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Brendan Keenan: 'Beef industry needs urgent and radical change for it to be more viable in the future'

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What’s the beef: Farmers protesting outside Musgraves in Fonthill recently. Photo: Mark Condren

What’s the beef: Farmers protesting outside Musgraves in Fonthill recently. Photo: Mark Condren

What’s the beef: Farmers protesting outside Musgraves in Fonthill recently. Photo: Mark Condren

The latest hominid to be declared extinct, you may have heard, is homo economicus, that ultra-rational creature that always acted in its own self-interest. Perhaps it existed in great-grandfather's buttoned-up day, but not now.

The same cannot be said of what may be its opposite number, homo agriculturus. As we have seen recently, it is no slouch when it comes to pursuing its perceived best interests, but there must be considerable doubt as to the rationality of its existence in many cases. It is no laughing matter, of course. But it is as well to tread lightly when it comes to Irish farming and the question of whether much of it should exist at all. Even more to the point; with Brexit, global warming and changing trade patterns, can the weaker sections escape forcible extinction?

The protesting beef farmers were certainly right in saying they are on the verge. Although it had nothing to do with the protests and was inspired more by Brexit, a timely new "Economic Letter" from Central Bank economist Thomas Conefrey sets out the state of Irish agriculture with alarming clarity.

Clear it may be, but it is also complicated. It may not make much sense to talk of Irish agriculture in one breath at all, so great are the differences between sectors. We think of dairy, beef, sheep and tillage as the different kinds of farming but it is the financial differences between top and bottom which may turn out to be most important. The gap is wide enough to make simple figures for agriculture's contribution to the economy less than useful. Last year agri-food accounted for just under 8pc of the best measure of output, modified national income (GNI). It would be around 6pc of the more commonly quoted GDP.

The Irish figures, even GNI, are distorted by multinational activities. I always remember the comment from a previous Brazilian ambassador that his country's mighty agricultural exports - all that coffee, orange juice and the rest - were worth less than Ireland's exports of computers and computer services. Countries do not get rich from farming, despite the regular romantic visions of what doing it differently might achieve. Neither, by and large, do farmers themselves. In most cases, they would be in dire poverty if left solely to live on the proceeds of their farms.

They have always understood this and, in the rich world, have organised politically and sectorally to bring incomes up to levels of fellow citizens in other occupations. That requires being good at protests but primary producers have no choice.

Still, why not get another occupation, which is what economicus would have done? It helps that their fellow citizens in every rich country I know of, generally believe farmers should enjoy a similar standard of living. The alternative - massive food imports from poor countries and industrial-scale farming at home - is not popular. But the systems to provide this are under severe strain and the outlook is for worse to come. Whatever the arguments about protests, the statistics show that the beef farmers' grievances are real.

Last year the average income on cattle-rearing farms was just €8,300. That is one-eighth of the income on dairy farms. Milk accounts for a third of Irish output, and meat and crops around a quarter each. What strikes the layman is the extraordinary volatility in agriculture. Farmers are squeezed between the prices they get for the produce and those they pay for their inputs - fertiliser, feed and so on. Both can move frantically, as they did in 2017-19.

After a bumper 2017, last year saw a sharp rise in input costs and only a small increase in output, partly caused by poor weather. Putting these together gives a figure for gross value added by farming activities, which is a better indicator than simple output values. This "GVA" fell by 16.4pc in 2018, which would be regarded as a crisis in any business. At the bottom line, after depreciation of plant, machinery etc, net value added fell by 25pc, wiping out much of 2017's 50pc increase.

Most of the added value in 2017 was in the dairy sector, but beef suffered equally in the 2018 decline. Direct payments from Government and EU exceeded the average €8,300 farm income, with the difference reflecting losses made actually producing beef. As for bad weather, there is evidence that changing weather patterns are adding to the traditional volatility of farming. One is not convinced that beef consumption will fall globally but global warming may make the Irish way of producing it more difficult.

One can see the human stress this must cause but it also means size and retained earnings become more important for survival. There is little of either in beef farming.

The agriculture research body Teagasc has a useful classification of the financial health of farms; defining them viable, economically sustainable or economically vulnerable. A farm business is economically viable if income is sufficient to remunerate family labour at the minimum agricultural wage of €19,616 and provide a 5pc return on the capital invested.

Then comes an awkward category - farms that are not economically viable, but have off-farm family income, not just from a job but from pension or social welfare as well. These are categorised as economically sustainable. Awkward because, while the household may have an adequate income, such a situation would not be called sustainable in other businesses.

There is also something of a euphemism in the definition of "economically vulnerable", which applies to those operating non-viable farm businesses where neither the farmer nor spouse works off-farm. Calling a spade a spade would seem particularly important in agriculture and this situation is more than vulnerable.

It is however the numbers that matter. In 2018, Teagasc found a third of farms fell into each category. That means two-thirds are not viable as standalone operations and one-third of farming families have inadequate incomes. They are concentrated in the beef sector. Around seven out of every 10 dairy and tillage farms were found to be economically viable, compared with two in 10 sheep farms but just one in 10 cattle-rearing operations.

Even someone who has never set foot on a farm can see this is about more than prices. The level of prices which would make, say, half of beef farms viable is simply not attainable. Failure to face up to these realities is likely to damage the sector further rather than alleviating its problems. The alternative to price rises is direct payments, based on the principle that society does not want large swathes of beef farming to disappear. But the gap between the €20,000 a year which Teagasc defines as a viable income, and the €8,300 which beef farmers received last year is a yawning chasm financially.

If anything, the trend in the Common Agricultural Policy, especially post-Brexit, will be more towards reducing the cost rather than increasing income support. Then there is Brexit itself.

There are suggestions that, in the longer-term, loss of free access to the British market might be more of a problem for dairy than beef, because there is more unfilled EU demand for beef. But to paraphrase Keynes, in the longer-run a lot of beef operations will be dead. A sector with just one in 10 viable operations would be blitzed if standard beef tariffs, which average 50pc, were applied by the UK. From an Irish perspective, the worst thing is the way the blitz would fall on particular regions.

Beef production is concentrated in the midlands, mid-west and west, where only one in 40 farms are dairy compared with one in four in the south-west. The economic, social and political costs of the agri-Brexit hardly bear thinking about.

Not only do we need a deal, we need the much more difficult deal which would cover agriculture. It is not part of the customs union or single market, but of the separate CAP. It is hard to see how any new trade arrangement between the EU and UK, however close, could replicate that. The best it could do is buy time to drastically restructure Irish farming. Decades of work and money have gone into improving productivity, quality and land holdings. They have had considerable success but the data shows clearly it was not nearly enough. The protesting farmers are in a parlous, perilous position but neither what they are asking for, nor what is on offer to them, provides any real solution to their plight.

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