Research Programme 2004 - highlights

3.3 Teagasc Facilities

New Address : Rural Economy Research Centre, which had been based in Sandymount Ave Dublin 4, since the early 1960s, is now located at Athenry, Co. Galway, with some staff based at Kinsealy, Co.Dublin. This relocation took place during the Autumn of 2004.

Goal 6.1.5

Highlights of the Output from Rural Economy Research Centre in 2004 were

• Contribution of three papers to the Agri Vision 2015 Committee, which were published as Appendices in their report. These three papers were on Measurement of Farm incomes, Farmer Numbers, and on the Consequences of the Luxembourg agreement.
  
  
• Publication of a major detailed study of the competitiveness of the Irish agricultural sector. In terms of profitability, the competitive position for Ireland, for all four enterprises examined (milk, beef, cereals and sheep), was positive when cash costs alone were considered. Irish beef rearing, beef fattening, and sheep farms appeared as the lowest cash cost producers examined in the study. The analysis also showed that the opportunity cost of land and labour had a major impact on the competitiveness of Irish agriculture. When the imputed charges for these owned resources were counted, the competitive ranking for Irish agriculture deteriorated, for all commodities examined. Clearly the high cost of land in Ireland is a potential barrier to the future competitiveness of Irish farming.
  
  
• The annual Situation and Outlook conference was held in December, and attracted a large audience and extensive media commentary
  
  

New Projects; Two new collaborative research projects were begun in 2004 with support from the Sixth Framework Programme of the European Union. One was concerned with assessing the impacts of decoupling at a European level: the second was concerned with designing agro environmental schemes and measuring their impact. New Projects with a national focus which began in 2004 were concerned with economics of cattle production after decoupling, making international comparisons of dairy farming, measuring the relative competitiveness of agriculture on an ongoing basis, risk analysis and stochastic modelling in agricultural markets.

Projects Completed : Two major projects funded by the European Union were completed successfully during 2004. These were projects on building a projection model of the EU agricultural sector, and on quarantine disease risk management.

Goal 6.3.1

Highlights of the Output from Rural Economy Research Centre in 2004 were

Organising a Rural Development Conference at which 17 papers were presented of which 8 (including four plenary papers) emanated from the Centre. The conference received a great deal of publicity, which highlighted the following issues from the research presented

• the dramatic decline in farming as a source of rural employment and income and the growth of other sources of employment in rural areas
• changes in the pattern of population change, with dramatic growth in many rural areas but continuing decline in others
• differential patterns of economic growth, in rural regions, which are not linked to traditional sources of competitiveness.

New Projects ; One new projects with a national focus began in 2004 concerned with measuring the spatial impact of rural development policies.

Projects Completed : Two major projects funded by the European Union were completed successfully during 2004. These were projects on integrated rural tourism, and on factors affecting peripherality.

Performance Indicators

Number of projects completed on time :

Dissemination : The Rural Development Conference and annual Situation and Outlook conference, have already been referred to. These were major means of disseminating the results of research to policymakers and stakeholders.

Staff contributed papers to international scientific conferences at Bonn, Brussels, Bled (Slovenia), Paris, Bedford, Westport, London, Nitra (Slovakia), Denver, Cork, York, Trondheim, Ede, (Netherlands), Dublin, and Angers (France).

Research Findings : Among the major research findings published during the year were the following :

• At the Situation and Outlook Conference, margins for the different agricultural enterprises were reviewed. 2004 saw a recovery in margins in dairying, where increased international demand for dairy products coincided with constraints in milk production in Europe and Australia. Prices paid for milk will fall by an estimated 4% in 2005, despite positive market developments. Gross margins in cattle in 2004 would again decline, despite an excellent grazing and fodder season and a substantial recovery in cattle prices. But the increased revenue and somewhat lower costs were not sufficient to offset a reduction in value of direct payments. Cattle farmers in 2005 will benefit from the overlap of direct payments systems. The net impact could result in a revenue injection of the order of EUR550 million in 2005. There was a substantial increase in yields and consequent increase in financial performance of the major cereal crops compared with the previous year. For example, the average yield achieved for Spring feed barley and Winter wheat in 2004 represented a 17% and 18% increase from 2003 levels. The gross margin for sugar beet for 2004 is estimated to be higher than in 2003, due mainly to substantial increases in yields. The downward trend in sheep flock numbers was continuing but that there had been an increase in ewe numbers. In 2004 estimated margins are down again in all three enterprises - early lamb, mid-season lamb and Hill-Blackface. However sheep enterprise margins compare favourably with those in cattle and cereals. Pig production had been reasonably profitable in 2004. Gross Margins in 2005 are expected to improve. Nevertheless sow numbers are expected to decline further because of animal welfare requirements, extra costs arising from the proposed nitrates action plan, licensing requirement and insufficient young people entering the sector.
  
  
• A survey of farmers’ planning intentions revealed that farmers are still not clear how they will react to the new policy environment and many are responding to questions about cattle numbers and crop acreages by stating that they will "wait and see". When pressed, reductions in sheep numbers of 6% and of cereal acreages of 12% emerged as likely medium term responses, with an increase in area devoted to forestry. Reductions of suckler cow numbers on dairy and cattle farms would be offset by increases on tillage and sheep farms. Planned investment at the time of the survey was 22% higher than that planned at the same time last year. Investment in machinery is up 64% and in buildings up 42%, while planned investment in milk quota and land is down.
  
  
• The Teagasc National Farm Survey for 2003 shows an increase of just 0.9% in average farm incomes. Average family farm income in 2003 was €15,054 per farm, compared to €14,917 in 2002. However, the survey shows that income on full-time farms increased by almost 5% in 2003. A total of 44,000 farms are classified as full-time and they earned an average income of €29,000 in 2003, compared to €27,700 in 2002. Just under 10% of farms, or a total of 10,300, had an income from farming in excess of €40,000. Three out of four of these farms were involved in dairy farming. As in previous years, dairy farming generated the highest returns, with an average income of €30,100, an increase of 7% on 2002. Income from tillage farming averaged €26,282, an increase of 22% on 2002, which was a very difficult year for the tillage sector. Incomes from sheep farming increased by 4%,to an average of €12,900. This was the fourth consecutive annual increase in sheep incomes. Beef farming again generated the lowest average incomes. Incomes, from beef rearing systems, declined by 5%, to an average of €7,300, while income from other beef systems declined by 15%, to an average of €8,100. The survey shows that on 50% of all farms, the farmer and/or spouse had an off-farm job, compared to 48% in 2002. On 34% of farms, the farmer held the off-farm job, compared to 35% in 2002. The highest incidence of off-farm employment was on beef and sheep farms.
  
  
• A study conducted in rural areas in Galway has shown pronounced differences in population between remote rural areas and those nearer major urban centres. Population,in areas near urban centres, increased by up to 50% between 1996 and 2002. In contrast, the population of more remote rural areas remained static or declined during the same period. In the near-urban areas only one-sixth of heads of households are farmers compared to over half in the more remote areas. Also, in the remote areas, a high proportion of the population is retired or unemployed. Less than 6% of households are solely dependent on farming for their income. For those at work, commuting up to 100 miles a day is normal. He said lack of access to jobs and lack of public transport were identified by householders in the more remote areas as major impediments. Water quality is also a concern in some areas. Householders identified a sense of security and safety as one of the positive features of living in rural areas.
  
  
• The proportion of the workforce employed in agriculture fell from 14% in 1991 to 5% in 2002, a period of unprecedented growth in employment in Ireland. Between 1990 and 2002, income from agriculture grew by 25% compared with a 200% increase in non-agricultural wages, salaries and pensions. A decline of 17% in the number of farms was accompanied by an increase of over 20% in average farm size. The number of farms with less than 20 hectares fell by 46% while those with more than 50 hectares rose by 23%. A noteworthy development is the low proportion of sole occupation farmers in parts of Meath and Kildare, reflecting the labour market conditions in the Dublin area. Some of these areas showed a decline of almost 50% in the number of sole occupation farmers during the past decade.
  
  
• Economic performance in the midlands and southeast region has fallen significantly in recent years. In contrast, counties in the border and western counties have maintained economic performance and are now significantly ahead of the midlands and south east. An indication of the contrasting fortunes can be seen in income figures in Waterford and Limerick between 1995 and 2001. During this period, income per person in Waterford fell by 4% while in Limerick income per person increased by 6%, relative to the national average. Household income in Wexford declined from 87% to 83% of the national average while it remained static, at 91% of the national average, in Clare. This shows that peripherality and distance from the core do not necessarily mean poorer economic development. Neither do better natural resources, especially for agriculture and, in the case of Wexford, a more favourable location, guarantee better economic performance. Wexford has a higher dependence on agriculture and associated processing activities. Contracting employment in this sector has not been off-set by sufficient investment in the non-agricultural sectors. Clare, by contrast, has engaged more actively with ‘new-economy’ enterprises with their related requirements for skilled labour and professional services. The difference in economic performance between the two counties is exemplified in the level of job creation both from domestic and foreign enterprises. For example, the growth in employment in foreign enterprises in the mid west was 68% between 1991 and 2000 compared with 14% for the south east. However, population reductions in parts of west Clare indicate that balanced county development has not taken place. The analysis shows that a rural development model based on a relatively prosperous agricultural economy, as exists in Wexford, is much too limited a strategy to ensure development of a rural county.
  
  
• The relative competitiveness of agricultural production in Ireland and selected EU member states, during the period 1996 – 2000 was analysed. Profitability, costs of production, value of output and some partial productivity indicators (such as milk yield, stocking density, cereal yield, labour productivity) were examined in this study. The primary source of data used was the Farm Accountancy Data Network (FADN) published by the European Commission. In terms of profitability, the competitive position for Ireland, for all four enterprises examined (milk, beef, cereals and sheep) , was positive when cash costs alone were considered. Irish beef rearing, beef fattening, and sheep farms appeared as the lowest cash cost producers (as a percent of output) compared to the other countries examined in the study. competitive performance in terms of total economic costs, including imputed charges for labour and land, was also examined to provide a guide to longer-term competitiveness. This analysis showed that the opportunity cost of land and labour had a major impact on the competitiveness of Irish agriculture over the period. When the imputed charges for owned resources were counted, the competitive ranking for Irish agriculture deteriorated, for all commodities examined. The high cost of land in Ireland is a potential barrier to the future competitiveness of Irish farming.



• A paper included as an Appendix to the report of the Agri Vision 2015 committee classifies existing farms into groups based on their economic viability, whether the farmer or spouse or both have an off-farm job and on demographic viability. Results show that less than one-third of farms are economically viable : on over 40 percent of farms, either the farmer or spouse or both are engaged in off-farm employment and 45 percent of farms are transitional, that is the farm business is not economically viable and neither the farmer nor spouse have an off-farm job. The classification of the current population is compared to similar classifications of the 1998 population. Over that period, total farm population declined by about 2 percent per year : numbers of full-time farms declined more rapidly while the number of part-time farms remained relatively static. A continuation of these trends would result in a farm population of 105,000 in 2015 with about one-third economically viable, another third non-viable but with off-farm employment and the last one-third in the transitional category. The policy changes that lie ahead are likely to change recent trends. Decoupling is likely to result in more farmers taking off farm jobs, income increasing on some farms and declining on others. When the future policy changes and expectations for the macroeconomic climate are taken into account, the total farming population is expected to remain the same but more significant restructuring is expected. In particular the number of part-time farms is expected to increase more significantly while the number of transitional farms is expected to decline. Following the reductions in the intervention prices for dairy products and given the preference for part-time farming, dairy farm numbers are also expected to decline.



• A further paper included as an Appendix to the report of the Agri Vision 2015 committee, is concerned with reviewing the different farm incomes concepts that are used in debates relating to Irish agriculture. Recent developments in farm incomes are then reviewed using these farm income concepts. The paper concludes with projections for the likely evolution of Irish farm incomes in the future. Between 1990 and 2003 aggregate farm income increased by 24% in current terms but declined by 15% in real terms. Over this period the number of farmers has also dropped substantially (–20%). Between 1990 and 2003 the value of agricultural output at producer prices has increased by an average of 0.2% per annum. Between 1990 and 2003 the value of agricultural inputs increased, by an average of 1.1% per annum. The composition of this input expenditure has remained largely unchanged over the period. The share of agricultural output accounted for by the main agricultural commodities has also remained stable over time, although milk has overtaken cattle as the most important commodity. The share of agricultural output accounted for by the main agricultural commodities has also remained stable over time, although milk has overtaken cattle as the most important commodity. FAPRI-Ireland projections indicate that the value of agricultural output produced in Ireland will, in the medium term, decline in value. This decline occurs because of reductions in both the volume of agricultural output produced and in the prices of some agricultural commodities. Overall, the value of income arising in the agricultural sector is, by 2012, projected to be broadly equal to that earned in 2003 (the most recent year for which we have data). The projection of agricultural sector income remaining stable in the face of declining agricultural sector output arises ecause of two developments. These developments are firstly declining input expenditure associated with reduced agricultural production and secondly that direct payment receipts, in the future via Single Farm Payments (SFP), are with full decoupling almost completely retained as part of agricultural income. Projections for the size of the Irish farm population imply, when combined with the FAPRI-Ireland projections for income arising in the agricultural sector, that in nominal terms the value of aggregate sector income per farm will increase over the next decade. Consumer price inflation in excess of 2% per annum over the period to 2015 would be sufficient to offset the positive impact on operating surplus per farm of declining farm numbers.