Business risk in Irish agriculture – alongside the usual challenges of price and income volatility, legal threats to enforce climate budgets and other regulatory constraints, loom large.
One of the principal business risks occupying the minds of Irish dairy farmers and processors in the period from 2010 to 2015, in terms of planning for the increase in milk supply following the abolition of EU milk quotas, was the challenge of coping with world market prices and income volatility.
Another risk was the capital cost associated with providing the processing capacity required to process the ‘expected’ increase in milk supply.
Business risks after milk quotas
It is important when reflecting on the abolition of milk quotas, to understand that the EU milk quota regime did not just restrict supplies.
In the period from 1984 to 2005 at least, there was a very active intervention support system, which, combined with EU export subsidies, effectively kept milk price in the range of 27c to 33c over that 20-year period.
Moreover, in deciding to abolish milk quotas, the EU firstly dramatically reduced its internal supports for the dairy sector.
In 2009, dairy farmers saw how the absence of this support impacted, with prices falling to under 20c/L, despite quotas remaining in place until 2015.
So, while the future was hopeful and flexible on production and supply, it was hugely challenging on prices and incomes.
Addressing challenges
These volatility challenges / business risks have been addressed over the last 7-8 years by a series of initiatives by milk processors, led initially by Glanbia (now Tirlán).
This was done through a combination of fixed price schemes (notwithstanding the challenges of 2022), and initiatives around access to capital on farm and some state support to the processing sector.
Very clearly, the Irish state, through the Food Vision process, was supportive of the achievement of stable and economically sustainable growth, and understood the unique economic impact this growth would provide to rural and regional Ireland.
Price and income volatility have not gone away as business risks, as the current state of affairs in the lamb sector and fruit and vegetables sector demonstrates.
New business risks
It is also clear, based on political developments over the last three years in particular, that to these significant ongoing challenges can be added an additional ‘business’ risk.
A risk that the new regulatory mandates required to meet sectoral carbon budgets and the nitrates directive e.g., will constrain output and incomes as they impose very significant increased costs and input constraints.
Perhaps even more importantly, is the risk of the stated determination by An Taisce and the environmental lobby to see any and all regulatory constraints / sectoral budgets legally imposed.
There are a number of perversions and non sequiturs here, I would suggest.
As mentioned previously, the value of Irish agricultural output for 2022 according to the Central Statistics Office (CSO), has almost doubled since before milk quotas were abolished, to stand in excess of €12 billion in 2022.
This increase in value is both a reflection of ever increasing global demand for Ireland’s grass-based meat and dairy offering, and at the same time, a huge injection of economic value add into the regional and rural Irish economy.
Given the ongoing concerns that the high-tech / foreign direct investment (FDI) sectors are shedding jobs, should prudent government policy not be focused on supporting the indigenous sector to provide a balancing factor in the overall economy?
While we know that this obsession with judicial reviews and legal grandstanding will inevitably constrain Irish agricultural output and thus the Irish economy, the question must be asked as to who benefits.
Food security
We know from the World Food Organisation that the planet will not benefit, because emissions from less efficient non-regulated regions will replace Irish output.
As mentioned above, price and income volatility challenge has not gone away.
The current hiatus over lamb prices shows that while rising input costs may have been ‘managed’ in 2022, there is an ongoing challenge of balancing higher input costs with higher prices.
The shortage of fresh fruit and vegetables across the EU, Great Britain and Ireland is reflective of a short-sighted view over the last 20 years.
This view did not seem to understand that allowing dominant retailers to systematically squeeze and ultimately replace local supply chains with global sources in the name of efficiency could, and would, inevitably expose European consumers to dramatic supply shortages, if international global supply was curtailed.
The concern in relation to the Common Agricultural Policy (CAP) and EU-wide discussions on agriculture policy, as always, is the slow pace of change.
However, the EU mindset on agri-food is becoming more aware of the challenges of supply chains and food security, with lessons seemingly being learned from the failures and weaknesses of a ‘laissez faire’ energy security policy.
Balance must now be struck between the legitimacy of requirements to meet regulatory commitments and the realities of supporting the capability of an agri-sector.
This sector supports one job in 10 in the Irish economy and is the single biggest source of Irish economy expenditure, as verified by the CSO. Balance must temper zealousness.