The EU and national governments are seeking to reduce their exposure to farm payments moving forward, according to University of Limerick senior lecturer Dr John Garvey.
The risk management and insurance specialist said that it is inevitable that farmers will be expected to manage a greater proportion of the commercial challenges that confront their businesses.
“This is already happening. A case in point is the significant commercial risk undertaken by a significant number of Irish dairy farmers in the wake of milk quotas ending.”
This included new entrants and existing producers, who committed to either commencing a new dairy enterprise or expanding the operation that already existed.
“This enhanced risk comprises the initial financial outlay in new facilities and, thereafter, the management needs of the additional stock maintained within the business.”
Garvey believes that it is inherently unfair for farmers to be left dealing with all the risks associated with the ups and downs associated with the production of high quality food.
“It’s all about risk sharing along the entire food chain,” he said.
Garvey cited the specific example of dairy farmers having to cope with the impact of a calamitous weather event.
For example, if the month of March is particularly wet, grass growth will suffer and farmers will have no option but to significantly increase the quantities of feed they purchase.
“Primarily, they will be doing this to ensure an adequate supply of high quality milk to their processors. But the real costs comes in the form of the additional bills associated with the procurement of much higher quantities of feed than would normally be the case.
“In such instances, there is no reason why the co-op could not rebate the prices of the feed bought by an agreed amount and have this difference in cost re-assured.”
“It’s called hedging and is a principle widely established in countries such as the United States.”
This is a feasible option for the Irish dairy sector, given that all the main milk processing co-ops also operate compound feed milling businesses.
“Yes, there is a cost associated with the reassurance that is undertaken. But this could be shared equally by the farmer and the co-op.”
Dr Garvey is the founder of FarmHedge, a smart-phone app that allows farmers to hedge against weather volatility and ultimately lower their feed costs.
Meanwhile, ICMSA president John Comer has reacted angrily to the latest CAP reform thinking from Brussels, which – he believes – set the scene for farmers having to accept higher levels of financial risk taking in the future.
This idea must not turn into some kind of financial free-for-all whereby taxpayers’ money is distributed to large multinational insurers through the purchase of insurance policies and hedging against drastic falls in price.
“I have to say that the suggestion will appear as an abdication of responsibility on the part of the Commission: farmers will rightly ask themselves why they need to be insured against catastrophic falls in price if the Commission was doing its job of monitoring supply and adjusting volumes going onto the market in a competent fashion.
“It certainly looks like the Commission is subbing out its own responsibilities as well as adding another layer of regulation to the supply chain on the farmers’ side while continuing with their policy of weak regulation on the food retail corporations.”
Comer added that European agriculture policy of the last two decades has seen the steady erosion of farm profits due to increased volatility in commodities, such as milk, and it will be seen as hugely questionable if the European Commission’s response to that failure is to force farmers’ Pillar One funding from the CAP budget into financial risk management tools whereby large multinational insurance companies could make huge profits from the sector.