In an EU context, Ireland has very low dairy costs of production, at €2.70/kg of milk solids, a new report by Teagasc has found.
The report, ‘Measuring the Competitiveness of Irish Agriculture: A Decade in Review’, analysed the trends in the competitiveness of the main sectors in Irish agriculture.
Profitability, costs of production, value of output and some partial productivity indicators (such as milk yield, stocking density, cereal yield, labour productivity) were examined.
Dr Fiona Thorne, Teagasc economist and one of the co-authors of the report, said that the total economic costs of production are very competitive for the Irish dairy sector, both in an EU context and internationally.
“What we’re seeing for the Irish dairy sector is increases in economics of scale taking an effect.
“As Irish dairy farms geared up for a post-quota situation we saw increases in production, increases in scale and that had an effect on costs as a percentage of output.
“It allowed dairy farmers to spread their fixed costs over a larger output and it meant that total economic costs as a percentage of output were more favourable both in an EU and an international context.”
Costs per kg of milk solids produced in Ireland –about €2.70 in 2013 – is very low when we compare ourselves to our EU counterparts, she said.
Irish beef farming ‘not competitive’
While the report found that Irish dairying is very competitive, the opposite is true for Irish beef farming.
Thorne said that the inter-EU analysis carried out has illustrated the importance of decoupled payments for Irish farmers, with the beef and sheep sectors in particular exhibiting higher cash costs as a percent of market-based output compared to key EU counterparts.
“The results from the report show that beef costs of production are well in excess of other countries such as Argentina and Brazil, who will be able to produce beef at lower costs of production than we could ever even dream about.
“Ireland’s beef sector isn’t really competitive at all and that’s really going to be important in terms of Brexit.
“Analysis has shown us that if prices do reduce in Ireland for beef being sold on to the UK market, we haven’t a hope of competing against Argentina or Brazil.
“All that we can hope for is that Brexit won’t be as hard as Theresa May talked about in January and that we could be looking at some free trade agreement between the UK and the rest of Europe, so we won’t be as exposed to WTO tariffs that we would be fearful of.”
It’s looking positive for the sheep sector in terms of cash costs of production in an EU context, when costs as a percentage of total output are looked at, Thorne said.
“But when you move to a market-based indicator it’s not as positive. This, like the beef sector, reflects the reliance of Irish sheep farms on the Single Farm Payment.
“Looking at total economic costs as a percentage of total output reflects the fact that there’s a large amount of unpaid family labour within Irish sheep farms.”
Ireland was compared to our key counterparts in the EU and the report found that the cash costs of production that farmers face are relatively low compared to countries such as the Netherlands, the UK, France and Germany.
But Thorne said that when the total economic costs of production are looked at it is not as positive a story when we want to remunerate own land labour and capital.
We see Ireland with relatively low cash costs and total economic costs of production
“When you look at partial productivity indicators such as wheat yield per hectare, it looks positive, but we know that we can’t just look at physical indicators when we want to look at competitiveness.
“We need to look at costs of production and returns. Even when we look at those within the EU situation for Ireland compared to our main EU counterparts, we see quite a positive story.
“We see Ireland with relatively low cash costs and total economic costs of production but what that is not taking into account is how Irish cereal farms compete with the Irish dairy farmer next door.”
So in the international scene we might be producing costs at world prices but we have to remember that the average cereal farm in Ireland has to compete against the dairy farmer who is competing for that extra hectare of land at probably an inflated price that the cereal farmer can’t afford, she said.