Analysis: The omens for beef farming aren’t good when you focus on the facts rather than emotive debate

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Analysis: The omens for beef farming aren’t good when you focus on the facts rather than emotive debate


Subsidies accounted for over 100pc of the profits earned in the past five years on the average beef farm
Subsidies accounted for over 100pc of the profits earned in the past five years on the average beef farm

I recently listened to one of our MEPs speaking on the radio about the virtues of sustainable farming and convergence of EU subsidy payments. The broadcast resulted in my wife having to suffer a rant over the breakfast table about the state of our beef industry.

The notion of sustainable agriculture is all jolly fine but the farmer needs to be sustained as well as the environment.

Convergence of payments is simply an exercise in prolonging life support for the non-profitable ones and killing off whatever hope remains for the viable operators.

It is unthinkable to imagine Ireland without beef cattle dotting our beautiful green landscapes, but the omens are not good.

Many of us can clearly remember the days when the sound of pigs grunting or hens cackling was a feature of most farm yards and sugar beet crops were a part of our summer landscapes.

Sadly, both the pork and poultry industries have been reduced to a small number of what might best be described as factory farms, and the sugar beet industry is a mere memory.

For the past 26 years I have been compiling projections and budgets for beef production for the Farmers’ Handbook.

I’m sad to report that the inexorable trend has been one of a gradual decline in real margins, despite massive improvements in efficiency, quality of product and marketing.

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It is simply the case that running faster to stand still is just not sufficient to stem the tide of shrinking margins.

To compound the problem, beef production now faces a number of new challenges that were scarcely spoken of 20 years ago.






Global warming, animal welfare and human health issues have been added to the mix. And if things were not bad enough, there is the looming spectre of Brexit.

PROCESSORS

All that said, the sad reality is that everybody along the route from farm to fork is making money apart from the primary producer.

Given the power of the processors and retail grocery multiples, the story is unlikely to change any time soon.

As a nation we are not going to halt global warming, nor are we likely to influence consumer health concerns on red meat consumption, so what can we do to save our beef industry which, notwithstanding the low returns to producers, is still very important to the economy as a whole?

The really hard question is whether anything can be done to arrest the decline in margins, or is European beef production simply destined to become a victim of cheaper, inferior-quality foreign imports, dietary change, and climate change measures?

I am generally positive in most matters but my head is winning the battle with my heart on this one and my head is telling me that only a deluded optimist could make a case for beef production having a bright future.

I only have to ask myself the question: when did I last recommend to a client that he/she should get out of whatever they were at and get into beef production?

I can’t remember that far back.

THE FACTS

To understand the magnitude of the task that lies ahead it is important to acknowledge and highlight the fact that the income being earned from beef farms is abysmally low and has been in decline for the past 30 years.

The Teagasc Farm Management Surveys tell us that cattle rearing (mainly suckling) farms of an average size of 87 acres earned on average (including subsidies) €11,603 over the years 2013-17 (Table 1).

If we go back to the period 1998-02 (Table 2) the average income including subsidies was €12,228.

However, in the meantime inflation amounted to over 37pc, which means the average current income should be €16,752 had we simply stood still.

Even that level of income represents a minuscule return of only about 1.7pc on the assets employed.

The surveys also show that subsidies accounted for over 100pc of the profits earned in the past five years, which means that without subsidies there would have been no profit.

It is difficult to see how enterprises with this level of profitability will be sustainable into the future, and the reality is that they probably won’t, particularly for the next generation for whom more appealing options may beckon.

The temptation and, dare I say it sensible option for many, will be to lease out the farm, plant forestry or engage in some form of collaborative arrangement with a neighbouring dairy farmer.

This may prove far more tempting than working unsocial hours for around €150 per acre, which in many instances may be subject to 52pc tax for those who have off-farm jobs, which accounts for the majority of family farms.

Solutions

Having strayed into accountancy some 35 years ago, I am still an agricultural advisor at heart and I am falling into the same old denial trap, similar to many of my colleagues.

It’s time we stood up and openly proclaimed that returns from beef production are dismal.

Many farmers and indeed the farming organisations are saying it loudly, but they are not being supported by the large cohort of professional advisors operating in the sector.

If we want to have any kind of beef industry into the future we need to incentivise and encourage our viable producers and promote policies that are not based on giving a little bit to everybody.

The reality is that subsidisation is an essential element in the equation and will be for the foreseeable future, but the pot is shrinking and we need to consider ways of managing that pot that best serves the agriculture industry.

It reminds me of the lotto-winning farmer’s answer when asked what he would do with his winnings: ‘I’ll farm away until it’s all gone’.

We are falling far short of our afforestation and commitments on emissions reduction, partly because we are trying to keep everybody happy rather than taking a more constructive view of land use policy.

If it’s a choice between promoting and supporting afforestation of marginal land against curtailment of stocking rates on efficient dairy and beef farms, there can only be one answer.

We are a very small country with huge natural advantages for quality food production, so why not target and support those efficient quality food producers?

We are told that the next round of CAP measures will give national governments more discretion in the distribution of funding.

So now is our government’s chance to move away from the ‘one for everybody in the audience’ philosophy.

Policy based on promoting viability and productive land use could sit comfortably with meeting our emissions targets and indeed sustainable farming.

They are not mutually exclusive.

Martin O’Sullivan is the author of the ACA Farmers Handbook. He is a partner in O’Sullivan Malone and Company, accountants and registered auditors: www.som.ie

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