Farm Ireland

Saturday 16 December 2017

How competitive are Irish dairy farms?

When economic costs were considered, the competitive ranking for the Irish dairy sector slipped
When economic costs were considered, the competitive ranking for the Irish dairy sector slipped
Margaret Donnelly

Margaret Donnelly

Research from Teagasc shows that Irish dairy farms are competitive when compared with their foreign counterparts, until labour and the cost of owned land is included in the calculations.

The research shows that cash costs as a percentage of market based output were relatively low in Ireland, with just Italy and Belgium with lower cash costs.

However, the competitive position of all the examined Member States changed when imputed charges for owned resources were taken into consideration.

In Ireland’s case this meant a fall to the worst ranking at 111pc of output. However, Denmark, France and Germany also experienced total economic costs which were in excess of output value.

Further, the research by Teagasc also shows that Ireland’s ranking as highest total economic costs as a percent of output value followed directly from having the highest level of opportunity costs observed in the data at 46pc of output. Within each country, the most significant amongst the imputed costs was the charge for family labour, followed by imputed charges for owned land.

A ‘competitiveness index’ was calculated and showed that Ireland was at a competitive disadvantage relative to the average for all the countries studied when total economic costs were taken into consideration. Over the period 2009 to 2013, Irish dairy farms had on average 11 per cent higher total economic costs relative to other competing countries in the EU.

Irish dairy farms had relatively low costs for seeds and plants, crop protection, purchased feedstuffs, depreciation and machinery. However, these relatively low costs were counteracted, in particular, by high costs for fertiliser and imputed charges for owned land.

Outside of the EU, when IFCN data was examined, t appears that the competitive position for Irish dairy farms was very positive when cash costs were considered in isolation from imputed charges for owned resources. The larger representative Irish dairy farm had the lowest cash cost to output ratio amongst the key international milk producing regions examined, namely, the US, New Zealand and Australia.

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However, when economic costs were considered, the competitive ranking for the Irish dairy sector, for the average size farm in particular, slipped relative to the other countries examined.

This finding could also be considered as a warning signal for the future competitive performance for the average sized Irish dairy farm in a global environment. However, based on the distributional analysis for farms of different sizes, the ability of the larger Irish dairy farms to compete in the longer term in a global context was affirmed.

Furthermore, as Irish dairy farming transforms to larger scale production in a no quota environment, the Irish milk sectors competitive position will be strengthened further, the researchers say.

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