Mike Brady: Now is not the time for beef farmers to jump ship
Beef farmers are in the eye of the perfect storm. Brexit, low market prices, poor profitability margins, climate change accusations and beef factory protests all combine to feed the downbeat mood of the beef industry in Ireland.
The Beef Plan Movement began the factory protests, which have catapulted beef farmers into the public eye.
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The battle between the beef processors and the now 'independent farmers' has developed into a war of wits and writs. The unthinkable image of beef farmers going to jail for breaking court orders is a real possibility. Surely there is a better way?
There are only a small percentage of the 80,000 or so beef farmers in the country out marching on the picket lines. The rest are at home contemplating - even worrying about - the future of their farm businesses.
We have noticed a marked increase in beef farmers looking for advice on the future options for their farms. Leasing out the land, getting into dairying, increasing tillage, contract-rearing dairy replacements, forestry and selling up are some of the possibilities.
Different options suit different families, but leasing out the land for income-tax-free income is by far the most popular.
However, we are recommending these beef farmers not to exit farming now. Here are the reasons why:
1. Low prices
Beef prices are on the floor, so this is certainly not the time to cash in on the suckler herd or store cattle.
Traditionally, late autumn is the best time to buy store cattle with a view to finishing them out of the house next spring or off grass next summer. When grass runs out, farmers without wintering facilities are forced to sell their cattle - hence it's a time buy not sell cattle.
Remember, you only get one chance to have a dispersal sale and convert you livestock in cash in the bank, so choose the right time to cash in.
2. Surplus fodder
The country is awash with silage and hay - in complete contrast to the deficit of fodder caused by the drought just 12 months ago. There is zero demand to sell fodder. Therefore it is sensible to convert it into cash by feeding it to livestock.
3. EU Cap reform
Perhaps the biggest obstacle to getting out of beef and leasing out your land on a tax-efficient long-term lease of 10 years or more is the uncertainly surrounding EU Common Agricultural Policy (CAP) reform.
For example if a 100-acre beef farmer with a Basic Payment Scheme entitlement of €10,000 exits farming now and has no farming activity in 2020, will he/she lose out on an allocation of entitlements in the next CAP reform?
Table 1 shows the tax-free annual income for 10 years from 2020-29 where the BPS is lost, and table 2 shows where it is retained.
There is a difference of €90,000 in income or €9,000 per annum over the 10-year period.
I recommend that any beef farmer thinking of exiting framing and leasing out their land and BPS entitlements on a long-term lease should wait and see what happens in the CAP reform before making the final decision.
4. BDGP / BEAM
Beef farmers who exit now will have to repay finds received from the Beef Data and Genomics Programme (BDGP), and they will be excluded from qualifying for payment under the Beef Enterprise Aid Measure (BEAM).
This can run into thousands of euro. A calculation of the loss incurred from schemes should be done before making a decision to exit beef production.
A hard or no-deal Brexit will have serious consequences for beef prices in the short to medium term. It is now too late for an Irish beef farmer to get out of the industry, without the October 31 deadline having a negative effect on price.
Recent political decisions in the House of Commons suggest there will not be a No-Deal Brexit nor a Hard Brexit, so it must surely benefit beef farmers to hang in there until it all settles down.
Also, there may be a government compensation in the event of difficulties in the sector arising from Brexit.
6. Retirement from Beef Farming Scheme
Our government must be examining the deep problems in the beef sector and its implications for the economy in the years to come.
Climate change - in particular the production of greenhouse gases - and the inherent low or negative profitability in the sector require radical surgery. History has shown us that low profitability does not cause beef farmers to exit the industry, and clearly it would be better for the economy if we had fewer beef farmers and beef cattle in the country.
It all adds to having an attractive Retirement from Beef Scheme as part of the roll-out of the next CAP reform. Maybe it will be wise to wait for such a scheme.
Every business sector and every individual business has had a difficult period to navigate in its history; beef farming in Ireland is present experiencing such a time. Even though the beef sector is facing right into the eye of a storm, in my opinion it is not the time to abandon ship.
Mike Brady is managing director at Brady Group agricultural consultants & land agents; email: firstname.lastname@example.org
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