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Declan O’Brien: Global market the deciding factor for future of farming

THINGS are certainly looking good for farmers. Incomes are up, there is confidence in the sector and some of the best and brightest of our young people once again see a future for themselves either on the land or in food processing.

But there are dark clouds on the horizon and the highs and lows of operating at global commodity prices were rarely brought into as sharp focus as they were over the last few days.

In a week in which the nation's farmers were told that their incomes for 2011 had grown by 32pc to an average of almost €25,000, the country's dairy processors pulled milk prices back by 10pc and warned that cuts of as much as 24pc could be on the way this summer.

The good and bad news can be put down to the vagaries of global commodity markets. Dairy farmers' incomes boomed last year as the value of butter, whey and other dairy derivatives soared on world markets.

However, the high prices pulled in additional dairy supplies across the globe. Production grew by 4pc and while demand also increased by 2pc, markets have crashed as a result of the 2pc overhang in supplies.

And so, after two very good years, Ireland's milk suppliers fear 2012 could be yet another annus horribilis.

Anne Kinsella of Teagasc admitted as much at the launch yesterday of the State body's National Farm Survey for 2011.

While the report cited higher incomes across all the farm sectors, Ms Kinsella stated said this was likely to be a short-lived story and that returns at farm level were likely to fall as world market prices eased back.

The 33,000 commercial farmers made an average of €56,000 last year. The country's 18,000 dairy farmers averaged €70,000.

Unfortunately, volatility is likely to be a feature of farm incomes into the future as the vagaries of commodity markets call the tune.

However, the reality is that changes in EU policy over the last decade mean farmers in all sectors are now operating at global prices.

While the EU paid €1.3bn in farm supports to the country's 110,000 farmers, it now has very little impact in commodity prices.

Increases in farm incomes last year were driven solely by higher prices for milk, meat and cereals.

The impact of stronger demand for beef on world markets was highlighted in the Teagasc study, with incomes rising by 50pc through 2011 as cattle prices soared.

It was a similar story for country's 30,000 sheep farmers. A decrease in EU imports of New Zealand lamb pushed up prices significantly and drove a 27pc lift in farmer incomes.

The challenge for the future is to maximised the advantages that Ireland's climate and grasslands deliver in order to increase farm output and margins.

A blueprint for growth across the farm sector was set out in the Food Harvest 2020 report. It has set growth targets of 50pc for dairying and 40pc for beef, with ambitious goals also identified for sheep, poultry and pig industries.

Can these targets be met?

The answer to this question will depend on companies finding markets for the additional produce and on farmers making a decent return from the investment and the extra work involved in increasing production.

The expected increase in the world's population, which estimated to reach nine billion by 2050, could deliver markets for the additional produce.

The growing middle classes in China, India and south-east Asia are already sucking in an increasing percentage of the world's protein output.

This trend will undoubtedly create opportunities for Irish companies and the main players in the dairy and meat sectors are already exploring these markets.

But for Ireland to grow its output it will have to make sense for the farmers involved. For the dairy sector this means producing an extra 2.5 billion litres, which will require a huge investment in livestock and infrastructure at farm level.

However, if price and margins are slashed this year will farmers have the appetite for expansion? Will they want to be busy fools?

And will cattle and sheep farmers want to increase their herd or flock sizes when the average income of cattle farmers was just €10,600 last year and those of sheep farmers was a mere €17,084?

These incomes were well below the average annual earnings in the economy as a whole for 2011 which stood at €35,980.

And yet we should all hope that our farmers decide to invest and expand because the sector has been one of the few shining lights for the Irish economy since the boom came crashing down in 2008.

Indeed, the impact of the dairy sector meeting the growth targets in the Food Harvest 2020 report were set out at the National Dairy Council annual conference yesterday when agri-economist Ciaran Fitzgerald said expansion of that magnitude had the potential to deliver 15,000 extra jobs and €1.3bn in additional output.

Like any sector, farming is a broad church which comprises 33,000 commercial operators, 30,000 of whom are considered "sustainable" and 37,000 of whom are "economically vulnerable".

EU payments remain an essential income support for most but farming's fortunes will increasingly be decided by global markets.

Irish Independent