independent

Thursday 17 April 2014

Agri-food sector warned 'not to get too carried away'

Farmers should expand on a gradual basis and not get carried away with the over-blown expectations of growth in the agri-food sector, the conference at Macra na Feirme's 2012 Rally was told at the weekend.

Jim Power, chief economist with Friends First, said volatility in commodity prices would remain "a fact of life" for farmers into the future.

In such a scenario, he said farmers could not depend on the banks to back them through tough years when prices were low and profit margins tight.

"Agriculture is probably the only area of the economy that credit is flowing into reasonably freely at the moment," Mr Power said.

"But if you believe in the wisdom of bankers and the prescience of bankers, think again. They haven't got a God damn clue, they never had, they never will."

Mr Power told the Waterford conference that expectations of continued growth within the agri-food sector were being "blown out of the water".

He said there was a view that businesses working in the food sector had a "licence to print money".

However, Mr Power pointed out that margins in the sector were extremely tight and he warned young farmers not to get carried away with expansion plans.

Describing farming as an "incredibly tough, competitive and tight-margin environment", he advised those attending the conference not to invest heavily in expanding their farm operations "unless they had the money to do it".

This view was shared by Seán Molloy of Glanbia. He said many of the company's milk suppliers were not very good at accurately establishing their cost of production.

He said this was critical information and essential for any farmer going down the expansion route.

Mr Molloy said Glanbia would be sitting down with its suppliers early next year to draw up concrete proposals on agreed supply projections for the period after 2015.

Asked if the development of the new Belview plant near Waterford Port had closed the door on the possibility of collaboration with Dairygold, Mr Molloy said both processors would need the facilities they were developing.

While admitting that he would be disappointed if other processors did not join with Glanbia in putting milk through the Belview plant, Mr Molloy said the new joint venture structure being voted on by Glanbia shareholders should make a link-up with Dairygold more acceptable to the southern co-op.

Dairygold had made it clear that it had no desire to work with a plc. Creating the joint venture should deal with these misgivings. However, he said these issues would be teased out in time.

Meanwhile, global farming magnate Jim McCarthy predicted that Irish farmers would struggle to compete in beef and cereals production, but he said the country's natural ability to grow grass gave it an "unbelievable advantage" in dairying. Mr McCarthy, who has farming interests in Ireland, the US, New Zealand and South America, pointed out that farmers in the US were paying 30c/kg for dry matter feed, while Irish farmers could grow grass for 6c/kg.

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