia shows the average prices for cattle currently are running at about 24 cent per kilo behind prices this time last year.

For a suckler farmer finishing 40 cattle per year, the drop in beef prices this year could easily result in a reduction in profits of €3,000.

Reduced profits paralyse farmers into a state of prolonged terminal financial illness and worse still make it harder for the next generation to establish themselves.

There are no funds to improve facilities or replace machinery, no funds to reseed land, or maintain drains.

Why major Irish farm restructuring is on the cards

When farmers start skimping on lime and fertiliser, the lack of productivity becomes compounded.

When farmers lose financial strength, they can’t even contemplate changing enterprise, because they neither have the resources nor the ability to borrow money, due to the poor state of their accounts.

The vast majority of farmers across the country would like to see their farm continue, but anyone with sensible wouldn’t like to see the next generation tied into working the land for no return.

The reality is that the number of farms in Ireland has consistently declined.

In 1855, there were 419,500 holdings in Ireland, 60 years on this declined to 359,700 by 1915.

By 1972, on joining the EU there were approximately 250,000 farmers. A further decline to 153,400 had occurred by 1995.

At the turn of the century, Ireland had approximately 141,000 farmers.

The decline in farmers was running at about 2,000 per year, aided to some degree by the Early Retirement Scheme.

Figures from the CSO suggest there were 137,500 farmers in 2016, this shows that the decline in the number of farmers stabilised over the past 15 years or so. However, these overall figures mask the changes that have happened on the ground.

Why major Irish farm restructuring is on the cards

The number of farmers aged over 65 has increased to 41% by 2016, and a further 35% of farmers are in the 55 to 65 age bracket.

Two other major changes coincided around the turn of the century. More and more farmers now qualify for the State Contributory Pension (introduced in 1988, farmers started qualifying from the mid-1990s) and the decoupling of payments from production, with the introduction of the single farm payment.

These changes mean that farmers are quite willing to continue farming into their elder years, and with the benefit of the State Pension and decoupled payments, the underlying economic productivity of their enterprise becomes less relevant.

Just as there has been a major restructuring of farm holdings, for every generation since the Famine, you can well expect another major restructuring of farms in the next decade or so.

Based on Irish demographics and life expectancy, approximately 4,000 farms will change hands each year for the next 20 years. A significant cohort of the next generation to come won’t have the benefit of state pension, and will not be willing to subsidise their farming operations.

History repeats itself; the writing is on the wall for a significant decline in the number of farmers.

In the long term, that remain will be better positioned to make profits, with increased scale.

Such a massive change in land ownership will throw up opportunities for expanding existing holdings.

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