In reviewing the performance of the sheep sector over the last decade, it is fair to say that it is probably standing on a slightly stronger footing now than it did in 2010. Sheep numbers had, thankfully, just turned a corner in 2010 following a decade of major decline.

The turnaround was partly helped by the introduction of the Grassland Sheep Scheme, which supported ewes to the tune of €10/head, while farmgate prices rising from an average of €3.74/kg (excluding VAT) in 2009 to €4.39/kg in 2010 brought a well-needed boost in confidence.

As detailed in Figure 1, the national ewe flock has fluctuated since then but is in a much healthier position overall. As of 31 December 2019, the ewe flock stood at 2.57m head, some 370,344 head higher than the figure at the end of the previous decade. The trendline shows significant increases in the early 2010s, as already discussed, and again in the mid-2010s.

The second jump was driven by a combination of factors, with policy again having an influence following a change to the way commonage lands had to be farmed to secure direct payments and the introduction of the Sheep Welfare Scheme.

It was also at this stage that a period of transition from suckler and beef farming began in some counties, due partly to the continuous bad weather and also the resultant high costs of a long winter. This is particularly evident in northwest and western counties from the change in sheep numbers detailed in Figure 2.

The split between lowland and hill farmers is coming closer to 50:50, with lowland farmers making up 60% of sheep farmers and possessing 55% of the flock.

Policy influence

Government and EU policy has dictated livestock numbers in Ireland since the early 1980s and they will continue to have a big say on sheep numbers in the coming years. The Sheep Welfare Scheme is due to end in 2020 and, while the payment is not major, it adds a positive sentiment in underpinning numbers that will be lost if a replacement scheme is not put in place.

Similarly, reports in some areas indicate the ending of the Beef Data and Genomics Programme and ongoing concerns surrounding beef price could encourage more farmers to experiment with sheep. Recent reports show the 5% reduction requirement in the Beef Exceptional Aid Measure (BEAM) is underpinning store lamb and ewe lamb sales, with a percentage of farmers making up the shortfall in stocking rate with sheep numbers.

Other policy decisions which are likely to come into play are:

  • CAP payments and the further flattening of payments.
  • How the Nitrates Derogation will be handled in the future.
  • How marginal land is classified in terms of its environmental value and positive contribution to climate change targets.
  • I will touch on the latter point first. Hill farming, in the most extreme hill and mountain areas, is severely challenging in terms of generating a positive margin but yet we know that sheep farming is the best way to maintain these landscapes. Therefore, if we are to expect farmers to stock these areas, they must be suitably rewarded by a payment that compensates them for the low value of output from animals that are best suited to this type of terrain.

    Further research on the positive contribution that peatland is thought to have in storing carbon could also greatly enhance the importance of maintaining more marginal hill and mountain areas.

    The Nitrates Derogation won’t affect a high number of farmers regarding their stocking rate but a lowering in allowances for dairy farmers could put extra pressure on land availability, particularly in dairy strongholds.

    Profitability concerns

    As mentioned previously, farmgate prices increased significantly in the early 2010s. Figure 3 details a further improvement in average prices in recent years and also shows how this, and an increase in sheepmeat export volumes, is delivering a greater return for the national economy.

    While this is a welcome feature, unfortunately it is not improving family farm incomes.

    The 2010 National Farm Survey (NFS) captured the financial performance of 3,085 full-time and 14,030 part-time farmers, classifying sheep as the main farm enterprise. Income on these farms increased by 15% in 2010 by way of higher farmgate prices and the payment of the Grassland Sheep Scheme (paid in 2011 but accrued for 2010). The average margin across lowland and hill farms was recorded at €12,269 in 2010 with more than 100% of this accruing from direct payments.

    The situation is not much better now. The 2019 NFS represented approximately 14,322 farms and recorded an average income of €14,603. Again, the average farm is highly dependent on direct payments which averaged €19,320 and accounted for 132% of family farm income. This crystallises the massive importance that direct payments have on the profitability of sheep farms.

    The average farm measured was 47ha in size and possessed 133 ewes and an average stocking rate of 1.11LUs/ha. The Basic Payment Scheme averaged €245/ha and the gross margin averaged €669. A high proportion of farms generated less than €5,000 in 2019 (in excess of 30%), with 24% earning between €10,000 and €20,000, a similar proportion between €20,000 and €50,000, and 4% were over €50,000.

    There is huge scope for sheep farmers to increase output and efficiency. However, a high percentage of farmers face these two barriers;

  • Their flock size is small (approximately 46% have fewer than 50 sheep and over 65% have fewer than 100 sheep),
  • Farms are being run on a part-time basis.
  • Larger-scale and more efficient units compare favourably to the returns in beef farming but lag behind tillage farms and a long way behind dairy farms.

    These larger-scale enterprises operated on a full-time basis are especially vulnerable to any cuts in direct payments, as it directly hits household income.

    The growing disconnect between the direct payment and productivity is particularly worrying for this cohort of farmers.

    And this is especially the case for mixed-enterprise farms which are facing the prospect of a further flattening in their payments.

    Future prospects

    The age profile in the sheep sector in Ireland, and across the EU for that matter, is trending badly in the wrong direction.

    There is some new blood entering the sector due to personal preferences plus the fact that sheep farming has a lower capital cost associated with getting established.

    However, if profitability concerns are not addressed, the rate of attrition will be far greater than farmer renewal.

    The next CAP scheme, unfortunately, does not look like it is reverting back to its ethos of compensating farmers for producing high-quality and environmentally friendly food, which then became available to EU consumers at below the cost of production.

    If this is not addressed, there is a real risk of being back at the 2010 position when we reach 2030 and struggling again to have sufficient critical mass of production.

    Unless the negative stranglehold which retailers have on food is broken, it is unlikely that we will see a major increase in farmgate prices. However, one feels that the industry could gain more stability if access to important markets, such as the US and China, was secured. To quickly put this into perspective, US imports have increased by 46% to over 128,000t since 2013, while Chinese imports have grown by 20% annually since 2019 (from 66,000t to over 380,000t).

    The effect of this increased demand has altered New Zealand’s position of supplying 86% of China’s tariff-free quota in 2010 to less than 50% in 2020.