Beef farms threatened by prices, Brexit, and carbon footprint

The overall Teagasc estimate is that 2017 farm incomes will increase by 5% next year, on average
Beef farms threatened by prices, Brexit, and carbon footprint

What sort of year was 2016 for Irish farming ? And what are the prospects for 2017?

Teagasc economists recently addressed these questions (and other issues such as Brexit, international competitiveness of the dairy sector, and the economic, social and environmental sustainability of agriculture).

In 2016, prices fell, and there was much complaining about low or zero profit margins.

In their review, the Teagasc team confirmed that output prices fell. They were 4% lower for milk, 5% lower for finished cattle, and 5% lower for cereals. Pigmeat and sheep prices were stable.

Milk deliveries were up by 5%, while cereal yields were down 10-20%.

However, Teagasc economists found that overall incomes earned in farming were similar to those of 2015. In most enterprises, costs were lower than in 2015.

Fertiliser and fuel prices were down 14% from 2015.

Some other costs increased, but overall, costs per litre of milk produced were down 7%. Costs on suckler farms fell about 5%, and 3% on cattle finishing farms.

As a result of these trends, profit margins increased slightly for pig and sheep enterprises, but fell for dairy, cattle and tillage enterprises.

We are used to seeing small or negative margins in beef enterprises, but in 2016, cereal enterprises also suffered, with an average loss (net margin) of about €130 per hectare.

However, subsidies paid to farmers were higher in 2016 (boosted by roll out of the Beef Data and Genomics Programme and GLAS ), which compensated for the decline in margins, leading to the estimate of no change in overall farmer incomes.

What is in store?

The overall estimate is that 2017 farm incomes will increase by 5% next year, on average. But the story varies very much, depending on the farm enterprise. Almost all of the income increase will be earned by dairy farmers.

A dramatic increase in profits in 2017 on dairy farms is forecast. At the same time, a substantial decline in margins and incomes (from already low levels) on beef farms is forecast.

The average cereal farm is expected to remain in a loss-making situation in 2017.

A small decline in net margins is forecast for sheep enterprises, while the outlook for pig farms is stable.

The average price paid to farmers for milk is forecast to increase 20% in 2017, reaching 32.3 cents per litre (at actual fat and protein levels).

Milk supplied is expected to increase 6%. Costs of production are likely to increase about 2%.

The net margin on dairy farms is projected to rise 78% to €1,413 per hectare (nearly on a par with the 2014 year of record dairy income) in 2017, compared with €1,083 in 2015, and an estimated €795 in 2016.

The story in beef farming is very different.

Global beef markets are forecast to weaken.

Much of our beef is exported to the UK, where sterling has depreciated, and returns are therefore reduced.

Finished cattle prices in 2017 are projected to decline about 12% from 2016 levels.

While costs of production will remain stable, the lower prices will reduce gross profit margins on suckler farms by 14%, and by 19% on cattle finishing farms, to levels of €402 and €364 per hectare, respectively.

However, when account is taken of overhead costs, the net margins on these farms fall to negative levels (meaning losses of €65 per hectare on suckler farms, and €151 on cattle finishing farms).

Is there a future in beef ?

Beef farming has for decades been returning lower margins than other enterprises.

These low returns have been explained by the part-time nature of many beef farms, and by the fact that beef farming is the enterprise of choice of older farmers, who make up such a large proportion of the farming population.

If Ireland Inc wished to change its agricultural product mix, it must surely consider, based on past returns and on the income forecasts given for 2017, reducing its dependence on this frequently loss making enterprise.

And there is more bad news.

In the Teagasc economic review of farming, economist Kevin Hanrahan presented results on the potential impact of Brexit. It will have negative impacts on all of Irish agriculture, firstly from the expected decline in the value of sterling, secondly from the assumed imposition of tariff barriers to our exports to Britain, and thirdly from expected reduction in the agricultural subsidies the EU can afford, after the exit of the UK, the EU’s second strongest economy.

While projections at this stage have to be very tentative, the order of magnitude of the losses that could be sustained are considerable.

In these projections, profit margins in dairy, sheep and cereal enterprises fall by 20-22%, compared with the 2013-2015 period.

However, the fall in beef margins is projected at 37%.

There are pressures on the beef market worldwide (and even at home), from changing consumer tastes and attitudes on health.

There is for Ireland the additional commitment to reduce our carbon footprint (much of which is generated by bovine animals) in order to meet global warming targets.

Given that our dairy sector is so profitable for farmers and so internationally competitive, (which was confirmed in the recent Teagasc review), the burden of reducing the carbon footprint of Irish agriculture has to fall on the beef sector, which is neither economically or environmentally sustainable.


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