Farm Ireland
Independent.ie

Thursday 23 November 2017

Brexit data and rumblings from the States are giving me the economic jitters

Larry Goodman
Larry Goodman
Darragh McCullough

Darragh McCullough

Years of covering farm politics has left me slightly jaded of the types of headlines generated by the IFA event last week - 'Brexit to be biggest threat to farming in history of the State' and the like.

Then I read the Teagasc competitiveness report and the subsequent sectoral analysis and this time I think the IFA might be on the money.

The competitiveness report doesn't tell us anything different from similar reports by the authors over the last decade.

Dairy farmers are by far the most profitable and have the best prospects when pitted against international competition.

As a result, they can probably cope with the hit they get in a hard Brexit scenario - projected to be about 20pc by the Teagasc economists.

Because dairy farmers average income from 2013-2015 was close to €64,000, a €13,000 fall would be nasty but not fatal.

The researchers estimate that this would lower the number of viable dairy farms by 10pc. By viable, Teagasc suggest that a farm should return a minimum agricultural wage plus 5pc on non-land assets. It's hardly a big ask given that is well under €20,000, which is not even half the average industrial wage.

While it might be concerning that up to 30pc of Irish dairy farms would be unable to return this to the farmer, it pales in comparison to the vista facing the drystock sector, in particular beef.

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Teagasc estimate that the hard Brexit scenario being talked about by British Prime Minister Theresa May will reduce cattle farm incomes by 36pc.

This is Armageddon stuff. Only 17pc of cattle rearing farms are currently viable. They are almost completely reliant on the subsidies coming from Brussels.

While I can appreciate that beef farming is an occupation that many farmers love, I often wonder how long the sector will continue to use their subsidies to build billion euro businesses for the country's beef barons.

If I was Larry Goodman or Niall Browne I'd be very worried that Brexit will be the proverbial straw that breaks the bullock's back.

The drop in prices will almost halve the number of beef farms that will remain viable.

If the Brexit predictions hold true the number of viable cattle rearing operations will slip below 10pc - the rest of the drystock sector, including sheep, are not far behind.

Of course, there will be plenty out there that will scoff at all the doomsday scenarios on the basis that Brexit is never going to happen.

But it already is. We've seen lots of mushroom businesses go to the wall. Irish exports to Britain are already down. The only reliable figures only go to September last year, but in that time our exports across the water took a €386m hit.

I was in Harvey Norman last week and remarked to the sales manager that the carpark looked busy. "We're actually down close to 15pc on the same month last year," he shot back.

It's anecdotal stuff but I think people and economies are jittery.

Immigration

Of course The Donald isn't helping. At a family wedding at the weekend a senior manager in a global food company told me that President Trump's immigration policies have already increased food sector employment costs by 7pc in California (and 80pc in construction).

Back on the farm, one sector that could hold up reasonably well in a post Brexit scenario is, surprisingly, the cereal sector.

The numbers show that tillage farmers will take a hit just like every other sector - just over 20pc or about €7,000.

However, because grain farmers have been operating at world prices for years, throwing open British markets to imports from everywhere else has barely any impact on price.

So the percentage of cereal farms that slide into the unviable bracket is similar to dairying at 11pc.

Crucially the average cereal farm will be five times more likely to viable than the average cattle rearing farm.

So where now for Irish farming? Drystock farmers have defied logic for years by continuing to produce meat even if it means dipping into their Single Farm Payment to do so.

But as other sectors are freed from restraints - dairying from quotas, tillage working at world market prices - it's hard not to see a gradual drift of land through conacre and leasing into these sectors.

There are some very stark statistics that suggest that there is huge scope for this in an Irish context.

Ireland has by far the lowest amount of rental land involved in farming across the whole of the EU. Only 16pc of agricultural area is rented here, in comparison to France at 78pc and Germany 60pc. Closer to home in Britain, the level of rented land being farmed is still almost double the Irish at 29pc.

This is less of a hangover from our own historical past, and more a function of various historical scenarios across the rest of the EU in the form of communism, family structures and inheritance laws.

Scope for extra land rental is significant because it's one of the most obvious ways for profitable farmers to keep up with international competition.

On the basis that we still have a warped attachment to every sodden, rock-ridden acre, there's going to be no wave of land sales on the back of collapsing drystock returns.

And given that many still regard planting land with forestry a sign of defeat - no matter how much more profitable it might be - expect more cows and grain to crop up in a field near you soon.

By viable, Teagasc suggest that a farm should return a minimum agricultural wage plus 5pc on non-land assets.

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