Farm Ireland
Independent.ie

Monday 11 December 2017

Tighter supplies to underpin returns

But the clamour for coupled payments is leading farmers down a blind alley

Eddie Punch

A complete turnaround in weather conditions and farmers' ability to get work done means 2013 is becoming known as one of the better years in farming in recent memory. Strong prices in dairy and beef have seldom been more welcome, being used as they are to pay down the debts incurred by the terrible weather and fodder problems of 2012 and spring 2013.

However, there is an air of gloom around the suckler herd that is out of kilter with the good mood elsewhere. There's a clamour for some sort of coupled payment quick fix, which, in truth, is leading people down a blind alleyway.

A small drop in suckler registrations in 2013 is cited as conclusive evidence that the sector is finished. Yet the facts also show that the suckler herd increased from some 980,000 calves registered in 2010 to 1,116,000 in 2012. When decoupling was first agreed in 2003, many predicted a total wipe-out for sucklers.

Meanwhile, the Teagasc Derrypatrick Herd has stumbled following the catastrophic weather and net margins have fallen by two-thirds. Some of the criticisms have been too harsh. Comparisons with Moorepark ignore the reality that dairying consistently returns at least three times more profit.

Most significantly, the meat industry has lobbied incessantly for a return of old-style coupled payments. Paul Finnerty of ABP recently called for "material support" for the suckler herd, which echoed his demand for coupled payments made at a Bord Bia event three years ago.

INFLUENCED

Minister for Agriculture, Simon Coveney, needs to be very careful to avoid being influenced too much by the meat industry. When we had coupled payments, they were happy to pay some of the worst beef prices in Europe, safe in the knowledge that there would be no reduction in numbers as farmers focused exclusively on filling quotas and maximising premia.

To be fair to the meat industry, Irish beef prices have been strong for a lot of 2013. However, better beef prices in recent years in Ireland have been inextricably linked with tighter supplies and higher live exports. In recent weeks, prices have weakened and that is linked to supplies creeping up again. In the first week of September, we had a kill of 30,874hd. Traditionally, when the kill goes over 30,000hd beef prices start slipping.

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Farmers are frustrated that beef prices have lagged behind those in Britain, and worse that the gap has widened over the past 18 months. But at least they have tracked British prices (see Graph 1).

The bigger picture is that Irish beef prices have always been 4-10pc behind prices across the water. When prices are on a higher level, that gap is more pronounced in terms of cents per kg. However, there is also a positive. The graph also shows that Irish beef prices have improved consistently since 2010 and that improvement has been maintained through much of 2013, even when prices in key EU markets such as Spain and Italy, as well as international exporting countries such as Brazil and Australia, have tailed off.

The average Irish price (R3 steers) to date in 2013 is some 25c/kg ahead of 2012. Heifer prices are up 30c/kg but young bulls increased by just 15c/kg.

Cow prices are similar to 2012. It's obvious that the meat industry is making a concerted effort to pull back prices for the remainder of the year on the back of increased supplies. Nonetheless, the effect of scarcity is clear – the higher prices of 2013 have returned €86m extra to farmers compared to 2012.

Of course we still can't say for certain how much will be clawed back by the meat industry this back-end. Bord Bia reckons that there are 150,000 extra head in potential prime supplies for 2013 and we have seen some of those cattle already slaughtered (56,000 extra prime cattle and 30,000 extra cows).

The key point is that scarcity has driven prices upwards and that cattle prices in Ireland for 2013 are relatively strong, notwithstanding our desire to see prices match British levels. Moreover, the value of scarcity exceeds the value of any coupled payment, even if the coupled payment was extra money.

Unfortunately, the reality is that proposals to go back to coupled payments are based on robbing Peter to pay Peter and Paul. The coupled payment for suckler farmers of potentially some €80/cow would not be achieved by cutting the suckler farmer's Single Farm Payment (SFP) by 8pc, but also the SFPs of sheep farmer, beef finisher, tillage grower and dairy farmer.

Of more concern is the potential impact on the behaviour of farmers in response to the coupled payment. Experience shows coupled payments lead to more farmers keeping more cows than they would otherwise do. Even if farmers only maintain numbers, is that really in their interest if prices are going down?

TOUGH

Even in a tough year like 2013, scarcity is worth an extra €80m to farmers, whereas a coupled payment isn't actually worth an extra cent overall.

ICSA beef chairman Edmond Phelan makes the point that it can hardly be in the interests of suckler farmers if the beef finisher has 8pc less SFP in his pocket when he goes to the mart to buy cattle.

It seems to me that there are serious problems to be faced up to if we want a viable suckler industry but the solution is not a coupled three-card trick. Instead, we need to concern ourselves with the key issues:

* There is too much focus on overall national numbers of suckler cows instead of considering that the interest of the individual suckler farmer might be better served by a somewhat smaller national herd of better quality cows with better genetic merit;

* There is too much confusion about the cost of keeping a suckler cow. While many suggest the figure is €700hd, there is very little precision about whether this is the cost of keeping a cow, or if it is total farm costs divided by the number of cows, or is it total farm costs divided by the number of weanlings sold? These are important distinctions;

* Serious increases in feed, fertiliser and fuel costs have been enormously detrimental to the sector but have not received the same focus as factors such as output per hectare, price or subsidies;

* We need much more analysis on how to increase the number of weanlings sold per cow put to the bull. Fertility, mortality, even the number of twins born all come into play;

* Grassland management is still miles behind dairying;

* Young farmers need to weigh up carefully the historic reality that dairying is much more profitable than sucklers. Many of our suckler farms are former dairy farms that exited due to milk quota, ill health, off-farm income opportunities, etc. We are not well served by trying to keep up suckler numbers just to provide cheap beef if the alternative pays better;

* We need to vigorously support live exports and the potential for selling store cattle to Britain must be realised to keep our beef price in line with Britain's.

Eddie Punch is the secretary general of the ICSA

Irish Independent



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