A sharp fall in family farm incomes this year has been flagged by economists at Teagasc, as the unprecedented hike in input costs wipes out commodity price increases.
The State body warned of “continued financial concerns” for Irish farmers over the coming months, as high costs continued to exert downward pressure on farm profitability.
An update of Teagasc’s Situation and Outlook for Irish Agriculture 2022 found that drystock and tillage farmers will suffer the most severe income losses, with pig producers also badly affected.
The report contends that the continued surge in global dairy commodity markets will largely insulate milk producers from any major income losses. The exception will be dairy farmers who have big volumes tied into fixed milk price contracts.
However, the authors cautioned that weather conditions could significantly alleviate or compound the impact of higher input costs on farm incomes.
Teagasc predicts that the average income on suckler farms will fall by 25% in 2022 as a result of the spike in input costs, while other beef enterprises are forecast to experience income reductions of around 16%.
Sheep and tillage farmers are also forecast to see their incomes fall by around 20%, although the report concedes that it is very early to predict how crops will perform.
Teagasc has estimated that losses on the average pig finishing unit (600 sows) are likely to top €430,000 this year.
“It is estimated that the [pig] sector will return to profitability in March 2023 due to rising pig prices and a stabilisation in feed prices,” the report stated.
The report identifies the recent hikes in fertiliser, feed and energy prices as the primary contributors to input costs.
“Extremely high [fertiliser] prices for 2022 had been expected, on foot of rising European gas prices. The war in Ukraine has seen price increases accelerate further, with fertiliser prices in 2022 up in excess of 200% to 250% on their 2021 level,” the Teagasc economists pointed out.
Fuel costs will remain significantly higher this year, the Teagasc economists predicted, with green diesel likely to be as much as 60% more expensive across 2022.
“Higher fuel prices and inflation in other costs, will mean that the cost of contracting will also rise considerably in 2022,” Teagasc warned.
Feed costs are also forecast to hold at current high levels, due to the disruption to cereal supplies from Russia and Ukraine.
While the Teagasc report concedes that Irish farm output prices have strengthened, it contends that these increases are lagging behind the hikes in production costs.
“It remains to be seen to what extent the increase in output prices will compensate farmers for the rise in their production costs. The net effect on farm incomes is likely to be sector and farm specific,” Teagasc stated.
Dairy farmers will be least affected by the unprecedented hike in input costs this spring, according to the Teagasc report.
Although production costs for milk, excluding labour, have increased by 30% and are now in the region of 34c/l, these have been offset by increased milk prices. Base milk prices are likely to range from 46c/l to 48c/l for March.
“In spite of the rise in production costs, farm milk prices are at unprecedented levels and it is conceivable that Irish dairy farm income in 2022 could be on a par with 2021,” the report states.
The one caveat is that some dairy farmers have a considerable amount of their milk in fixed price contracts set at prices considerably below current market levels.
“This category of dairy farmer is now more exposed to the adverse effect which the rise in production cost will have on dairy margins and income levels in 2022,” the report points out.
Provisional figures issued by Teagasc in December predicted that average dairy farmer incomes for 2021 were likely to be €95,000.
Suckler farmers will face the biggest income hit, outside of the pig sector, as a consequence of the hike in input costs.
The average income on cattle rearing farms, which was around €9,000 in 2021, is predicted to fall by 25% in 2022. Other cattle enterprises are forecast to experience income reductions of 16%.
While gross margins on beef finishing units will be protected by the sustained increase in factory prices over the last 12 months, gross margins on single suckling operations are forecast to decrease by approximately 13%.
Total costs on single suckling and cattle finishing enterprises are forecast to increase by 24% and 30% respectively in 2022. These are primarily associated with higher feed, fuel and fertiliser prices.
The average family farm income on sheep farms is forecast to decline by 20% in 2022.
This equates to a fall of around €4,000 from the average sheep farmer income of €20,000 last year.
With increased volumes of lamb being directed from New Zealand and Australia to the Chinese market, European sheep meat prices are forecast to remain strong.
However, higher lamb and sheep prices will be insufficient to cover the increased cost of production this year, Teagasc has warned.
The net margin from mid-season lamb production is forecast to drop to €110/ha, as the total cost of production increases by around 30%.
Tillage farmers could be facing a 20% income reduction this year due to the hike in input costs.
Overall, the Teagasc report estimates that total costs on the average tillage farm will be up over 30% this year compared to 2021, with fertiliser and fuel accounting for the lion’s share of this increase.
Teagasc forecasts that average income on tillage farms in 2022 will be “in the mid €30,000s”. The provisional average income figure for 2021 was €47,000.
“However, much uncertainty surrounds the potential of all crops at this stage of the production year,” the report cautions.