While attention today is understandably fixed on tomorrow’s budget, it is important not to forget what is happening in the real economy. The advance estimate of the value of farm output and income in 2009 published yesterday by the CSO underscores the severe impact which the drop in milk prices has had on farm output and incomes in the current year, although a dramatic drop in the volume of cereals produced as well as a continuing decline in sheep production also contributed to the dismal result.
Overall, the value of agricultural output at market prices fell by 18.9%. This includes a fall in the value of milk production of 34.8% and in cereals production of 52.1%, while the value of cattle production fell by 10.7% and pig output by 12.6%.
Farmers made some savings on expenditure on inputs, which fell by 9.0%. However, this was not sufficient to prevent gross value added at basic prices (these are market prices corrected for the tiny amount of coupled subsidies to farmers still remaining) falling by 42.3%. In absolute values, gross value added in agriculture fell from €1.6 billion last year to €0.9 billion this year. If depreciation is factored in, then net value added by agriculture in 2009 amounts to only €176 million. This estimate was prepared before the recent flooding which will add to the losses of farmers in the affected areas.
Farm incomes include, in addition, the value of direct payments which were more or less maintained in nominal value. Thus the operating surplus in agriculture (after taking account of payments to employees) fell from €2.3 billion to €1.6 billion, or by 30.3%. This comes on top of an 11% drop in 2008 over 2007 which admittedly was a relatively good year.
In addition, farm household income has been hit by the loss of off-farm income coming into farm households, as well as by the collapse in land prices which has brought the potentially lucrative activity of selling sites to a standstill.
Although prices for dairy products and beef show some signs of recovery which should help to lift farm incomes in 2010 above the awful outturn this year, any further cutback in government schemes such as recommended by the McCarthy report if followed up in the budget tomorrow would tend to offset this.
An important issue is whether the 2009 outturn is just a temporary blip – a disastrous year but one from which the industry will recover under a business-as-usual scenario, or whether it will turn out to be the year which finally revealed the underlying weaknesses in Irish agriculture and thus will lead to a once-and-for-all structural adjustment.
The 2008 National Farm Survey showed that, for the first time, direct payments exceeded family farm income on the farms covered by the Survey – this will surely be amplified by the much poorer outturn in 2009. However, structural adjustment will not be easy given the absence of alternative opportunities for those who might want to leave farming.
There is much talk about the agri-food sector being an engine of recovery from the current recession. But with the food sector being hammered on the UK market because of the depreciation of sterling, and much of Irish farm production being inherently unprofitable, it is hard to point to green shoots.