The Irish Farmers’ Association
Farm Income Review 2006
December 2006
Foreword
Con Lucey, Chief Economist, IFA
Farm income is a function of a number of factors, notably :
Product prices, which themselves depend on markets, on EU price support policies and on the international trade (WTO) environment,
CAP direct payments, which from 2005 are decoupled from production, and on “rural development” direct payments,
Farm input costs, both current and capital, and
The level of resources on the individual farm, both agricultural resources in terms of scale and investment, and human resources in terms of labour and management.
National farm income, which increased by over 22% in 2005 (due to the carryover of over €600m of the 2004 round of premia and area aid payments into 2005, as well as 90% of the 2005 single payment), fell back by about 11% in 2006 from the relatively high level last year. The 2006 level of farm income is 8% ahead of that of 2004 in money terms and slightly ahead of 2004 in real terms.
Cattle prices – the single most important barometer of the situation in farming – were relatively strong in 2006. In the dairy sector, the third phase of the price support cuts under the EU reform were implemented in July, but the combination of stronger international prices and pressure by IFA on co-ops moderated the price reduction to farmers during 2006.
Ireland has an allocation of about €1,300m in 2006 and following years for the decoupled single farm payment. The “rural development” direct payments, which are included in the CSO calculation of farm income i.e. mainly Disadvantaged Areas and REPS, amounted to a further €590m in 2006. These schemes will have increased funding under the new National Development Plan for 2007-13. Decoupling will enable farmers to make market-led decisions on production in the future. The key issues for commercial farming will be (i) the ratio between market returns and production costs, and (ii) scale and efficiency. Also, off-farm income sources are increasingly important to many farm families.
"Farm Income Review 2006” seeks to present the main relevant economic and statistical analysis on farm income this year and over a number of recent years. It draws on published data from the CSO, Teagasc and the Department of Agriculture. It seeks also to look ahead to the main issues in 2007. The information in this Review is to assist the officers and members of IFA in understanding the components of farm income, in preparing future IFA policies, and in presenting IFA policies to Government, public representatives and the media.
C O N T E N T S
Review of Agricultural Output and Income, 2006
Price and Cost Trends
Direct Payments/Single Farm Payment
Farm Income Trends and Inflation, 1995-2006
Farm Income and Non-Farm Income – Survey Data
Investment Trends in Agriculture
Agricultural Statistics
Outlook for 2007
Review of Agricultural Output and Income 2006
Overview of Farm Income in 2006
It is estimated that the level of national farm income declined by about 11.4% in 2006; see details of agricultural output, costs and income in Table 1. (This is broadly in line with the CSO’s advance estimate for 2006 published in mid December which a decrease of 10.7%; the CSO final figure will be published in mid 2007). If interest payments on farm borrowings are taken into account the decrease in net farm income in 2006 is down by about 15.5%.
In comparing 2006 national farm income to that of 2005, it should be noted that farm income last year benefited from a once-off boost as a result of the timing of the change from coupled to decoupled direct payments. Over €600m of the 2004 round of direct payments were paid in the 2005 calendar year, as well as almost 90% of the 2005 single farm payment (€1,060m) in December 2005. A comparison with the 2004 income level is more meaningful. This shows that 2006 farm income is up by almost 8% on 2004 in money terms, and slightly better in real terms. Inflation in 2005 was 2.5% and in 2006 is 4%.
National Farm Income
Money Terms / Real Terms2006/2005 / -11.4% / -14.9%
2006/2004 / +7.9% / +1.2%
Detailed Changes in 2006
The details are set out in table 1. The cattle sector had a relatively good year as average cattle prices were about 8% higher than in 2005 and the volume of output is likely to be slightly up.
Milk prices were down by about 4%, but farmers benefited from the increase of about €60m in the (decoupled) dairy direct payment; milk production was up by 2.5%. Lamb prices were slightly better than in 2005. Pig prices were up by about 7%, but production declined by about 3%. Poultry production was down by an estimated 8%.
Grain prices were up by an average of 14%, and the volume of output was also up. Potato production was slightly down but the strong 2005 harvest prices continued in 2006. As regards the ending of sugar beet production, a small element of the 2005 crop harvested in early 2006 appears under 2006 output.
As regards current inputs, the volume of feedingstuffs purchased overall was up by about 7%, based on an increase of about 14% on dairy farms and some reduction on pig and poultry farms. Fertiliser use was down by 3% and prices were up by 7%. Energy prices increased by about 12% on top of a 17% increase in 2005.
The single farm payment in 2006 is about €1,300m. When REPS and Disadvantaged Areas payments are added and certain taxes and levies are taken into account, the figure for net direct payments in 2006 included in the national farm income calculation is €1,840m. When depreciation and wages paid to farm workers are deducted, the value of national farm income (as defined by the CSO) declined by about 11.4% to €2,430m in 2006. Interest paid on farm borrowings at €372m was up significantly according to CSO estimates from €302m in 2005.
Sectoral Incomes in 2005 and 2006
The data for 2006 average family farm income in the following table is based on the 2004 Teagasc National Farm Survey, increased by 10.5% to reflect the national farm income increase from 2004 to 2006 and also some decline in numbers. “Full-time” farms refer to the 62% of farms in the National Farm Survey where the farmer does not have an off-farm job. The public sector and industrial earnings data is from the CSO.
2005 / 2006 (est)Average Public Sector Earnings / 43,800 / 46,060
Average Industrial Earnings / 30,200 / 31,290
Average Family Farm Income – all farms / 22,459 / 17,200
Average Family Farm Income – full-time farms / 27,700 / 21,670
Low Income Farm Families – Farm Assist
Following IFA’s campaign on behalf of low income farm families, the Government introduced the Farm Assist Scheme in April 1999. The scheme, operated by the Department of Social and Family Affairs, is means-tested and 30% of the income assessed is disregarded and also some disregard for dependant children. The following summarises the uptake and value of Farm Assist in recent years:
Expenditure (€m) / Number Benefiting / Average Payment (€/week)2004 / 66.3 / 8,450 / 151
2005* / 67.3 / 8,000 / 162
2006* / 73.2 / 7,650 / 184
(*: Reduced uptake due to introduction of Rural Social Scheme)
The 2007 budget increases will mean for example that the payment for a married farmer with two children with an income of €220/week will increase from €162 to €206/week.
Table 1 - Agricultural Output, Inputs & Income 2005 and 20062005
(€m) / Price Change (%) / Volume Change (%) / 2006
(€m)
Gross Value of Agr: Output (incl. stockchanges)
(of which)
Cattle
Milk
Pigs
Sheep
Poultry
Horses
Cereals
Vegetables & Fruit
Sugar Beet
Potatoes
Other / 4,275
1,413
1,335
292
192
144
233
126
233
67
96
144 / +8
-4
+7
+2
-3
+4
+14
+3
-
+40
- / +1.5
+2.5
-3
-
-8
-
+8
-10
-80
-10
- / 4,386
1,549
1,314
303
196
129
242
155
222
13
121
142
- Current Inputs & Services
(of which)
Feedingstuffs
Fertilisers
Energy
Maintenance & Repairs
Services
Vet. Products
Agri. Chemicals
Seeds
Other / 2,530
876
363
284
348
297
114
56
85
107 / +1.5
+7
+12
+4
-
+4
-
+3
- / +7
-3
+1
-3
-2
-2
-
+5
-2 / 2,656
947
377
321
351
291
116
56
92
105
= Gross Agricultural Product / 1,745 / 1,730
+ Direct Payments
(less levies) / 2,099 / 1,840
-Depreciation
-Wages to Agr. workers / 669
431 / 682
458
= National Farm Income*
(-Interest on Farm Borrowings)
(= Net Farm Income) / 2,744
(302)
(2,442) / 2,430
(372)
(2,058)
(*CSO measurement of National Farm Income; this is now termed “Operating Surplus” by the CSO)
Price and Cost Trends
Product Price Trends
Table 2a sets out the price trends for the main agricultural products and the weighted average price change for total agricultural output in index form, with 2000 prices = 100. In interpreting this data, it must be taken into account that beef and cereals support prices were reduced in 2000 – 2002 under CAP Reform, with some increase in direct payments. Milk support prices were reduced in 2004-2006 under CAP Reform, and a diary direct payment introduced. Relative to 2000, the greatest percentage drop has been in milk prices, but overall output prices in 2006 are above the 2000 level.
Table 2a – Product Price Trends2000 / 2003 / 2004 / 2005 / 2006
Cattle / 100 / 93.6 / 103.2 / 105.6 / 113.8
Sheep / 100 / 119.5 / 117.7 / 109.6 / 112.0
Pigs / 100 / 95.4 / 103.3 / 101.5 / 108.8
Poultry / 100 / 105.6 / 111.6 / 108.1 / 105.0
Milk / 100 / 95.6 / 95.3 / 93.5 / 89.8
Cereals / 100 / 109.0 / 100.9 / 96.6 / 101.1
Total Output / 100 / 99.6 / 101.8 / 102.3 / 107.5
(CSO, with estimates for 2006)
Input Price Trends
The following table gives the trend in the prices of the main current farm inputs and total current inputs, and also hired labour and general inflation. Total weighted current input prices in 2006 are 23% above the 2000 level.
Table 2b – Input Price Trends2000 / 2003 / 2004 / 2005 / 2006
Current Inputs
Feedingstuffs / 100 / 106.5 / 110.8 / 109.0 / 110.6
Fertilisers / 100 / 113.0 / 115.1 / 124.5 / 133.2
Energy / 100 / 102.9 / 112.6 / 131.7 / 147.0
Plant Protection / 100 / 101.6 / 103.2 / 102.7 / 102.0
Vet. Products / 100 / 114.7 / 115.8 / 117.6 / 122.3
Services / 100 / 114.1 / 116.9 / 121.0 / 123.7
Total Inputs / 100 / 108.8 / 113.1 / 118.0 / 123.3
Labour
Agr. Wage Level / 100 / 118.0 / 123.3 / 128.7 / 136.4
Inflation
CPI / 100 / 113.5 / 116.0 / 118.9 / 123.6
(CSO, with estimates for 2006)
Direct Payments/Single Farm Payment
Value of Direct Payments
Table 3 sets out the value of direct payments included in the national farm income calculation, from Department of Agriculture data. The figure for total payments is adjusted for taxes and levies on production or products (milk super levy, animal disease levies, Bord Bia levies, farm share of motor tax etc.) paid by farmers.
Table 3 – Direct Payments Included in Farm Income Estimate (€m)2004 / 2005 / 2006
CAP Reform Direct Payments
Cattle/beef Premia incl. Extensification / 793 / 614* / 4
Ewe Premium / 106
Arable Area Aid
Dairy Premium
Single Farm Payment / 131
60
- / 1,058 / 1,324
CAP RD Measures
REPS / 208 / 283 / 325
Disadvantaged Areas / 239 / 230 / 258
Installation Aid / 7 / 5 / 6
Other Items
Disease eradication comp. / 45 / 31 / 25
Total Direct Payments / 1,589 / 2,221 / 1,942
(less Taxes and levies) / (121) / (114) / (102)
Net Direct Payments / 1,468 / 2,107 / 1,840
(*: all CAP premia and arable aid paid in 2005 from 2004 round)
Footnote: Capital payments to farmers are excluded from the CSO national farm income calculation, e.g. investment grants, forestry grants and the early retirement scheme payments. Also, the forestry premium is now defined as being separate from agriculture; in 2006 it was about €58m.
Alternative Presentation of National Farm Income 2006 (€m)
Farm Income Trends and Inflation : 1995 - 2006
As national farm income can fluctuate considerably from year to year, depending on weather and market conditions and other factors, it is informative to review the longer-term trends in farm income. When comparing data over a long time period, it is necessary to adjust for inflation, i.e. to give the trend in farm income in real terms. In the following table, column 1 sets out the national farm income level as calculated by the CSO, with IFA estimate for 2006. In column 2 this is converted to an index form, with 1995 = 100. Column 3 sets out the inflation rate, also in index form with 1995 = 100. Column 4 (which is column 2 as a percentage of column 3), gives the trend for farm income in real terms. The table shows that national farm income in 2006 in real terms is 29% below its 1995 level.
Table 4 - Trends in Farm Income in Money and Real TermsYear / Farm Income €m. / Farm Income 1995 =100 / Inflation 1995 =100 / Farm Income
in Real Terms
1995 / 2,438 / 100 / 100 / 100
2000 / 2,224 / 91.2 / 113.4 / 80.4
2002 / 2,093 / 85.8 / 124.4 / 69.0
2003 / 2,165 / 88.8 / 128.8 / 68.9
2004 / 2,252 / 92.4 / 131.6 / 70.2
2005 / 2,744 / 112.6 / 134.9 / 83.5
2006 / 2,430 / 99.7 / 140.3 / 71.1
Impact of Inflation
Farm income is particularly vulnerable to inflation as: (i) there is no indexation for inflation built into EU prices supports or EU direct payments and (ii) EU market prices are increasingly influenced by the low priced imports as a result of WTO and other factors. Also, with a rigid land market making enlargement of scale difficult, farmers find it difficult to increase productivity to offset the effects of inflation. Ireland’s inflation rate in the past four years 2003 to 2006 has been 3.5%, 2.2%, 2.5% and 4%, (and projected at 4.1% for 2007), somewhat in excess of the 2% maximum guidelines for the euro zone. The average euro zone inflation for 2006 is 2.4% and the projection for 2007 is 2.3%.
Inflation has a multiple impact on farm incomes; it increases farm input costs, it increases processing costs which tend to be passed back to farmers, it reduces the purchasing power of farm incomes, and it widens the income gap between farmers and other sectors of the economy who can link their incomes to inflation.
Farm Income and Non-Farm Income – Survey Data (2005)
Level and Distribution of Family Farm Income
The 2005 Teagasc National Farm Survey (NFS), based on a sample of 1,177 farms, (representing about 111,000 farms nationally), was published in September 2006. It calculated the average family farm income per farm at €22,459 (income from farming only). This was a 44% increase on 2004 and the authors of the survey pointed out that the 2005 figure included an average once-off payment per farm of €5,266 due to carryover of arrears from the 2004 coupled farm payments. Adjusting for this factor, the average family farm income in 2005 would have been €17,193.
IFA wishes to point out also that because the survey does not include the main intensive sectors including pigs, poultry and intensive horticulture – which do not receive direct payments – and as these sectors account for about 20% of the value of agricultural output, the increase in farm income recorded by the survey is somewhat exaggerated. The CSO assessment was that national farm income in 2005 increased by 23% on the previous year.
The National Farm Survey also shows that 62% of farmers do not have an off-farm job i.e. are full-time farmers; their average farm income in 2005 was €27,700. In the case of the 38% of farms where the farmer has an off-farm income, the average farm income was about €14,000. In the case of the 97% of this group of farmers who disclosed their level of off-farm income, their average off-farm income declared was €22,300, which when combined with an average farm income, gave a total income of over €36,000.
Average Family Farm IncomeFarmers with off-farm job / 38% / €14,034
Farmers with no off-farm job / 62% / €27,700
All farms / €22,459
The Survey gives the following data for the level and distribution of family farm income of the 111,115 farms represented by the survey for 2005.
Table 5 - Distribution of Family Farm Income€000 / < 6.5 / 6.5 - 13 / 13 - 20 / 20 - 25 / 25 - 40 / > 40
% / 24 / 24 / 15 / 7 / 12 / 18
Number / 26,670 / 26,670 / 16,670 / 7,780 / 13,330 / 20,000
Incidence of Off-Farm Incomes of Farmers and Spouses
In recent years the incidence of off-farm employment by either the farmer or spouse has become more prevalent; in 2005 38% of farmers had an off-farm job, and in the case of 55% of farms, either the farmer or spouse had an off-farm job. The following tables summarise the incidence of off-farm employment by the farmer and/or spouse, broken down by (a) farm size and (b) farming system.
Table 6 : % of Farms by Farm Size where Farmer/Spousehas off-farm Job
Size (Ha) / <20 / 20-30 / 30-50 / 50-100 / >100 / All Sizes
Farmer Only / 50 / 45 / 30 / 16 / 15 / 38
Farmer or Spouse / 57 / 59 / 54 / 46 / 50 / 55
Table 7 - % of Farms by Farm System where Farmer/Spouse
has off-farm Job
System / Dairying / Dairying/ Other / Cattle Rearing / Cattle Other / Mainly Sheep / Tillage
Farmer Only / 13 / 15 / 50 / 48 / 41 / 38
Farmer or Spouse / 50 / 41 / 61 / 57 / 55 / 51
Value of Single Payment by System
Because of the carryover of substantial amounts of 2004 direct payments into 2005, the normal table showing direct payments as % of family farm income is misleading for 2005. The following table gives the average Single Farm Payment by system for 2005, and the average farm size is also shown to put this into perspective. The average single payment for all farms in the survey was €11,954 and the average size was 37.3 hectares. (Note that some very small farms in gross margin terms are excluded from the survey).
Table 8 – Average SFP by SystemSystem / Dairying / Dairying + Other / Cattle Rearing / Cattle Other / Mainly Sheep / Tillage
Size (hectares) / 44.1 / 52.0 / 27.3 / 30.3 / 39.3 / 59.9
Average SFP (€) / 11,166 / 16,374 / 7,223 / 10,929 / 9,628 / 21,517
Trend in Average Farm Income
The following gives the level of average farm income from the National Farm Survey for 2000-05, and estimate for 2006.
Table 9: Trend in Average Farm Income – All FarmsYear / 2000 / 2001 / 2002 / 2003 / 2004 / 2005 / 2006 est.
Income (€) / 13,499 / 15,840 / 14,917 / 14,765 / 15,557 / 22,459 / 17,200
InvestmentTrends in Agriculture
The following table gives the investment levels by the agricultural sector, from CSO National Accounts data (exclusive of deductible VAT). Machinery and equipment purchased by Agricultural Contractors is included in the table as part of Agriculture. The figures for "Transport Equipment" include the farm share of car expenses. "Other Equipment" refers to equipment used on farms, which is not specialist agricultural equipment.
This data shows that over 20% of disposable farm income is re-invested in farms each year. (2005 income figure exceptional).
Table 10 - Trends in Capital Investment in Irish Agriculture (€m)
2000 / 2001 / 2002 / 2003 / 2004 / 2005Farm Buildings / 178.6 / 119.8 / 104.0 / 88.4 / 127.6 / 140.6
Land Improvement / 13.4 / 9.0 / 7.8 / 6.6 / 9.5 / 10.5
Transport Equipment / 115.0 / 113.5 / 110.9 / 108.0 / 105.3 / 102.6
Agr. Machinery and Equipment / 221.2 / 238.6 / 240.0 / 222.5 / 249.1 / 248.6
Other Equipment / 104.8 / 88.1 / 92.5 / 94.2 / 84.2 / 80.0
Total (excl. breeding stock) / 633.0 / 569.0 / 555.3 / 519.7 / 575.7 / 582.3
Breeding stock / -23.7 / -2 / -19.2 / +2.0 / -10.9 / -10.9
Total / 609.3 / 567.0 / 536.1 / 521.7 / 564.8 / 571.3
(CSO)
Table 11 - Capital Investment as % of Disposable Farm Income*
2000 / 2001 / 2002 / 2003 / 2004 / 2005Disposable Farm Income (€m) / 2,542 / 2,616 / 2,464 / 2,548 / 2,610 / 3,107
Investment as % of Disposable Income / 24.2% / 21.7% / 22.8% / 20.5% / 21.6% / 18.4%
(* Disposable income is defined as national farm income (CSO) plus depreciation less interest on farm borrowing; personal taxation is not deducted).
Agricultural Statistics
The following are the main agricultural statistics from the CSO on the national breeding herd and tillage area, based on the full Census of Agriculture 2000 and later annual surveys. Also, the latest CSO data on farms classified by size, by age of the holder, and by labour input of the holder is provided. (Note: publication of 2006 crops and livestock data is delayed).
(i) Livestock:
Trends in the National Breeding Herd, 000 head (June)
2001 / 2002 / 2003 / 2004 / 2005 / 2006Dairy Cows / 1,183 / 1,164 / 1,156 / 1,156 / 1,117
Beef Cows / 1,197 / 1,154 / 1,187 / 1,207 / 1,231
Total Cows / 2,380 / 2,318 / 2,343 / 2,363 / 2,348
Ewes / 3,915 / 3,804 / 3,615 / 3,570 / 3,267
Pig Breeding Herd / 163.5 / 160.7 / 154.3 / 150.4 / 149.7
(ii) Crops: