IFA chief economist predicts increase in producer prices

HIGHER producer prices are expected this year after the collapse in farm incomes in 2009, but challenges posed by a weak sterling and credit access are expected to remain for some months.

Those are the key predictions of Irish Farmers’ Association chief economist Rowena Dwyer after prices fell for almost all commodities last year.

She said there are signs that the global recovery and resulting increasing demand will lead to higher producer prices in 2010.

The price increase for milk has already commenced and looks set to continue through the early part of the new year as global demand picks up. But the release of intervention stocks by the European Commission through 2010 may affect market price.

Ms Dwyer said the expected strengthening of sterling should result in some increase in beef prices, as will the expected recovery in demand in some of the larger eurozone markets.

However, Government cuts in REPS and in the suckler cow and disadvantaged area schemes will reduce farm incomes very significantly for some.

In the cereals sector, spot prices for 2010 are about €15 per tonne higher than in 2009.

However, a price increase will be dependent on the yield in other northern hemisphere markets in the first half of the year.

EU pigmeat exports are expected to recover, which should have a positive impact on prices. In the Irish market, a return to pre- dioxin production numbers should improve efficiencies in the processing plants.

On the inputs side, it is expected costs will rise slightly in almost all areas in 2010. Energy, fertiliser and feed-cereal costs are likely to increase.

However, protein costs will fall. With global recovery occurring quite gradually, demand remains moderate. Therefore, a surge in input prices, as happened in 2008, is not expected.

Ms Dwyer said the weakness of sterling against the euro throughout 2009 provided significant difficulties for exports.

Accounting for over 40% of exports, Britain remains the largest market for the agri-food sector. Trade figures indicate a fall in export value of €1.1 billion (14%) in 2009.

Employment in exporting food and drink processing companies will have fallen by 10,000 during the year.

Sterling is undervalued and is likely to remain weak for the first half of 2009 but it is expected to recover some of its loss against the euro as the year progresses.

Ms Dwyer said the Irish banking sector troubles in 2009 resulted in a restriction of access to credit for all small businesses, including farmers, but 2010 may see a return to more normal lending activity.

The cost of borrowing is likely to rise towards the end of 2010 as the European Central Bank is expected to increase its base rate when major economies return to growth.

Ms Dwyer said it is vital the Government and Department of Agriculture, Fisheries and Food ensure the retention of a strong, fully funded Common Agricultural Policy.