Teagasc has warned that a decline in average family farm income is “now highly likely” in 2022 as output prices will fail to offset rising production costs.
Teagasc has today (Wednesday, April 13) published a revision of its annual Situation and Outlook for 2022 due to the global impact of the Russian invasion of Ukraine.
“The economic, political and social consequences of the Russian invasion of Ukraine will be felt deepest by the people of Ukraine itself,” the report noted.
Although Teagasc said that it is too early to say with certainty how the war will affect the agriculture sector, it stated that production costs will increase considerably in 2022.
The war has led to a “pronounced jump in inflation”. Teagasc added that sharp increases in energy prices have been accompanied by large commodity price rises.
“In Europe, Brexit and Covid-19 have retreated as political concerns and have been replaced by the crisis triggered by the Russian invasion of Ukraine,” it said.
Teagasc report
Teagasc said that prior to the war in Ukraine, agricultural prospects for this year were dominated by concerns around costs, which began to build in the second half of last year.
The Russian invasion of Ukraine has now led to “a sharper and more widespread increase in farm input prices in 2022, than had been anticipated at the end of 2021”.
Overall, significantly higher production costs are forecast to be a feature across all sectors in 2022.
The report noted that Irish farm output prices are also on the increase but are lagging behind the increase in production costs.
“The net effect on farm incomes is likely to be sector and farm specific,” Teagasc said.
“The greatest concern on the cost side for 2022 is the price of fertiliser. Extremely high prices for 2022 had been expected, on foot of rising European gas prices.
“The war in Ukraine has seen price increases accelerate further, with fertiliser prices up in excess of 200% to 250% on their 2021 level.
“Fertiliser prices and fertiliser availability continue to represent the key twin concerns for farmers this year. However, reports indicate that there are now adequate supplies of fertiliser in Ireland,” the report stated.
Teagasc is expecting that there will be some reduction in fertiliser usage due to the high price levels.
Costs
There had been an expectation that cereal and oilseed prices would rise this year but the increases will now be significantly higher as Russia and Ukraine are both “significant players in global agriculture”.
Due to the war, an estimated 25Mt of exportable grain from Ukraine and Russia has not made it to the world market.
Although this will benefit cereal farmers here in terms of output value, it will have significant adverse knock-on consequences for farmers buying animal feed.
Teagasc said that the increase in crude oil prices has been “dramatic” which may result in a price rise of up to 60% for ‘green diesel’.
“Higher fuel prices and inflation in other costs, will mean that the cost of contracting will also rise considerably in 2022,” the report outlined.
Impact of war
The report also examines the potential impact on each of the agricultural sectors.
Teagasc outlined that the “greatest challenges” are currently being faced by pig farmers – the average producer has lost around €166,000 since the start of the year.
Recent pig price increases are not enough to cover the substantial jump in feed and energy costs.
10,000 sows have been culled already, with a further 12,000 described as being “at high risk of destocking” in the coming weeks.
Given the “buoyant” market outlook, dairy farmers seem likely to be the least affected, according to Teagasc.
Due to higher milk prices, the report said that it is conceivable that Irish dairy farm income in 2022 could be on a par with 2021, in spite of a rise in production costs.
However, Teagasc noted that those in fixed price contracts are more exposed.
The report highlights that weather conditions could play an important role for grassland systems by influencing grass growth and silage production.
Looking at beef production, Teagasc noted that income is expected to drop by 25% on cattle rearing farms and by 16% for other cattle enterprises.
The report explained that a minority of cattle finishers may be able to hold their margins and incomes at last year’s levels as the ratio of inputs to outputs is lower, but this depends on prices remain at current levels or above.
“For individual farm businesses, the timing of cattle marketing will be particularly important in 2022,” Teagasc said.
The average family farm income on sheep farms is forecast to decline by 20% in 2022
Higher lamb and sheep prices will be insufficient to cover increased costs of production this year.
At this stage in the production year, income levels on specialist tillage farms will be down by around a quarter on 2021.
The average income on tillage farms in 2022 is expected to be in the mid €30,000’s. Total costs are expected to up by over 30% compared to 2021.
Teagasc noted that weather conditions will, as always, have a strong influence on the bottom line for tillage farmers.