This year, we may see cyclical downturn in prices for some sectors, such as dairy and pigs, but, overall, the short-term prospects for agriculture in both NI and Britain look relatively good.
Delivering the analysis at last week’s spring conference organised by the Irish Farmers Journal in association with Leicestershire-based The Andersons Centre, Michael Haverty from Andersons said that the relatively benign conditions may continue beyond 2018.
Crucial to that is the continued relative weakness of sterling against the euro, which is helping to support output prices and also boost EU direct payments. Costs on farms have remained fairly flat, but have now started to edge up, so producers will have to remain vigilant, suggested the Andersons consultant.
In the longer term, there is much uncertainty caused by Brexit, and the clear message coming from Andersons is that farmers must start to prepare for change by improving efficiency and productivity. That will act to boost short-term profit, and set a business up to be more resilient in the future.
Looking in detail at the Andersons analysis, it is the beef and sheep sector that is most reliant on direct payments to boost incomes, and therefore most exposed, if and when direct payments go after 2024. Much will depend on the level and type of future farm support provided by Government.
In dairy, when milk prices are good, the majority of producers can make sustainable returns before direct payments. But over the next two years, Andersons is predicting tighter margins, and on the average farm, negligible profit before EU payments. However, there is a big range in costs of production on farms. “The difference is huge. There is a gentle efficiency gain from increased scale, and the data suggest that larger than average producers have lower costs. But there are many efficient small herds and lots of inefficient large ones,” suggested Graham Redman from Andersons
In the intensive sector, pigs, poultry and egg producers are much less dependent on EU direct payments, meaning that returns must come from the market. With feed prices set to remain fairly stable through 2018 it should help keep a lid on costs of production. But the competitive retail market means margins will remain tight.
However, despite receiving only a fraction of their income from direct payments, pigs and poultry could still be significantly affected by Brexit.
At present, the UK is not self-sufficient in pigs (55%), poultrymeat (75%) or eggs (85%), meaning that a “fortress UK” approach after Brexit could drive up prices and benefit producers.
But, both the pig and poultrymeat sectors are dependent on EU and non-EU markets to take offal and other lower-value cuts, so it is important this trade continues. The UK Government opening up its borders after Brexit to cheap food imports could negatively affect all farming sectors.
No deal is less likely after Brexit
With the UK and EU recently agreeing to the principle of a period of transition after the UK departs the EU in March 2019, the interpretation given by Andersons is that this makes it less likely that there will be no trade deal done between both parties.
Under a no-deal scenario, the UK would trade with the EU under World Trade Organisation (WTO) rules, and tariff barriers would apply, including for trade across the border in Ireland.
Instead, Andersons believes that a free trade deal will be done between both parties, but perhaps not in the timeframe currently envisaged. To allow the UK to make an orderly exit from the EU in March 2019, the UK government had initially targeted a trade deal to be in place this autumn. Instead, it looks increasingly likely that a framework of that deal will be agreed, with trade talks to continue during the transition period.
“The transition is to last to the end of December 2020. But an extension of that date cannot be ruled out. The EU has kicked the can down the road in the past,” said Michael Haverty.
To solve the problem of the Irish border, and to ensure trade with the EU is as frictionless as possible, he suggested that the EU and UK will eventually end up with an agreement that involves keeping rules and regulations aligned. “Some form of regulatory association agreement – that is where the wind is potentially blowing,” he said.
Until that future relationship is established and agreed it is impossible to know how much flexibility the UK will have to negotiate separate trade deals with non-EU countries.
There are significant opportunities in growing markets in the Middle and Far East, but they also tend to be countries with low incomes per head, which could limit the value of exports.
UK farming is currently very focused on the relationship between sterling and the euro. After Brexit, the position of sterling against the US dollar might become more important as the majority of commodities are traded globally in US dollars.The next reform of the CAP is due in 2020, but could be pushed back. The latest proposals are not revolutionary. There is a clear commitment to keep direct payments at the core.Overall, agri-food trade accounts for 45% of all goods traded between NI and the Republic of Ireland.Funding of domestic agriculture policy in the UK will be a big issue. It seems likely that historic funding allocations to the different parts of the UK will be maintained. If there is a cut in future years, it would apply pro-rata.If we adjust milk prices for inflation, in real terms farmers were receiving 65p/l to 70p/l for their milk in the 1970s. This long-term decline is not unique to dairying. Read more
Keep farming rules aligned
Farmers warned about Brexit bubble
This year, we may see cyclical downturn in prices for some sectors, such as dairy and pigs, but, overall, the short-term prospects for agriculture in both NI and Britain look relatively good.
Delivering the analysis at last week’s spring conference organised by the Irish Farmers Journal in association with Leicestershire-based The Andersons Centre, Michael Haverty from Andersons said that the relatively benign conditions may continue beyond 2018.
Crucial to that is the continued relative weakness of sterling against the euro, which is helping to support output prices and also boost EU direct payments. Costs on farms have remained fairly flat, but have now started to edge up, so producers will have to remain vigilant, suggested the Andersons consultant.
In the longer term, there is much uncertainty caused by Brexit, and the clear message coming from Andersons is that farmers must start to prepare for change by improving efficiency and productivity. That will act to boost short-term profit, and set a business up to be more resilient in the future.
Looking in detail at the Andersons analysis, it is the beef and sheep sector that is most reliant on direct payments to boost incomes, and therefore most exposed, if and when direct payments go after 2024. Much will depend on the level and type of future farm support provided by Government.
In dairy, when milk prices are good, the majority of producers can make sustainable returns before direct payments. But over the next two years, Andersons is predicting tighter margins, and on the average farm, negligible profit before EU payments. However, there is a big range in costs of production on farms. “The difference is huge. There is a gentle efficiency gain from increased scale, and the data suggest that larger than average producers have lower costs. But there are many efficient small herds and lots of inefficient large ones,” suggested Graham Redman from Andersons
In the intensive sector, pigs, poultry and egg producers are much less dependent on EU direct payments, meaning that returns must come from the market. With feed prices set to remain fairly stable through 2018 it should help keep a lid on costs of production. But the competitive retail market means margins will remain tight.
However, despite receiving only a fraction of their income from direct payments, pigs and poultry could still be significantly affected by Brexit.
At present, the UK is not self-sufficient in pigs (55%), poultrymeat (75%) or eggs (85%), meaning that a “fortress UK” approach after Brexit could drive up prices and benefit producers.
But, both the pig and poultrymeat sectors are dependent on EU and non-EU markets to take offal and other lower-value cuts, so it is important this trade continues. The UK Government opening up its borders after Brexit to cheap food imports could negatively affect all farming sectors.
No deal is less likely after Brexit
With the UK and EU recently agreeing to the principle of a period of transition after the UK departs the EU in March 2019, the interpretation given by Andersons is that this makes it less likely that there will be no trade deal done between both parties.
Under a no-deal scenario, the UK would trade with the EU under World Trade Organisation (WTO) rules, and tariff barriers would apply, including for trade across the border in Ireland.
Instead, Andersons believes that a free trade deal will be done between both parties, but perhaps not in the timeframe currently envisaged. To allow the UK to make an orderly exit from the EU in March 2019, the UK government had initially targeted a trade deal to be in place this autumn. Instead, it looks increasingly likely that a framework of that deal will be agreed, with trade talks to continue during the transition period.
“The transition is to last to the end of December 2020. But an extension of that date cannot be ruled out. The EU has kicked the can down the road in the past,” said Michael Haverty.
To solve the problem of the Irish border, and to ensure trade with the EU is as frictionless as possible, he suggested that the EU and UK will eventually end up with an agreement that involves keeping rules and regulations aligned. “Some form of regulatory association agreement – that is where the wind is potentially blowing,” he said.
Until that future relationship is established and agreed it is impossible to know how much flexibility the UK will have to negotiate separate trade deals with non-EU countries.
There are significant opportunities in growing markets in the Middle and Far East, but they also tend to be countries with low incomes per head, which could limit the value of exports.
UK farming is currently very focused on the relationship between sterling and the euro. After Brexit, the position of sterling against the US dollar might become more important as the majority of commodities are traded globally in US dollars.The next reform of the CAP is due in 2020, but could be pushed back. The latest proposals are not revolutionary. There is a clear commitment to keep direct payments at the core.Overall, agri-food trade accounts for 45% of all goods traded between NI and the Republic of Ireland.Funding of domestic agriculture policy in the UK will be a big issue. It seems likely that historic funding allocations to the different parts of the UK will be maintained. If there is a cut in future years, it would apply pro-rata.If we adjust milk prices for inflation, in real terms farmers were receiving 65p/l to 70p/l for their milk in the 1970s. This long-term decline is not unique to dairying. Read more
Keep farming rules aligned
Farmers warned about Brexit bubble
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