Bumper returns make farming 'star of economy'
Published 21/09/2011 | 05:00
The secret's out -- agriculture is flying. Farmers had been doing their level best to brush off suggestions that they were experiencing bumper returns for the last while. But they knew the game was finally up when they listened to President Mary McAleese tell the nation from the Ploughing Championships that farming "is the star of the Irish economy".
While collapsed property prices continue to be the millstone around the neck of the wider economy, farmland prices are actually turning a corner. Even NAMA's boss Brendan McDonagh admitted that he was relying on a buoyant farm sector to hoover up thousands of acres of land which represents 40pc of the state agency's loanbook.
Several golf courses around the country are also expected to be re-absorbed into the food chain over the coming months as negotiations are finalised with local farmers keen to put the redundant fairways back into productive use.
The general public will see the sight of pristine greens disappearing unceremoniously under the plough as a further sign of how far we've fallen. But farmers will look on the events as being only proper. They always considered it a terrible shame that the country's prime farmland was being increasingly consigned to concrete and leisure-time pursuits.
But how did this U-turn happen? Only a few years ago, our government officials had decided that farming was a sunset industry, part of the old economy. The other F, financial services, was where the real action was at.
However, a number of issues were about to come to a head. World supplies of food were not keeping up with demand as burgeoning Chinese middle classes developed a rapidly insatiable appetite for richer, westernised diets, complete with Big Macs and super-sized Cokes.
At the same time, the financial sector's house of cards began to implode. Hedge fund managers suddenly needed somewhere else to sink the billions that they hoarded for investors. Once considered old-fashioned and dull, suddenly every food commodity from wheat to whey powder was where the smart money was going.
The result has been a roller-coaster ride for the farm sector. While once insulated from gyrating world prices through the EU's complex web of tariffs and subsidies, Irish farmers now find themselves buffeted by the fortunes of global markets, with the resultant booms when prices are good and the inevitable busts when prices collapse. Milk and grain have already gone from boom to bust to boom again in the last four years.
Grain prices are 75pc higher than 2009, milk prices are 50pc higher, while beef, sheep and wool prices are also up significantly on the back of growing economies in Asia, the Middle East, North Africa and South America.
And for the first time in a generation, the farm sector is being looked to as a possible saviour for the wider national economy. Snippets from cabinet meetings tell us that the Finance Minister believes food and agriculture will be the most important driver of growth, jobs and the creation of wealth over the foreseeable future.
While house completions have come to a virtual standstill, new blueprints for the agri-sector target a 50pc increase in output from €8bn to €12bn by 2020. Food and drink exports to China are expected to grow by 20pc in 2011 alone. The dairy sector in particular is seen as one where we have a competitive advantage over pretty much everywhere else in the world bar New Zealand.
While our damp, warm climate is often the subject of public discontent, it is perfect for producing plentiful milk from low-cost grass-based systems. The thirst for expansion among young dairy farmers is such at the moment that the average herd size of 60 cows may soon be closer to 200.
This optimism is feeding into every level of farming activity. Where agricultural colleges were closing down on an annual basis in the noughties, this year Teagasc successfully side-stepped the moratorium on public sector recruitment to get extra teachers to cope with surging numbers of applicants.
It's also good for the local economy. As anyone with a connection to farming will tell you, when farmers have money, they spend it.
So while the likes of Google and Microsoft might show billions of euro flowing through their Irish accounts, the vast majority of profits are repatriated back to their home countries once the profits have availed of our low corporation taxes. In contrast, a recent study by UCD's faculty of agriculture found that not alone does practically every euro of the €8bn in Irish food and drink sales stay in Ireland, it also generates another 73c in the local economy, significantly more than every other manufacturing sector.
Perhaps the ultimate proof of how well the farm sector is doing right now is the unprecedented number of inquiries that accountants are receiving from their farming clients about incorporating their businesses. In a sector where the annual income is less than €20,000, this may seem a little odd.
But it shows that just as agri-food has quietly become a champion of the Irish economy, farmers who have been steadily up-scaling and improving their businesses over the years now have big enough tax bills to warrant the extra expenses and complications of incorporating their enterprises.
However, in this new era of exposure to commodity booms and busts, Irish farmers will also be acutely aware that their fortunes could just as easily change once more.
It may only be a matter of time before the main driver of world commodity prices, China, gets a cold. If that happens, our export-dependent agriculture sector will bear the brunt of falling prices.
For the rest of the economy's sake, let's hope that day is some distance off yet.
Irish IndependentFollow @Indobusiness