Impact of price inflation on agricultural incomes now becoming clearer

A new report, by economists at Teagasc, provides an update on the forecast average margins and incomes that will be achieved across the agricultural sector in Ireland in 2022.

Along with other sectors of the economy, Irish agriculture has been hit by substantial input price inflation, much of it prompted by Russia’s illegal invasion of Ukraine. However, there have also been significant price movements in farm output prices over the course of 2022.

Even though three quarters of the year has passed, making accurate income forecasts across the various farm systems for 2022 remains challenging, as important data relating to the volume of input usage and changes in the price of some farm inputs are not readily available at this time.

Dairy farms are forecast to achieve higher incomes in 2022 compared with last year, while incomes on Cattle Other farms (mainly finishers) are forecast to remain unchanged.  Incomes on Cattle Rearing farms, Sheep farms, Tillage farms and Pig farms are forecast to be lower in 2022.

A significant increase in income in 2022 is forecast on dairy farms, with an increase of 30% or more on the 2021 level now forecast. This increase would take the average dairy farm income figure to over €130,000. Irish Dairy farmers have benefitted from a dramatic increase in milk prices due to the lack of growth in global milk supplies this year. However, on average milk production costs are likely to be about 10 cent per litre higher in 2022.

For the first time since milk quota abolition in 2015, no increase in aggregate Irish milk production is forecast this year. Dairy farmers have adopted a cautious approach to further expansion given the large increase in input costs that emerged. The unusually dry weather conditions in July and August have also had an impact on Irish milk production and milk production costs in some regions across the country, and this will affect the extent of the income increase experienced on individual dairy farms this year.

The average income on Cattle Rearing farms is forecast to drop by 17% in 2022, as higher production costs should more than offset the benefit of higher cattle prices. This would bring the average Cattle Rearing farm income back to about €9,000 in 2022. This decline is forecast despite the positive influence of the Fodder Support Scheme on farm incomes.

By contrast, the combination of higher finished cattle prices and the contribution from the Fodder Support Scheme should be sufficient to offset the increase in production costs on Cattle Other farms. The average income for Cattle Other farms in 2022 is forecast to be unchanged at about €17,000.

Sheep farms will have benefitted from higher lamb prices in 2022, a year in which lamb prices still remained well ahead of the five year average price (2017 - 2021), but as with other farm enterprises, sheep farms have been hit by higher production costs. Farm receipts from the Fodder Support Scheme in addition to the increase in lamb prices in 2022 will not be sufficient to offset the increase in production costs on Sheep farms. The average income on Sheep farms is forecast to drop by 15% in 2022. This would bring the average Sheep farm income back to about €17,700 in 2022.

In the Tillage system, favourable weather during the growing season in 2022 meant that Irish cereal yields were up for many crops compared to 2021. There were some notable exceptions on the yield front, with disappointing winter barley yields in some regions attributed to virus impacts.

Favourable weather conditions at harvest time will have also benefited moisture contents and crop receipts.

The tight global grain markets has also resulted in higher cereals prices. Additional support was also available via the straw incorporation scheme. However, the rise in production costs on Tillage farms has been substantial and is forecast to more than offset the benefit of increased output value and additional support received this year. The average Tillage farm income is forecast to fall by somewhere close to 10%, which would bring the average income in the system back to a little over the €50,000 mark.

It has been a very challenging couple of years for pig farmers.  Low pig prices have coincided with the sharp increase in feed and energy costs, pushing producers into negative margin territory. Pig prices have risen gradually over the course of 2022 and the extent of the increase in now large enough to begin to restore profitability in the sector. Nevertheless the average pig farm will have incurred losses approaching €350,000 in 2022.

All of these income calculations are in nominal terms, which means that they do not factor in general inflation and the impact that this has on the purchasing power of incomes earned in agriculture. With general inflation now at its highest level for many years, a farm with a stable nominal income in 2022 will experience an appreciable decline in real income.

A further assessment of incomes for 2022 will be made by Teagasc economists in December, along with a forecast for 2023.

To read the full publication ‘Situation and Outlook for Irish Agriculture’ - September 2022 - visit https://www.teagasc.ie/publications/2022/situation-and-outlook-for-irish-agriculture---september-2022.php