Farm Ireland
Independent.ie

Sunday 22 January 2017

Labour costs shaping up as a major threat to farm incomes

Thia Hennessy

Published 27/11/2016 | 06:45

Willie Wallace feeding Friesian cows on the family farm at Crettyard, Co Laois. Photo: Alf Harvey/HRPhoto.ie
Willie Wallace feeding Friesian cows on the family farm at Crettyard, Co Laois. Photo: Alf Harvey/HRPhoto.ie

The spotlight is currently on pay and working conditions, with the unions calling for pay restoration for the country’s 300,000 public sector workers.

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The farming community has recently appointed a new head to its own representative body and he too will be tasked with trying to improve the economic circumstances of Irish farmers.

So how do pay levels in farming, dairy farming in particular, compare to the economy more generally, and are they sufficient to attract new entrants to the sector?

The average annual earnings across all workers in the Irish economy was €36,519 in 2015, and the average across the 1.1 million full-time workers was €45,075.

To make a similar comparison, workers are standardised by hour to a labour unit and typically there is more than one full-time labour unit on dairy farms, due to the long hours worked by the farm operator and because there is often another worker employed on the farm.

The average dairy farm employed 1.6 labour units in 2015, with about 1.4 of those being family labour paid from the profits of the farm.

Dairy farm earnings have compared quite favourably to earnings in general in recent years (Figure 1), albeit the farm figures for 2016 (which are not yet available) are likely to be closer to 2009 than 2015 given the poor milk price for most of the production season.

Productivity gains are a notable feature of the dairy farm sector.

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Milk production in Ireland increased by over 25pc between 2008 and 2015, while the size of the dairy farm workforce remained more or less unchanged, meaning an increase in output per worker and hence the ‘catch-up’ with average earnings. 

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Despite this, over the last eight years earnings across the economy as a whole were over 25pc greater on average than on dairy farms.

The capital associated with running a dairy farm should not be ignored when comparing the earnings of workers on dairy farms and the rest of the economy as the farm earnings reported here also need to support the repayment of interest and principal of farm related debt.

The average dairy farmer had a farm business related debt of approximately €62,000 in 2015. 

The volatility in dairy farm earnings is a striking feature and is likely to be one of the major obstacles to attracting new farmers into the sector and on farmers’ ability to pay quality hired farm workers.

New, skilled labour is required in the sector if milk output is to grow by 50pc or more, as set out in the Department of Agriculture’s Food Harvest and Food Wise reports.

Research by Teagasc has shown that up to 4,000 additional labour units would be required in the dairy farm sector to increase output to the Food Harvest targets.

Attracting, retaining and appropriately rewarding this labour will be challenging in the current volatile milk price environment and especially if wage inflation returns to the rest of the economy.

The reliance on hired workers is relatively low in the Irish dairy farm sector to date.

The tight restrictions around the transfer of milk quota in Ireland throughout most of quota era means that the average dairy herd in Ireland is a manageable 70 cows, a size that can still be operated by the family without significant hired labour.

This is in stark contrast to the US, where reliance on hired workers, and especially foreign workers, is high.  

A University of Texas A&M study revealed that half of all workers on dairy farms in the US are foreign-born and up to 70pc of them are undocumented. 

Bloomberg recently reported that US president-elect Donald Trump’s plans to deport undocumented workers and to “build a wall” could have major ramifications for the US dairy sector. It has been predicted that a reduction in the supply of foreign labour would have serious negative consequences for the volume of milk produced in the US.

Closer to home, tighter immigration policies in the UK following Brexit are also likely to affect the international competitiveness of the British agricultural sector.

Up to two-thirds of the UK’s agricultural labour force are foreign-born workers, and over one-third of dairy farms employ foreign workers.

The National Farmers Union cites access to affordable labour as a major threat to the future competitiveness of its sector and claims that British workers are not prepared to take on farm work at the rates that farmers can afford to pay.  Clearly the ability to attract and retain quality farmers and farm workers will be crucial to the future development and competitiveness of the dairy sector internationally. 

With the removal of the milk quota and the subsequent expansion in milk output in Ireland, farmers will be increasingly reliant on hired farm workers.

Paying these workers a consistent wage even in times of low milk price will be challenging. Innovative labour models such as partnerships, profit sharing and share milking may prove to be useful alternatives worth considering. 

Thia Hennessy lectures in Food Business and Development at University College Cork.

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