Dramatic Decline in On-farm Investment Planned

Investment on farms is expected to shrink back to just €363 million in 2009. The Teagasc Situation and Outlook Conference taking place in Tullamore today, Tuesday, 9 December, heard how investment in 2008 by Irish farmers reached record levels of €1.9 billion, three times the amount invested annually between 2000 and 2005. That level of investment is equal to 100 per cent of total farm income in 2008.

Liam Connolly from the Teagasc Rural Economy Research Centre anticipates a huge decline in on-farm investment next year, as farmers return to more traditional levels of investment. The Teagasc National Farm Survey has shown that dairy farmers will account for over half of the planned investment in 2009 with cattle farmers accounting for a further 30 per cent.

Income data for 2008 from the CSO showed that farm incomes fell by 12.8 per cent compared to the previous year. When interest payments made by farmers are taken into account, Liam Connolly estimates that incomes in the agri sector will have declined by 16.1 per cent in 2008 compared to 2007. The largest reduction came in the cereals sector where lower market prices and higher inputs costs squeezed margins, reducing tillage farmers’ income by one fifth.

Uncertainty in pigmeat market

Pig specialist with Teagasc, Michael Martin, told the conference that pig producers in Ireland have incurred very substantial losses from July 2007 to June 2008. A recovery in profitability occurred in July of this year, but this has been short lived as prices have plummeted due to difficulties in the global financial markets and the economic recession. What was already a very difficult situation for producers became a crisis at the weekend with the discovery of the PCB problem. Getting slaughtering plants fully operational is the first of a number of steps in a recovery plan for a sector that has farm gate sales of €350 million per annum and is responsible for the employment of close to 7,500 people.

Input expenditure on nearly all farms increased in 2008 and had a particular impact on dairy farms. Teagasc estimate that the net margin per litre of milk produced this year is 9 cent per litre compared to 13 cent per litre last year. Teagasc economist Thia Hennessy is forecasting a 15 per cent decline in milk price for 2009 to about 27 cent per litre, leaving a net margin per litre of 6 cent for the average farmer.

For cattle farmers, 2008 has been a reasonable year, with the price for R3 grade steers running 16 per cent ahead of 2007 levels. However 2008 was a year with significant increases in the cost of fertiliser, feed and fuel and adverse weather conditions. Despite these setbacks, average gross margins are expected to be higher at €180 per livestock unit in 2008. Teagasc economist James Breen expects Irish beef prices to remain largely unchanged next year, but he expects the cost of fertiliser and feed to decline in 2009.

Top third of cereal farmers in profit

There is considerable uncertainty regarding cereal prices for 2009, but based on the current futures trading prices, it is assumed that the 2009 harvest prices will be up on this year’s price levels. However without any significant upward movement in cereal prices, or real reduction in input costs, the forecasted net margin for the average producer in 2009 will be negative. Fiona Thorne of Teagasc said that only the top one third of producers is expected to make a positive margin from cereals next year.

Teagasc economists expect margins in sheep production to improve in 2009 as input costs decline from the higher levels in the current year. Kevin Hanrahan is forecasting a gross margin per ewe of €510 per hectare for lowland mid season systems.

Trevor Donnellan of Teagasc said that input costs played a major role in determining margins in 2008. However, input expenditure should decline in 2009, particularly in the case of feed, fertiliser and fuel, due to falling cereal and oil prices.

In the Forestry sector, despite the introduction of the Forest Environment Protection Scheme (FEPS), the area of new forestry planted continues to fall short of government targets. Up to the end of October, the level of new planting was 4,800 hectares, well short of the government target of 10,000 hectares per annum. However forest thinning activity has increased dramatically with the number of felling licensees issued by the forest service increasing from 102 in 2005 to 692 in 2008. Teagasc forestry specialist Mary Ryan said that this is as a result of new market opportunities for forest thinnings like wood chip for heat, and wood chip for livestock stand off pads.