Moderate increase in beef prices forecast for year ahead

The economic outlook for 2012 is generally positive, reports IFA chief economist Rowena Dwyer

FARM incomes saw a continued recovery during 2011, with price and volume increases in almost all commodities, a trend partially offset by rising input costs.

Internationally, prices in many commodities have begun to ease back from their peak in 2011. This is expected to continue into early 2012. However, any price decline is projected to be moderate, with a potential return to price increases during 2012.

For some commodities, such as beef, the deficit in supply into the EU market remains, with a resulting moderate increase in EU prices projected in 2012.

However, any price projections are framed in the context of the major uncertainty created by the eurozone crisis and the downturn in the international economy. This is resulting in competing influences on price, some of which are outside of the normal supply-demand fundamentals, which should be the main determinants of prices in the market. The main issues are:

* The depreciation of the euro, which, while providing a competitive export effect for agri-food products, also points clearly to depressed demand, very low economic growth, with potential downward price pressures;

* Higher imported input costs, due to the weakening of the euro. However, this may be balanced by lower international demand for inputs and lower prices;

* Revised downward growth figures for Britain, which remains the main export market for agri-food products;

* A depressed domestic economy, with lower consumer demand;

* Turmoil in the financial markets, which is having an erratic impact on commodity markets.

* Risk management: Market instruments providing guarantees on prices, including contracts, and forward selling have increased in use and visibility in 2011 in a number of the commodities, particularly cereals and dairy. These products should be made available in other major commodities, as there are very clear benefits to be gained — for both farmer and processor — from providing some price and supply certainty.

Internationally, there have been some actions taken to increase the transparency of international food stocks, with the development of a database of food stocks, the Agricultural Market Information System, co-ordinated by the FAO-OECD. The buy-in to this system, and its effectiveness as a mechanism to identify potential shortages and over-supply, is unclear.

* CAP post-2013: Negotiations will continue in 2012. External to the CAP discussions are the negotiations on the size of the overall EU budget for 2014-2020. The budget will have an impact on the size of the CAP budget and Ireland’s allocation. The key issues of concern for Irish farming through 2012, resulting from the Commission proposals on the CAP in October are:

* Flexibility for member states on the payment model for the single farm payment to target support to active farmers;

* Adjustments to the proposed greening measures to fit into farmers’ normal business practices;

* The criteria that will be used to determine Ireland’s rural development allocation;

* Strengthening of the trigger mechanism for market support measures and provision of a dedicated funding stream within the CAP.

* Public finances and economic growth: The €3.8bn adjustment in the public finances, in Budget 2012, is part of an overall planned adjustment of €12.4bn by 2015. At a sectoral level, the scale of these adjustments continues to put pressure on farm scheme funding.

The outlook for the economy over the coming years is moderately positive, subject to the containment of the eurozone crisis; with growth forecasts revised downwards during the year.