Farm Ireland

Saturday 25 November 2017

Why our farm income surveys are deeply flawed

Farmers' long working hours and the labour input of their families is undervalued, argues Eddie Punch

It is difficult to capture data on hours worked.
It is difficult to capture data on hours worked.

When we want detail on farm incomes we look at the Teagasc national farm survey and profit monitors. Profit monitors analyse the potential for increasing income by extra output and reduced costs and do this by examining the keener and more technically savvy farmers.

The national farm survey is regarded more as providing the basic facts on farm incomes by looking at thousands of farm accounts and by comparing one year with another

Of course, striving to do better is an essential part of any vibrant business and Teagasc have a mandate to help farmers improve. Thus they often use profit monitors to focus on the top third versus the bottom third and average.

However, the National Farm Survey and profit monitors share a weakness which is the failure to account fully for labour and land costs. Why is this a concern?

Well, the figures are regularly used by decision makers, farm representatives and processors to consider whether farmers can keep going or what changes to policy and price are required. Retail multinationals pay attention to these stats to ensure that they are driving the hardest bargain when buying farm product and this mentality filters through to the intermediaries which includes the meat factories and co-ops.

The defining characteristic of farm income measurement is therefore the flawed assumption that farmers should not expect to be paid at all for their own labour and worse still, the labour of their wives, children, elderly parents, nephews, nieces and any other misfortunate that wanders into the place.

Instead, the surplus before a farmer pays himself a single cent is used to define the profitability of the enterprise. Return on capital is by default not even examined due to the failure to get a handle on true labour costs.

We are colluding in a fantasy which is used as a stick to beat us. The top third are not as profitable as portrayed, and the rest are definitely struggling.

Also Read

To some extent, this is actually more of wakeup call for dairying than beef or sheep. While ICSA is of course more pre-occupied with drystock incomes, the harsh reality is that cattle and sheep systems generally do well to avoid serious losses. The survival strategy revolves around trying to hold on to maybe 80pc of EU subsidies.

Even then, contrary to urban jibes, it's not the EU that is ultimately propping up these farmers but their willingness to do their own subsidisation of consumers and retail/ processor profits.

This involves not only losing some of the EU subsidy but also re-investing through the use of their own off-farm income or selling a site or gradually eating into their own capital. Worse still is the fact that many farmers are reduced to a parasitical relationship with their own spouses where even though the wife's off-farm income is not raided to pay for pollution control, her contribution to the household budget is more than half.

This has been viewed as an exclusive problem for beef and sheep sectors. In dairying, with the comfort of the 2014 NFS figures - average income €65,000 - there was a huge temptation to see dairying as white gold.

Young farmers back from New Zealand - after converting to the large low cost dairying mode - have been pushing themselves and each other to expand and quickly. Yet the question that is now coming into sharp focus is whether we are codding ourselves with farm profit figures?

At best, the typical well run dairying operation is claiming costs of 25c/l. Unfortunately, this does not include a land charge for owned land - as if there was no demand for land for rent - and it does not include labour costs other than hired labour. When you analyse the average figure for hired labour, you can see that the figures are more or less meaningless in the sense that they are massaged by small and medium farms (eg 60-100 cows) being run as one person outfits and utilising a lot of free family labour which is not accounted for.

This means that when you hear plans to go from 100 cows to 150 or even 200 cows, there is a lot of wishful thinking about where the extra labour is going to be sourced and how much it will cost. The reality is that a one man outfit milking 100 cows is working himself into an early grave unless he looks at the long term sustainability of what he is doing.

In fairness, cutting edge dairy farmers are onto to this by contracting out machinery work and maybe heifer rearing or increased automation. All of these alternatives cost, however, and the current NFS and profit monitors do not capture which is best.

It seems to me that the figures look better because the dairy farmer is in denial about working 60/70 hours per week. Sure, he knows he works hard and wears it as a badge of honour but can it last? Will the family appreciate his absence at weekends for family events or the fact that he thinks one week is loads for a holiday?

The problem with all of this unaccounted for labour is that it will not work as a model where farmers are looking at gearing up to larger-scale units of 200 cows plus. Nor will it work where partnership models are being developed.

It is storing up a long term conundrum where many of today's hard working, expansionary farmers are tomorrow's hip operations waiting list. There is a lot of clichés around sustainability - perhaps the biggest sustainability question is how long will your health hold up milking 150 cows 24/7 and who will step in when you are crocked?

In a wider international cost, it's a bit of a party pooper when it comes to determining what our cost competitive advantage is. Grass means we can feed livestock cheaper. How do we compare internationally if we include labour? Are we ignoring the reality that labour costs in the Irish economy are not only higher than in many EU countries, but higher than the UK?

A matter not only for individual farmers, but that policy makers must also face up to is the true breakeven point when you acknowledge and take into account all labour costs.


Ultimately, the responsibility is on us to ensure that this is also factored into the pricing policies of processors and multinational corporations.

This question returned to sharp focus when I saw recent comments that anything less than 100 dairy cows is too small to have a future.

To my mind, this understanding is incomplete precisely because there is no handle on labour costs but the damaging consequence is that this kind of thinking feeds through to industry and retail. Run faster farmers to stand still!

Teagasc will point to the difficulties of accurately capturing data on hours worked. It is also the case that the methodology followed is consistent with EU farm income methodology (FADN) which Teagasc is obliged to comply with.

Nonetheless, this is a serious problem and we need to start a conversation about what are the real costs of production and how much you should get for your labour.

Eddie Punch is the general secretary of the Irish Cattle and Sheep Farmers' Association

It's difficult  to compare  dairying and suckling costs

When we compare  dairying with suckling, the assumption is that dairying involves a lot more labour. However, we simply have no real handle on this.

As a simple example, modern grass management technology which works for dairy farmers is not being adopted on a widespread basis by suckler farmers.


One reason is that wild sucklers take longer to move and have a tendency to break the best of fences. Dairy farmers buy a reel of cable and a few pigtails and presto, paddocks are sub-divided. Try this with sucklers!

A lot of time on suckler farms is spent coping with animals breaking fences/gates or even trying to get them through the crush for dosing or paring.

Thus, labour cost is pertinent to all sectors.

From a more technical point of view, is it valid to compare the profit monitors of two farmers each milking 100 cows where one has higher costs but more automation, contractor costs or hired labour whereas the other is working every hour God sends and the kids are sick of slaving when they want to go hurling?

Indo Farming