ANALYSIS:WITH ALL the Government rhetoric about agriculture holding the key to economic recovery, the latest farm income figures from the Irish Farmers' Association seem puzzling.
Are farmers really earning only €21,500 a year? As always the devil is in the detail.
The “average” figure contained in the headline number masks a hugely diverse economic group, from large farming landowners to those who work part time.
Although the percentage of farm households in receipt of “off-farm income” has fallen, a sizeable proportion of farmers are still in receipt of income from alternative sources, be it other employment, social welfare payments such as the Farm Assist programme, or pensions.
It is also worth remembering that an estimated 70 per cent of farm income derives from direct payments, according to the IFA.
Nonetheless, 2011 was a record year for farmers and the food industry, a performance largely attributable to good food prices.
The products produced – dairy, meat and cereals – reached record price points on world markets last year, with potatoes being the notable exception.
So when figures relating to Ireland’s booming food and drink exports are trotted out, it is important to recognise that much of the increase is down to value increase, as well as an increase in the actual volume of product sold.
In addition, the weak euro is giving farmers a competitive advantage, making Irish exports, particularly into the UK, cheaper.
All this points to the Achilles’ heel of the agricultural sector – its inherent volatility. The dairy industry provides numerous examples of widely diverging prices. Milk hit 40 cent a litre in 2007, only to fall to nearly 20 cent within 18 months. Farmers are well aware of the cyclical nature of the sector. Whether the Government is sufficiently aware is another matter.
If agriculture is going to form a major strand of the country’s economic growth strategy, the industry needs to be properly prepared to cushion the effect of the inevitable market trough.
The abolition of milk quotas in 2015, which will lift the cap on milk production, holds major opportunities for Irish farming.
Ireland’s cheaper, grass-based method of production means it has a natural advantage over other countries. While preparation is being made by producers and processors, the fact that the quota will be maintained until the end of 2014 may discourage farmers from investing ahead of time.
Culturally, there are also barriers to the development of the industry. For example, Irish farmers are historically reluctant to lease out land for cultivation and use, despite tax incentives.
Despite the success of the agri-food industry, the top-line figures mask the reality of a complex and price-sensitive industry. The Government should take heed.