The Tillage Enterprise - Efficiency and Future Prospects

Value

Tillage crops occupy 9% of the total area farmed in Ireland and account for 9% (€500 million of Gross Agricultural Output).

The importance of the tillage sector is underlined by the fact that 40% of the 47,500 jobs in the food-processing sector are derived from tillage crops. Bread and flour confectionery accounts for 5,500 jobs, grain milling and animal feeds account for 2,800 jobs, the sugar sector accounts for 4,300 jobs with a further 6,100 people working in the drinks sector.

Areas and Numbers of Growers

The cereal area has stabilised at 300,000 hectares including maize, which is now close to 20,000 hectares. The National Base Area (NBA) on which EU Area Aid can be paid is 345,500 hectares including 200 ha for maize. Crops included for aid in the NBA include cereals, beans, peas, lupins, oilseed rape, linseed, set-aside and maize. The aid for maize is ring fenced, meaning that in the event of an overshoot of the NBA the maize growers will be the first to lose out. If the unused NBA is not sufficient to cover the overshoot in the maize base area then penalties will be applied to the Area Aid for maize. Thus the aid for maize may be substantially reduced if the NBA is significantly over claimed.

Spring barley is the main arable crop accounting for 57% of the cereal area in 2001 but the area of winter wheat has peaked this year at an estimated 74,000 ha.

Oilseeds and proteins have dropped to around 5,000 ha in recent years due mainly to the decreased Area Aid as a consequence of Agenda 2000. The base area claim by crop is shown in Table 1.

Table 1: National base area claim, by crop 1998 to 2001 (ha)

¹Provisional
Source: Situation and Outlook in Agriculture 2002 Teagasc

Sugar beet and potato areas were 34,000 ha and 13,800 ha, respectively, in the year 2000.

The number of cereal growers has declined from almost 100,000 in 1975 to upwards of 15,000 in 2001 (Table 2). The biggest fallout has occurred amongst the smaller producers with a drop of approximately 80,000 in those with less than 10 ha.

Table 2: Number of cereal growers categorised by area grown

*Department of Agriculture Area Aid Unit
Source: Central Statistics Office

In parallel to this decline there has been a modest increase in the number of growers over 50 ha with the numbers rising from 100 in 1975 to almost 1500 in 2001. The trend to larger growers will continue because of low margins per hectare and efficiencies with labour and machinery. It is reckoned there will be about 1000 specialised full-time tillage farmers with close on 200 ha each within a 5-10 year time frame. There will be a further 5-6,000 smaller part-time operators combining tillage with off-farm work or as a secondary farm enterprise.

Cereal Production and Yields

In recent years cereal production is around 2 million tonnes, with over one million tonnes of this being barley and 0.5-0.8 million tonnes being wheat.

It is noteworthy that we import over 3 million tonnes of feed ingredients. Wheat imports are generally of the order of 0.5 million tonnes, made up of 2-300,000 tonnes of feed wheat and up to 250-300,000 tonnes of milling wheat, including flour.

Our cereal growers are world class, producing the top yields in Europe (Table 3). Modern technology (using varieties with high yield potential and plant protection products) has enabled our growers to exploit our favourable soils and climate.

Table 3: EU wheat and spring barley yields (t/ha)

Source: Central Statistics Office, Eurostat

Margins

Tillage farming gave the best farm income of all the major farming sectors in the Teagasc Farm Management Survey 2000 (Table 4). However, on a per hectare basis dairying gave €290/ha (61%) more.

Table 4: Comparison of farm incomes by enterprise and per hectare in FMS 2000 and 1997-2000 (€)

Over the four years 1997-2000 tillage farmers' Family Farm Income (FFI) was only marginally lower than dairying but substantially over cattle and sheep farmers. However, on a per hectare basis tillage farmers FFI was €300/ha less than dairying but was well above cattle and sheep farming on average over the 1997-2000 period.

Economic and Legislative Environment

The economic environment for tillage farmers should remain stable until the end of 2006 following Agenda 2000. This means a continuation of Area Aid and Set-aside payments at the present rates:

There are 4 areas of concern:-

1. Under Agenda 2000 market developments will be assessed from the 2002-2003 marketing year onwards to decide if additional reductions in intervention price will be required. The whole area of modulation (capping) of aid may resurface as it is voluntary (implemented in Germany, France and Portugal) at present but this may change.
2. The World Trade Organisation (WTO) trade talks started last November and are likely to result in continuation of the process of increasing access to EU markets, reducing subsidies on EU exports and paring back domestic support for agriculture.
3. Under EU enlargement 12 new countries from Eastern Europe could increase the size of the EU by 34% in area and the population by 105 million by January 2004. Economists suggest that enlargement will have little impact on budgets until after 2006.
4. Farmers will need to be aware of and abide by increasing volumes of legislation pertaining to environmental and food safety standards. It is likely that nutrient levels and pesticide regulations regarding rates and timing etc. will need to be documented. Area Aid and other direct payments may be conditional on meeting environmental and food safety standards as well as public good considerations.

Technology

Developments in technology have been the saviour of the tillage industry over the years. Technological developments in the form of new varieties and plant protection products have transformed Irish cereal growing over the last couple of decades to the number one position for yield in Europe and the World. We are, once again, at the threshold of revolutionary technological developments in the form of:

1. Biotechnology
2. Precision farming
3. Information technology

(i) Biotechnology is a series of enabling technologies which involves the manipulation of living organisms or their sub-cellular components to develop useful products, processes or services. It is not new, many millennia ago people discovered that micro-organisms could be used in fermentation processes to make bread, brew alcohol and produce cheese. The potential of biotechnology is enormous.

The emerging biotechnology revolution is stimulating hope that it will provide the basis for more sustainable agriculture. In agriculture, biotechnology in the form of recombinant DNA technology is a powerful assistant to traditional plant and animal breeding. Recombinant DNA technology permits the precise and predictable manipulation of genes. Single traits can be modified much more quickly than was possible using traditional selection and breeding methods alone. Because of the capability of moving genes between species, desirable traits from one organism can be transferred to another.

Plant Biotechnology is predicted to advance in 3 main phases.

1. The first phase is the production of crops with improved agronomic benefits, e.g. "Roundup-Ready crops" which are resistant to Roundup and others include improved disease resistance etc. It has already occurred. Large areas of genetically modified (GM) crops of soyabeans, maize, cotton and canola have been successfully grown in the Western Hemisphere. In the United States in 1999, of the total of 72 million acres (29 million hectares) planted with soyabeans, half were planted with GM herbicide-resistant seeds. When herbicide resistant seeds were used, weeds were easily controlled, less tilling was needed, and soil erosion was minimised.
2. The second phase 2005+ of biotechnology is focusing on improved nutritional and quality aspects in food. Coming to market soon will be soybean varieties that allow absorption of lower levels of cholesterol, potatoes with lower fat absorption capacity and rapeseed oils with built-in vitamin requirements. Other areas being examined include longer lasting fruits and vegetables and foods with improved taste and flavour.
3. The third phase of biotechnology 2008+ is the concept of using plants as bio factories, namely using plants to produce materials that would normally be produced artificially in chemical or pharmaceutical manufacturing facilities. Examples being researched include edible vaccines being delivered through eating potatoes or bananas. Close to the market are oilseed varieties that produce biodegradable plastic and naturally coloured cotton to avoid the necessity for using chemical dyes in clothing manufacturing.

The common theme that joins all these developments together is greater and more diverse productivity from agriculture whilst at the same time preserving and improving our environment - the essence of what is known as sustainable agriculture.

The future for plant biotechnology is bright. The first complete genetic map (20,000 genes) of a plant species has been completed for Arabidopsis, a member of the mustard family. The complete DNA sequence of rice is expected in 2003 and other species including wheat are expected soon after.

(ii) Precision farming is a process of regulating crop inputs within a field to provide more optimum productivity. More precise targeting of nutrients and plant protection products will enable financial and environmental benefits.

Computers with the aid of satellites can now very accurately locate and map points in fields anywhere on the globe. These mapped points in the computer may show different nutrient levels or disease, weed or pest status. Machines can then be programmed to apply the appropriate inputs at variable rates as dictated by a map programmed with appropriate remedies.

The new tools for this technology are: -

1. GPS - Global Positioning System. This is a highly accurate (1-5 metres) world-wide satellite positioning system developed by the US Army. It is widely used for yield mapping on combines, soil sampling and for variable rate application of inputs.
2. Remote sensing by aerial or satellite photography is providing valuable images of variation within fields. Important developments will see the launching of satellites capable of giving "hyperspectral" images. These cameras are 10,000 times more sensitive than the human eye. They will be able to distinguish diseased plants before humans can! Moreover, they will have much improved spatial resolution compared to existing satellite images.
3. GIS - Geographic Information System. These computerised systems help organise and interpret various layers of data (yield maps, nutrient status maps, remote sensing data, etc.) for management decisions.

(iii) Information Technology will change most aspects of business and communications on farms as well as possibly providing a source of revenue from the marketing of services or products globally. The Internet will be customised to facilitate the farmer's needs re. technical and market information. Growers will be able to get sophisticated information and analysis from bodies like Teagasc and the Departments of State anytime day or night.

Adult education will be facilitated by digital T.V. and the Internet. In fact, I can see the farmers having the Internet with them wherever they are in the form of a personal device like a phone or a watch! Farm equipment will be controlled more and more by computerised devices enabling precision farming.

Technological developments will provide more comfort to farmers and farm families and will facilitate efficient farming methods giving rewards to those proficient with this challenging technology.

Teagasc Tillage Technology and Business Service

The TBS tillage service will be delivered by 23 specialised tillage advisers supported by three regional specialists and backed by research from Oak Park. The service will be collaborating closely with the Department of Agriculture, UCD and the input and output trades as well as growers and the farm organisations. Advice will promote the best-proven technology available but we will be placing a major emphasis on financial business management. We will promote environmentally sustainable farming by the achievement of the best husbandry practices.

Key elements of the TBS will be:-

1. Farm visits, seminars and farm walks have been a vital component of the service to-date. These will continue.
2. Discussion groups have been shown to be the most effective method of new practice adoption at farm level. Currently there are 23 tillage groups with a membership of 320. We aim to increase the number of groups to at least 30.
3. Monitor Farms are a significant new development in the TBS strategy. We have 16 monitor farms in place with top farmers in each of the main tillage counties.
4. Monitor Farms demonstrate the value of proven research at farm level. These will be the focal point for the advisory service in the county. The Monitor Farm will facilitate collection of key business and technical details as well as demonstration of Teagasc advisory messages.
5. Short Adult Training courses on both financial business management and technical topics in tillage will be run at county level. Modules will be of 12.5 hours duration or multiples of this. In addition, Teagasc is providing computer training at local level. Part of this course can be done on the Internet.
6. The Internet: The Teagasc client web site (www.client.teagasc.ie) will be a major facility for clients to access customised information of current importance, such as crop reports and market developments as well as being an archive of technical information. The site is being developed to be interactive providing analysis online.

Steps Towards Better Farm Financial Management

In preparation for its Technology and Business Service (TBS), Teagasc is spending considerable time and money in the development of new aids to business management. Paul understanding and a satisfactory proficiency in farm management as shown in Fig. 1.

Fig. 1: Steps towards better Farm Financial Management

It is envisaged that farmers, with the assistance of their advisers, will set management priorities which can be monitored on an on-going basis by tools made available and acquired in the farm business short courses.

The first modular short course in the farm financial management area is "Interpreting Farm Taxation Accounts" and has been delivered to tillage clients in five counties towards the end of last year. It has been very well received.

Following demand from other clients other courses are now being organised. Contact your local Teagasc office for details. Courses consist of 2 half-days training with further assistance from your adviser if required.

Accounts Analysis Worksheet

All tillage farmers keep accounts for tax purposes. Generally little use is made of these apart from their role in the calculation of income tax liability.

Tax accounts are an important source of management information. They contain information on profits, net worth and living expenses (drawings) among other important financial indictors.

To help get the most out of tax accounts, Teagasc has made available a simple "Farm Accounts Analysis Worksheet" (see Appendix 1). Using this worksheet, efficiency factors can be easily obtained from any set of accounts as follows:

• Profit and profit/hectare
• Net worth change and debt/ha
• Cash expenses as % output
• The ratio of Net Profit to Drawings

Profits are the life-blood of any business. Growers must target a profit which will allow them grow the business. Profits per hectare across the whole farm should be examined and compared with the rental value of land. Profit per hectare of less than €380 (£120/ac) on an on-going basis calls into question the system of farming as this level of income can be obtained through rental without working the land and without tying up capital.

Net worth tells if the overall value of your business is increasing or decreasing. Net worth needs to increase at least in line with inflation. Trends in net worth over a three-year period are a critical indicator of how a business is doing. Negative net worth trends result from low profits or high drawings. Negative trends (-€6000/yr or more) over a three-year period indicate a business is heading for serious difficulties.

Debt per hectare tells if your farm is on a sound financial footing. If the trend over a three-year period is for continual increases in debt then the reasons should be carefully analysed.

Cash expenses as % of output tells what % of sales is used to buy inputs. This figure would need to be less than 65%.

The ratio of profits to drawings must be greater than 1 or the business will go into decline. Drawings, in accounts, normally consist of living expenses plus tax. It is suggested that a separate bank account be set up for living expenses, into which a monthly transfer of a regular sum should be made. Using this method, living expenses can be easily measured and if necessary controlled.

Where Do We Go From Here?

Further modules in Farm Financial Management will be developed this year. In addition, technical modules will be developed such as "Soil Fertility and Nutrient Management Planning" etc. We are in the age of continuous learning. Teagasc aims to provide opportunities to farmers and rural dwellers to keep abreast of the most up-to-date skills in technical agriculture, farm business management and use of information technology.