A dramatic increase in profits in 2017 on dairy farms is forecast by Teagasc economists at its annual review of the agricultural sector published on Tuesday. At the same time it forecast a substantial fall in margins and incomes (from already low levels) on beef farms in 2017.
Furthermore, an analysis of the potential impact of Brexit shows that the beef sector is likely to endure greater income losses than others.
Agricultural economists use two measures, ‘gross margin’ and ‘net margin’, when evaluating.
Gross margin takes into account prices and volumes of output and subtracts direct costs, which are mostly feed and fertiliser costs, including contractor’s costs.
Net margin takes into account the overhead costs, such as the fuel and depreciation on the tractor and other machinery, amounts paid for non-family labour, rent of land and electricity.
Neither measure includes any payment for the farmer’s own labour.
The average price paid to farmers for milk is forecast to rise by 20% in 2017, reaching a level of 32.3 cents per litre (actual fat and protein levels). Milk supplied is expected to increase by 6%.
Costs of production are likely to rise by 2%. The net margin on dairy farms is to reach €1,413 per hectare — a record level — in 2017, compared with €1,083 in 2015 and an estimated €795 in 2016.
The story in beef 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 therefore projected to decline by about 12% on 2016 levels.
While costs of production will remain stable, the reduced prices will lead to a reduction in gross margins on suckler farms by 14% and on cattle-finishing farms by 19%, to levels of €402 and €364 per hectare.
However, when account is taken of overhead costs, the net margins on these farms fall to negative levels — losses of €65 per hectare on suckler farms and of €151 on cattle- finishing farms. These figures are very different from the forecast level of €1,413 on dairy farms for 2017.
And the bad news for the beef sector does not end there. Teagasc economist Kevin Hanrahan presented results on the potential impact of Brexit on the different sectors in Irish agriculture.
Brexit, when it happens, will have negative impacts on all Irish agriculture.
First, from the fall in sterling’s value. Second, from the assumed imposition of tariff barriers to our exports to that market.
Thirdly, from an expected reduction in subsidies, which the EU can afford to pay, after the departure of its second strongest economy.
While projections must be tentative, the order of magnitude of the losses that could be sustained are considerable.
Margins in dairy, sheep, and cereal enterprises in these projections fall 20% to 22%, versus the levels in the 2013 to 2015 period. The fall in beef margins is projected at 37%.
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