Ireland hopes to weather the challenge from eastern Europe
The “new” EU member states will form the most dynamic region for the next five to ten years, according to Rabobank’s research division.
It’s also significant that Rabobank is one of the five banks in a syndicate which has put in place a new five-year loan facility which will support Dairygold Co-Op’s post-quota expansion ambitions, to the tune of €150m.
If listening to their own researchers Rabobank will probably expect to be busy in Poland and other eastern countries — but not in the livestock based industries of meat and milk, because the huge investments needed in these sectors will hold eastern Europe back. In contrast, Ireland’s relatively advanced meat and milk industries can thus hope to weather a resurgence in eastern competition better than some other member states.
Worry over how they will be affected by CAP reform is preoccupying Irish farmers.
But it is something which has continued to develop slowly in the background that will re-shape EU food and agribusiness, according to Rabobank — the awakening of what could be the sleeping food giants of the east.
In 2004, EU enlargements brought in millions of hectares of farmland in countries like Poland, the Czech Republic, Hungary, and Slovakia.
Farmers here feared they would be swamped by the competition from central Europe — and from Romania, now the ninth largest country of the EU, since it joined the Union in 2007, along with Bulgaria. But things happen slowly in agriculture, and Rabobank experts point to valid reasons why eastern agriculture will now pick up after languishing for nine years.
The EU brought 500m consumers within reach of eastern farmers, and measures to protect them from very low prices.
But even now in 2013, more than 40% of the land in the east is taken up by farms which are too small to grasp expansion opportunities.
Farmers there were still recovering from the communist collapse of the late 1980s, which knocked their milk and meat production back more than 20%. Eastern grain production also declined, but has gradually recovered, with particularly steady growth in oilseeds production.
But the potential to increase agricultural production in the new member states is still about 65%, estimated Rabobank analyst Harry Smit. That potential is only 10% in the old member states.
Eastern farmers have been content to leave that potential unexploited because when they joined the EU, for the first time ever, they started to receive generous income subsidies at a flat rate per hectare, regardless of their production level.
It’s only now that the effect of that cash injection is wearing off.
While the gradual phasing in of income subsidies sees the newest EU members, Bulgaria and Romania, anticipating remaining payment increases of more than 50%, rises of less than 10% are in store for countries which joined in 2004. For them, with the impact of income subsidies running out, and farming costs having increased (for example, land prices in Poland have nearly tripled in eight years), Rabobank experts say there is a new urgency to boost productivity and consolidate the east’s small farms into bigger, more productive units.
These nations will be the most dynamic European markets in the next five to ten years, as farmers seek to boost productivity to counteract the eroding positive effects of the Common Agricultural Policy, according to Rabobank.
But the bankers say it is arable farming, which is less capital-intensive and has a shorter production cycle, that should see rapid growth, while beef production, for example, will not grow.
One of the Irish fears of CAP reform is the taking of income subsidies from the highest earning farmers in old member states in a transfer to lower earning farmers in new member states.
Ironically, it is because the income subsidy effect is wearing off in the east that may awaken their agriculture, and bring a flood of eastern produce onto the EU market.
But Irish farmers can hope that could turn out to be an advantage for them — by reducing the feed costs for our well established milk and meat industries — sectors in which the easterners are well behind us.
