Let’s not get carried away with agri-food hype

At the weekend I addressed the annual Macra na Feirme rally in Waterford.

It was a pleasure to meet and address hundreds of young farmers who are full of enthusiasm and hope. It struck me very forcibly that most possessed a strong sense of pride about what they are doing, and this does represent a change.

Having enjoyed a position of prominence and respect in the economy and within Irish society for decades, farmers very much became the poor relations during the Celtic Tiger Mark I and II periods. In those years, foreign multinationals, financial services, retail, and construction became the ‘sexy’ parts of the economy and farming survived despite rather than because of the environment that policy makers created.

Today, construction and financial services are in deep trouble and continuing to contract at an alarming pace, parts of the retail sector are under serious pressure and the environment for luring job-rich multinationals has become very challenging.

Consequently, farming and the agri-food sector in general is being recognised once again for what it is — a high value added, export- oriented indigenous activity that is making and can continue to make a huge contribution to the national economy in general and the rural economy in particular.

One of the concerns I expressed at the conference was my fear that the potential of the sector to be the national saviour is being blown out of all proportion, aided by the official Food Harvest 20/20 template for the sector. The sector has the potential to make a strong contribution to the future, but it needs to be kept in perspective.

While farm incomes have experienced a recovery over the past couple of years, it followed on from a dismal period. Furthermore, without the single farm payment, many farmers would not be making a viable income.

The reality is that life on the farm is still a very tough one, with returns that are not stellar for the majority. Over the past 12 months for example, farm gate output prices expanded by 4.3%, but over the same period input costs have increased by 5.1%, with energy costs up by 9.4% and feeding costs up by 7.5%. 2012 was also a dreadful year due to weird weather conditions, which necessitated farmers keeping cattle in for a large part of the year, with significant implications for the cost of production.

Looking forward, the removal of quotas and the opening up of global trade will inevitably result in much greater levels of price volatility, so farmers will need to ensure that they can survive in the poor years.

Despite these realities, it would appear that farming is one of the few areas of the economy that bankers in their perpetual wisdom would appear prepared to lend into, to any degree. This worries me. Farmers are being loaned money to expand dairy operations in anticipation of the proposed removal of quotas in 2015, and any land that is being sold, is selling well ahead of its possible economic value.

Expansion is good, but young farmers in particular should not get carried away by expansion that could put them to hock to banks for the rest of their lives. Farmers should never forget the painful lessons learned in the 1970s and 1980s.

There is a good future for the Irish agri-food sector in the context of a likely requirement to increase global food production by 70% by 2050, but a proper perspective needs to be maintained. Primary and secondary producers need to work more closely together, particularly in the face of the very damaging and dangerous concentration of the retail grocery sector.

Where possible, farmers should seek to regain control over the product they produce. My final piece of advice to the farmers of the future was to not get carried away by the hype, but I am a boring, conservative economist.

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