Farm money advice: Are dairy farmers really milking it?
The main talking point in this year’s Teagasc National Farm Survey results is the stellar rise in dairy farm incomes for 2017, increasing 65% about 2016 levels.
It seemed that the proverbial planets aligned, with strong milk prices, most especially at the back end of 2017, a great growing season, and plenty of fodder in the spring of 2017, and heading into the winter of 2017/2018.
In retrospect, it seems that the proverbial wheels weren’t long coming off, by April 2018, with hefty cuts in base milk prices, abhorrent weather conditions, fodder shortages, significant added concentrate, usage and a lift in global feed and fertiliser prices to boot.
Many dairy farmers are still on the back-foot and scrambling to make up fodder stocks for the coming winter.
It is therefore clear that the National Farm Survey results bear no resemblence to how an industry is performing in real time, so profound are the effects of volatility.
Nonetheless, the results are a useful measure of performance for the given period examined. As a long time observer of National Farm Survey results, it never ceases to amaze me how the profits of Ireland’s farmers are teased out, published and dissected like no other sector of the economy.
When last did you hear how much the various ranks in the Gardai, teachers, or even publicans, fared. What is the average doctor, plumber or electrician earning, and what are their gross margins and net profit?
The danger of publishing farmers’ profits, most especially headline figures showing the relatively high profits of one segment, is in desensitisation of public empathy or even plain and simple support, for our farmers.
More importantly, it can strengthen the bargaining power of multinationals seeking to negotiate lower product prices, where there is perceived room to squeeze farmers’ profit margins.
Publication of headline figures can stimulate switching between farming enterprises for those hopeful of increasing farm profits. But changing enterprises is perhaps the most difficult of tasks ,and its difficulty and cost are often underestimated. Meanwhile, a global rush towards dairying will simply reduce the profit margins available to all.
The headline figure for dairy farm incomes of €86,115 is impressive, but let’s drill down into the survey.
On-farm investment by dairy farmers averaged €25,118. Meanwhile, 60% of dairy farms had borrowings, with an average farm debt level of €100,076.
Dairy farms typically employ more than just the farm owner with, according to data from the National Farm Survey, 1.4 labour units employed.
When farm income after investment is stripped out and divided amongst family members involved in the business, the available profits amount to about €42,000 per person before debt repayments.
Previous studies by the Central Statistics Office indicated that dairy farmers work about 49 hours per week, compared to the average working week of about 32 hours per week across the entire population for full time workers.
Another study by the CSO shows that the average industrial wage for 2016 was €45,611. To further put dairy farm profits in perspective, perhaps it would be meaningful to strip out single farm payments, and even to infer a return on capital.
Couple all of this with a report by the ESRI. It incidentally shows dairy farmers are more prone to farm accidents, but more importantly, it references an Australian study by Wallis and Dollard (2008) which found that Australian dairy farmers had significantly higher levels of psychological distress compared to eight other Australian occupational groups, including correctional officers, private sector workers, family and community service workers, nurses and Salvation Army officers.
It found that almost half of the dairy farmers had at least mild distress.
In making these points, my objective is not to play down the financial performance of our fairy farmers.
The fact that our dairy industry is delivering good profits for those involved is fantastic.
The fact that dairy farm income per farmer isn’t too far from the average industrial wage is welcome — even if dairy farmers work on average about one and a half times the average weekly hours.
If headline figures must be quoted, they should be coupled with a proportional dose of realism.
- Chartered tax adviser, Kieran Coughlan, Belgooly, Co Cork. (086) 8678296 www.coughlanaccounting.com
