Farm Ireland

Monday 20 August 2018

Comment: Sterling slide is costing our beef farmers €2m a week

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The severe weakening of sterling in recent months is hugely negative for the competitiveness and viability of Irish farming.

The last time we saw this level of sterling weakness was in 2009. In the midst of domestic and international economic collapse, farm incomes fell by 30pc, averaging €12,000 that year.

The economic fundamentals are completely different this time around - the sterling weakness is being driven primarily by political uncertainty arising from the negative state of the Brexit negotiations.

Unfortunately, it has real economic consequences for affected sectors. At farm level, our beef farmers and mushroom producers are being hit hardest.

Since April, the UK beef market is up 7pc. It's our most important market so this should be good news.

The problem for us is that sterling is down 8pc in the same time period. At the time the UK election was called, sterling was at 85p:€1. It had been at, or close to that level, in previous months. Today it's 92p:€1.

Based on the sterling depreciation and the volume of cattle exports to the UK, we estimate that the sterling impact on the price of beef is about 15c/kg. This is a loss to beef farmers of close to €2m per week. Farmers cannot keep going at current loss-making prices.

Any possibility of profit from summer grazing is gone. The price cuts have undermined confidence at farm level, which is working its way into the store and weanling trade.

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With its high dependence on the UK market, the mushroom sector has already lost a significant number of producers from the initial currency impact of the Brexit vote. Since then, all growers would have taken measures to mitigate the impact of exchange rate volatility such as currency hedging. However, at current exchange rates it is simply not economical to hedge.

It is a high volume, low-margin business. With the majority of contracts paid in sterling, the 8pc decline in sterling over the past six months wipes out whatever margins may have been in the system before this.

Producers are now at breaking point, with growers giving composters commitments on a weekly basis only. The loss of further producers would inevitably threaten the overall future of an industry that accounts for over 3,000 rural jobs and over €100m in exports.

We need to see strong action from the Government. It's good to see the Finance Minister Paschal Donohoe talk about Budget measures for those exposed to Sterling. They have to be targeted at farmers.

Rowena Dwyer is chief economist with the Irish Farmers' Association

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