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Planning For a Future in Irish Dairy Farming

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Planning For a Future in Irish Dairy Farming Thia Hennessy Outline Factors that will shape the future Facing the challenges Current policy framework Quota abolition ... – PowerPoint PPT presentation

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Title: Planning For a Future in Irish Dairy Farming


1
Planning For a Future in Irish Dairy
Farming Thia Hennessy
2
Outline
  • Factors that will shape the future
  • Facing the challenges
  • Current policy framework
  • Quota abolition

3
Factors to Consider
  • Celtic Tiger
  • Higher incomes and inflation
  • Demographic Trends

Number of children aged 16 to 20 1981 44,412
100 1991 35,359 80 2011 12,075 27
4
The Policy Climate
  • Recent Changes Agenda 2000 quota policy
  • Continued reform
  • Medium-term review of CAP
  • WTO
  • EU enlargement

5
Facing the Challenges
  • Change is inevitable
  • For better or worse?
  • How do we respond?
  • Winners and losers?

6
(No Transcript)
7
FAPRI-Ireland
  • Established in 1995 following J Brutons visit
  • Partnership with FAPRI-Missouri
  • Ireland
  • Teagasc
  • Irish Universities
  • Industry
  • Modelling policy scenarios - agri-food sector

8
Modelling
  • Economic models ? projections
  • Not prediciton ? based on best information
  • Two types of modelling

9
How does it work?
Representative Farms
10
Current Policy Framework
  • Agenda 2000
  • Policy on milk quota transfer
  • Market demand strong in Asia and Russia
  • After 2004 increased quota and lower price

11
Milk Price
12
Milk Price
Total Irish Milk Sector Revenue
13
Representative Farms
  • Four Dairy Farms
  • 1. Small less than 20,000 gals contracting
    (11,000)
  • 2. 30,000 gals young and developing (8,000)
  • 3. Large 100,000 gals (1,000)
  • 4. Typical 40,000 gals (13,000)

14
Impact on Farms
  • Gross Output remains static
  • Price cost squeeze
  • Margins are falling
  • Combat with economies of scale or efficiency
  • Run faster to standstill

15
How will Farms Respond?
  • Key to success is quota
  • Typical dairy farm by 2010 farm margins are 35
    higher than in 1998 (nominal terms)
  • Purchasing quota leased and extra increase in
    quota farmed by 25 (up to 47,000 gals)

16
How will Farms Respond?
  • Developer farm margins up 35 by 2010 from 1998
  • Increase in quota farmed by 35
  • Large farm margins up 15 higher in 2010 than in
    1998 (real loss)
  • Leased quota purchased no extra but benefits from
    increase in SBP limit

17
How will Farms Respond?
  • Small dairy farm to exit
  • Expansion uneconomical
  • Price cost squeeze
  • Lure of off farm incomes
  • Part-time beef system

18
What if Policy Changes?
  • London Club in favour of abolition
  • Germany also in support
  • Discussed in 2002
  • What would the impact be if abolished in 2008?
  • (i)70p per gallon plus 10p compensation on
    1998/99 production.
  • (ii)70p per gallon plus 20p compensation on
    1998/99 production.
  • (iii)80p per gallon plus 15p compensation on
    1998/99 production.

19
What is the Production Potential?
  • Before investment
  • Maximum possible deliveries per cow
  • Maximum number of cows
  • Productivity improvements - 1.3 yearly
  • Sale of milk retained - 50-60 gallons per cow
  • Lengthening Lactation - 9

20
Possible Deliveries Per Cow
National Farm Survey 1999
21
Possible Cow Numbers
  • Specialisation in dairy production
  • Dairy cows and replacements only
  • Land
  • Housing
  • Milking Parlour
  • Labour

22
Possible Cow Numbers
23
What Limits Expansion?
housing
labour
Land
Parlours
Labour
Housing
24
What is the potential increase?
25
Costs
  • FAPRI - 2000-2008 costs up 12-14
  • 1990-1998 costs up 6
  • Theory if quotas are abolished costs should fall
  • Costs linked to agriculture will fall
  • Volume of inputs not linked to agriculture will
    fall
  • Assume costs will be 6 to 7 higher than present

26
What volume of production is required?
200
150
100
50
0
Potential
70p 10p
70p 20p
80p 15p
27
What investments are required?
  • Land Rental
  • Housing
  • Parlour
  • Labour
  • Borrowing over 7 years at 7.25 interest

28
Capital requirements
  • Magnitude varies but breakdown similar
  • 70 on housing
  • 20 parlour
  • 5 on labour
  • 5 land

29
What is feasible?
  • Large investments required
  • Incomes derived
  • Cash surplus - effect of repayments

30
What income can be earned?
  • Cash Surplus - disposable income
  • Less than 30,000 gals group
  • 35 to 50 earn less than minimum wage
  • 30,000-50,000 gals group
  • all earn minimum
  • 2 to 17 earn less than industrial wage

31
What income can be earned?
  • 50,000-70,000 gals group
  • all can earn industrial
  • 7 to 20 can maintain current level of income
  • Greater than 70,000 gals group
  • all can earn industrial
  • 30-86 can maintain current level of income

32
Take Home Messages
  • Projection not prediction
  • Inflation a major factor
  • Margins squeezed expansion necessary
  • Smaller farms unable exit?
  • Quota abolition will affect all farm sizes
  • Current potential not sufficient
  • May be favourable for those leasing

33
Thank You
  • www.tnet.teagasc.ie/fapri
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