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Review of Economic Research Programme 2002

During 2002 Rural Economy Research Centre

• held a conference on rural development which had 26 papers, and was attended by close on 400 people. (This was the first such research conference organised by Teagasc. 11 presentations were by Teagasc research staff, and 10 were case studies organised by the advisory services)
  
  
• updated our models of the Irish agri- food sectors, making projections of output and incomes to 2010,
  
  
• completed our annual review and short term outlook for the main commodities and for the sector as a whole
  
  
• began analysis of the impact of the mid term review of CAP reform and published analysis of the potential impact of changes in the extensification regime
  
  
• published the first projections of greenhouse gas emissions from Irish agriculture
  
  
• completed the first stage (a population model) in building a policy model for rural development
  
  
• made substantial progress in carrying out a number of projects funded under the EU 5th Framework Programme which were begun in 2001. (These include projects on building a projection model of the EU agricultural sector, on integrated rural tourism, on factors affecting peripherality and quarantine disease risk management).
  
  
• contributed papers to international scientific conferences at Zaragoza, Brighton, Thessaloniki, Boston, Manchester, Aberystwyth, Wageningen, Baton Rouge and Dubrovnik.
  
  
• Among the major research findings published during the year were the following
  
  
• A Teagasc survey revealed that farmers would reduce beef and cow numbers by around 12% if the new proposals announced under the Mid Term Review were implemented. Sheep numbers would fall by 18% in western counties and 12% in eastern counties. In contrast, dairy farmers in the south and east said they would increase cow numbers by 5% while those in the west said they would reduce cow numbers by 2%. The survey also looked at farmers' investment plans for 2003. The results show that 25,000 farmers plan to invest almost €300m in their farms next year.
  
  
• In a detailed analysis of the performance of the major enterprises in 2002 and prospects for 2003 it was found that a combination of higher costs and lower prices resulted in an average drop of 20% in margins in dairy farming. Milk prices dropped by an average of 2.8 cents per litre, or 8.5%, during the year. In the absence of the EU support system for dairy products, the fall in milk prices would have been much larger, as happened in other major export dependent countries. Lower prices and reduced yields resulted in a drop of around 25% in the margins of the two major cereal crops, winter wheat and spring barley. Potatoes is the only tillage crop which is expected to have improved margins in 2002. Beef farmers are expected to suffer a drop in margins of around 7% and a further 5% drop in margins in 2003 is projected. Margins in sheep farming are projected to decline by around 5% in 2002 and are expected to fall by a further 5% in 2003. While pig feed costs were reduced in 2002, a substantial drop in pig prices has led to declining margins. The pig sector will continue to be under pressure in 2003.
  
  
• Changes in EU and world trade policy will lead to continuing income pressure in dairy farming. the Teagasc National Dairy Conference in Killarney, was told. Farmers who are committed to continuing in dairying must grow their business and adopt the most effective cost cutting methods. Under current quota policy, the limited amount of quota becoming available will not allow sufficient expansion in milk production to maintain income. Therefore huge emphasis must be placed on cost-efficiency.
  
  
• The Teagasc National Farm Survey for 2001 shows an increase of 17.3% in farm incomes, bringing average income per farmer to €15,840. This is the second annual increase in incomes following a period of decline in the late 1990s. Incomes in 2001, for the first time, exceeded the previous high level of €14,326 in 1995. In spite of the increase in the past two years, the relationship between farm incomes and average industrial earnings has disimproved. In 1995, average income per person employed in agriculture was 61% of the average industrial wage. This dropped to 40% in 1999 and was at 50% in 2001. The improved position was due mainly to higher output in the dairying, cattle and sheep sectors, resulting from higher prices and increased direct payments. Overall farm output increased by 11% while farm production costs increased by 8%. Direct payments increased by 16%.
  
  
• Pig production costs in Ireland are lower than in the UK, Holland and Denmark, the three major competitors for Irish pigmeat exports to the UK market. The highest production costs were in Holland. In 1999, the cost per kilogram of pigmeat carcass was €1.04 in Ireland compared with €1.41 in Holland. The figures for the UK and Denmark were €1.32 and €1.14 respectively.
  
  
• A further tightening of the stocking rate eligibility criteria and a corresponding increase in payment levels under the EU Extensification payments scheme would have little impact on Irish beef incomes but would lead to a drop in the suckler cow herd. The impact of the tighter extensification rules would bring the greatest benefit to smaller-scale beef producers. A reduction in stocking rate on these farms would be more than compensated by the higher extensification payments, leading to an increase of 10% in income. Larger-scale farmers, not currently availing of extensification, would have to reduce livestock numbers by 20 per cent in order to avail of the new low level payment. This would reduce incomes by 40%. Therefore, it would not pay these farmers to change stocking rates.
  
  
• Baseline projections of the market value of the sectors in Ireland, for 2010 in comparison with 2000: are as follows : - Cattle values drop by 10 per cent due to a decline in both animal numbers and prices. The pig sector increases in value by nine per cent and sheep sector values remain static. Milk output value falls by seven per cent as the reduction in support prices and increases in EU quota under Agenda 2000 bring a reduction in the farm milk price. Overall, the net effect of these changes lowers the nominal value of output from the agricultural sector by 3 percent over the period. Conversely, subsidies on products and subsidies on production are projected to rise by € 146 million and € 297 million respectively over the period. The proportion of operating surplus accounted for by these subsidies rises to over 72 per cent by 2010.
  
  
• Farmers with an average quota of 20,000 gallons are projected to exit the industry over the next three years. This will allow small developing and medium sized farms to expand quotas owned by up to 20 per cent. However, an increase in quota of approximately 40 per cent is required to maintain incomes in real terms over the next ten years in the absence of any productivity improvements. From 2005 onwards, cattle farm incomes are projected to fall due to lower prices, fixed value of direct payments and rising costs. Cattle farms claiming extensification benefit from the rule to claim an optional 20 per cent of suckler cow payments on heifers as they count as less in livestock unit terms. On large cattle farms, incomes are projected to fall by over 10 per cent in nominal terms over the next ten years. The new 1.8 livestock unit ceiling, which is imposed from 2003 onwards, is a significant contributor to this decrease.
  
  
• Under the Baseline analysis, GHG emissions from agriculture are projected to fall by five per cent between 2000 and 2010. This represents a three per cent decline on 1990 - the base year for the Kyoto Protocol. The extensification scenario performed on the FAPRI-Ireland model resulted in emissions from agriculture falling by a further one per cent in 2010 on baseline levels.
  
  
• While the record growth in employment during the 1990s was shared by all regions, the gains in rural regions were much weaker than in urban areas. The growth in foreign investment and internationally traded services favoured Dublin and the eastern counties. Irish enterprises showed a more balanced regional distribution but the growth in employment has been weaker. 'Current industrial policy acknowledges the need to cluster related investments in a limited number of key regional centres as counter-magnets to Dublin and its surrounding counties. However the policy of balanced regional development is, of itself, no guarantee that the benefits will extend to the rural hinterland. Rural enterprises can capitalise on changes in the mainstream economy. Large industries subcontract functions, such as transport and servicing. Rural enterprises can benefit from the development of niche markets, from the demand for customised products and consumer preferences for products of traceable origin and geographical identity.
  
  
• Average farm size in Ireland has increased by 6 hectares (15 acres) since 1993. This represents an increase of over 20%, bringing the average size of farm at present to 33.6 hectares (84 acres). Increased uptake of off-farm employment, either by the farmer or spouse, has alleviated income pressure in up to 40,000 farm households during the past decade. The increase in part-time farming has made a major contribution to the income base of rural areas. In 2000, it is estimated that €1 billion - €1.3 billion (£0.8 billion - £1 billion) was earned by farmers and their spouses from off-farm employment. Almost 30% of farmers with off-farm employment were involved in the construction industry. A further 28% were involved in farm-related employment, such as machinery contracting and the provision of farm relief services. In contrast, almost 40% of spouses with off-farm jobs were involved in professional occupations. Over one-quarter were involved in clerical work and over 10% in service industries.