Risk management
Incomes are up but as economic predictions falter, farmers must learn to better manage risks.
Norman Fulton, the head of DARD’s Policy and Economics Division, has told agendaNi that local farm incomes – particularly in the dairy sector – have improved significantly over the past 12 months.
“This time last year the milk sector, which is the powerhouse of farming in Northern Ireland, was having to cope with extremely poor prices and the atrocious weather,” he commented.
“Market conditions have, thankfully, improved. However, the milk sector continues to operate in a very volatile environment. This is due to the ongoing fluctuations in the value of sterling against other currencies, particularly the euro, the fact that we export such a high quantity of our dairy products outside the UK and the growing reticence of the authorities in Brussels to intervene on what are truly international markets in support of EU processers.
“Trying to predict how all these factors will interact over a period of weeks, never mind months or years, is now impossible, which makes the issue of risk management a crucial subject for debate within the agri-food sectors.”
The DARD representative went on to point out that the EU has traditionally opted for measures that support commodity markets, as a means of maintaining farm viability.
“In the US the approach taken has been one of encouraging farmers to ensure against losses in income. The next review of CAP gets under way later this year. Farm Commissioner Dacian Cioloş has made it clear that he wants this issue of risk management to be discussed in detail as part of this process. So it will be interesting to see what proposals he comes up with,” he further explained.
“The single farm payment, or SFP, remains the key support measure available to EU farmers. The state of the currency markets over recent years meant that local producers enjoyed significant increases in the amount of money they actually received, in sterling terms, by way of this measure in 2008 and 2009.
“However, sterling has strengthened against the euro since the beginning of 2010. The exchange rate pertaining between the euro and sterling on
30 September is the figure used to calculate the single farm payment allocations for the year ahead. But if this exercise was carried out over recent weeks, it would become quickly apparent to those farmers in Northern Ireland who draw down their SFP in sterling terms that the size of their payment had fallen by a significant amount, year-on-year.”
Returning to the issue of volatility, Norman Fulton pointed out that all farm input costs are now affected by this overarching economic driver.
“One has only to look at the trends in fertiliser prices over the past number of years. Rising oil prices, currency fluctuations and a growing demand in countries such as India and China have led to a dramatic strengthening of this market.
“The reality that no one is in a position to predict, with any degree of accuracy, what price farmers will be paying for fertiliser next spring.”
He continued: “Feed purchases represent the largest single input cost for farmers in Northern Ireland. Grain prices are predicted to increase over the coming months. This is good news for local cereal producers. But for farming as a whole, this trend will lead to a significant reduction in the industry’s bottom line.”
Turning to issues much closer go home, Fulton confirmed that DARD will have to play its part in achieving the budgetary cuts that must be secured by every government department.
“All options, in this regard, are being explored at the present time. We will have to wait and see what the Chancellor has to say about the extent of the cuts required in his autumn statement. However, DARD will consult with all relevant stakeholder groups on this issue during the autumn period,” he explained.
Fulton concluded: “Farm Minister Michelle Gildernew has already confirmed that front-line services to farmers will be protected. This will include the payment of all grants and subsidies, the retention of all relevant research and advisory services plus the work carried out by CAFRE [the College of Agriculture, Food and Rural Enterprise], including its important role in the area of education.”
