Farm Ireland
Independent.ie

Tuesday 21 November 2017

Analysis: Bord Bia figures look rosy but we are producing more cattle than we can sell

Eddie Punch

The announcement of the seventh successive year of growth for Irish food and drink exports to reach an all-time high figure of €11.15bn suggests our agri-food sector is flying it. Against this backdrop, the Food Wise 2025 target of €19bn seems attainable.

However, for the livestock sector, the outlook is at best mixed and there are grounds for careful reconsideration of where we are going.

There is uniform agreement that beef supplies will be up significantly in 2017 and this coincides with an abundance of cereals on global markets.

Meanwhile, EU consumption remains static and there is the huge uncertainty around Brexit.

And trade deals where livestock farmers are the big loser remain on the EU policy agenda. The continuing trade dispute with Russia is also an issue for meat producers and efforts to get new markets outside Europe are proving challenging to say the least.

While the recent lift in oil prices in the wake of the OPEC deal to cut production by 1.3m barrels/day is good news for food commodity prices, the jury is out on whether this recovery can be sustained.

Eddie Punch
Eddie Punch

So what can Irish livestock farmers expect in 2017?

Bord Bia predicts somewhere in the region 100-120,000 extra head of cattle will be fit for slaughter in 2017, which is on top of a significant increase in 2016 as well.

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The extra cattle are a reflection of 133,000 higher calf registrations and 58,000 less live exports in 2015.

Sheep exports performed slightly better with volume up 3pc and value up 4pc to give a figure of €240m in exports.

On the live export front, numbers were down 27pc last year, falling from €135m to €98m. Meanwhile, sheep live exports increased from €5m to €7m.

Turkey emerged in 2016 as a welcome release from the doom and gloom but the fact remains that total exports at less than 16,000hd were not sufficient to make a substantial difference.

Nonetheless, it is to be hoped that this trade will go well in 2017.

A key issue is that the Turkish trade has concentrated on lighter weanlings. This gets to the core of the problem for suckler farmers.

Suckler cows are now costing €700-800 per annum to keep, according to Teagasc, and selling light weanlings (under 320kg) is simply not going to cover their costs. Suckler farming to be viable needs good outlets for weanlings at 400kg and without the discount compared to lighter weanlings.

While Minister Creed and Bord Bia have made major efforts to develop international markets, so far success has proven elusive.

The USA market, despite the hype, only absorbed €14m in beef exports from Ireland in 2016, and the US beef price is back 20pc from its peak.

There is perhaps a case to look closely at Iran but first the Government needs to reopen our embassy there, especially now that the USA has patched up its differences with Iran.

Meanwhile, the factories ongoing discrimination against heavy carcasses, failure to pay QA bonuses on bulls, and the 30-month and four residencies rule are all conspiring to eliminate a viable chain of production for suckler progeny.

The huge hype around Angus beef, and to an extent Hereford beef, totally catches suckler farmers offside who have heavily invested in continental breeding.

Yet no suckler credible business model exists based on traditional breeds because lighter carcasses and poor conformation do not fit in with the cost of the suckler cow. Moreover, these are not attractive to live exporters in general.

In 2016 Irish beef exports totalled €2.38bn which was actually a slight fall on the previous year. The volume of beef exports increased 5pc but the value decreased 6pc. This again supports the conclusion that farmers are shooting themselves in the foot with increased output in the absence of market growth at a viable price.

It is against this backdrop that the ICSA has advanced a proposal that CAP policy should learn from the dairy crisis by looking at financial support to cut back production given that the outlook for beef exports is so challenging.

Put simply, we are producing more cattle than we have viable markets for.

ICSA suckler chairman Dermot Kelleher has suggested that we need a €200 per suckler cow incentive to reduce numbers in light of oversupply of beef in Europe and the complete lack of profitability in the suckler sector. This is a rational move to reduce production to deal with the supply/demand imbalance.

The idea is that an incentive should be available on an EU wide basis at a rate of €200 per cow per annum for up to five years on a voluntary basis. The scheme would be based on a reference year of 2016 and the payment would be linked to the reduction in calves registered compared to 2016.

Farmers could then reduce cow numbers and focus on return per hour worked rather than gross margin per hectare. In any event, the reality is that most farmers are actually making a negative net margin per hectare.

This strategy would challenge the strategy of Food Wise 2025 expansion targets by indicating that anything less than €200 per cow net profit is unacceptable. It would also expose consensus that farmers should be satisfied with just breaking even.

It is abundantly clear that the only way to deliver farm viability is scarcity. Farm organisations have to take a responsible attitude on basic economic principles that will address the profitability question above all other considerations.

It will also be necessary to deal with the surge of so-called bobby calves from the dairy herd. With the increasing trend towards cross breeding using a combination of Holstein and Jersey genetics, there is a glut of male calves totally unsuitable for any sort of viable beef production system. The options are exporting them for veal, veal systems in Ireland or disposal through the knackery system.

One thing is clear: advocating using them for beef is reckless and irresponsible as systems are unviable and they are just adding to the glut of beef which is further dragging down price.

Eddie Punch is general secretary of the ICSA

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