A new economic report by Teagasc economists has predicted major income shocks across Irish farms, particularly beef and dairy farms, as a result of COVID-19.
The report highlights a series of scenarios compared to income forecasts in the absence of the COVID-19 pandemic. Overall, incomes on Irish farms are predicted to fall between €0.7bn and €1.6bn.
Much of the drop is attributed to a demand shock following widespread lockdowns implemented by governments worldwide. The closure of the food service sector has been particularly damaging for Irish agriculture, as the domestic market is too small to offset the drop in demand.
As prices drop, Teagasc warns the stabilisation and ultimate recovery of prices will depend on how successful governments are in lifting lockdowns and maintaining control over the spread of the virus.
However, while demand drops, farmers have little scope to adjust supply, as production decisions were made months before the pandemic. The lag in adjusting supply to falling demand has been evident in the falls in farmgate prices for milk and cattle.
The economists also warn a buildup of stocks in storage or on farms in the form of live animals will cause low prices to persist, pushing a recovery in farm profitability further into the future.
The incomes on beef farms are the hardest hit, in relative terms. A modest increase in suckler farm incomes and a modest decrease in finishing incomes had been predicted for 2020.
However, if prices fall by 10%, incomes on suckler farms will fall by 39% to €5,689 and 41% for finishers to €8,922.
In the worst-case scenario of a 20% drop, incomes will fall to an average of just €2,085 for suckler farms and €3,896 for finishers.
In absolute terms, the fall in dairy farm incomes will likely be the largest across any sector, as they are starting on a higher base. Those with milk in forward contracts will be affected to a lesser extent.
Dairy incomes are expected to fall by between 21% and as much as 49% if milk price drops by 20%. It will leave dairy farm incomes somewhere between €60,985 and €39,505.
The economists anticipate a large drop in sheep farm incomes also. To date, lamb prices have held firm, but a decline is expected as lamb production enters its peak season.
For sheep farms, the fall could range around 27% to 59% based on price drops between 10% and 20%. Similar to cattle farms, incomes on sheep enterprises were predicted to be modest even in the absence of COVID-19. Teagasc is predicting a total income of between €6,252 and €10,989.
Tillage farms are unlikely to be affected to the same extent as dairy or beef farms. In the best-case scenarios, incomes will fall by just 6%, assuming a 10% increase in the price of wheat and a steady barley price. In the worst-case scenario, incomes could fall by 41% if wheat prices drop by 10% and barley prices plunge 20%.
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