Ag Econ and Farm Surveys Dept. Fiona Thorne,

Maria Cillero, Patrick Gillespie,

Kevin Hanrahan, Anne Kinsella and

Michele McCormack

Competitiveness and Productivity: An Update

Overview

• Brief summary of the updated position

• Why the renewed focus on competitiveness

– (and productivity)

• Cereals

• Beef

• Dairy

• Summary and conclusions

Summary of Research Update

• DAFM funding through the Research Stimulus Fund

• Focus on Competitiveness and Productivity

• ‘Something for everyone in the audience’

– International costs for cereal crops

– Trends and sources of productivity growth in the beef sector

– Trends in productivity growth in the dairy sector

4

Why the focus on competitiveness?

Why is it important to be competitive?

CAP Reform, WTO Reform

Decoupled payments

Quota abolition

Brexit

Ability to compete at or near world prices

Volatility

Ability to withstand cost price pressure

Competitiveness is about survival & not just about being the best

DAFM funded Research Stimulus Fund

International Competitiveness of the Irish Cereals Sector

Source: FADN and Authors own analysis

Positive sign for average size cereal farmer in a comparative sense

Costs as % of total output - Selected EU specialist cereal farms

Second lowest cash costs as per cent of output

Economic costs also lower than the avergae

Competitiveness of Irish Agriculture

International wheat yields(2016)

Source: Agribenchmark, Cash Crop Network, 2016 data

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016

AR330ZN AR700SBAAR900WBAAU4000WB*AU4500SC* IE80KE RU16000KURRU20000BSRU21000KRAUA2600WUUA7100PO*US1215INSUS1300ND US2025KS

AR AU IE RU UA US

Yields - t/ha

International costs of cereal production

Source: Agribenchmark, Cash Crop Network, 2016 data

Ireland is a yielding producer but also a high cost producer

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

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$1,800

2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016

AR330ZN AR700SBAAR900WBAAU4000WB*AU4500SC* IE80KE RU16000KURRU20000BSRU21000KRAUA2600WUUA7100PO*US1215INSUS1300NDUS2025KS

AR AU IE RU UA US

Total costs and Gross Revenue - USD/ha Cash cost Depreciation Opportunity cost Gross revenue Revenue incl. dec. payment

Productivity growth in

the Irish beef sector

Background

• The beef sector is Ireland’s largest agricultural sector

• But faces several important challenges

– Highly exposed to price volatility for beef and to very

competitive international markets.

– Long term problems with economic viability and low farm

incomes of most farms in the sector.

– Highly dependant on direct income support.

• Food Harvest 2020 & Food Wise 2025 have placed

increased focus on improving competitiveness and

quality of production.

10

Specialist Beef Finishing Farms v. Non-EU Farms

Cash costs higher than average non EU farm

Total economic costs much higher than the average

Source: AgriBenchmark data (2015)

Worrying sign for average size specialist beef finisher

Competitiveness of Irish Agriculture

Question we ask is whether there are sub segments of

the Irish beef sector that are performing well ????

Background

• Explore Total Factor Productivity (TFP) trends and sources:

– Volume measure of aggregate output/volume measure of aggregate inputs.

– CAP 2013 reform selected TFP as an impact indicator for monitoring the CAP

• But heterogeneous farm types, production systems and practices:

– Type and ages of animals, intensity, feeding system, uptake of new

technologies, regions, soil types, etc.

– Evidence of farms operating under different technologies found in the

literature.

12

Research Findings (Classes)

• Class 1 Largest and young:

– largest farms, highest labour and capital inputs use, youngest farmers

• Class 2: Small and off farm workers:

– smallest farms, high off-farm work engagement

• Class 3: Old and good soil:

– oldest farmers, lowest capital input use, most favourable soil type

• Class 4: Intensive:

– highest stocking rate, high labour input use, high output per hectare

• Class 5: Extensive but relatively large:

– lowest output per ha., lowest labour input and stocking rates; BUT 2nd largest

• Class 6: Poor soil:

– located in the most disfavoured types of soils, low output per hectare and stocking rates

• Class 7:High output, high capital:

– highest output per hectare, highest capital input use

13

Identification of different classes of beef farms Farm gross output, subsidy intensity, farm size, stocking rate, soil type, rearing or finishing specialisation,

farmer’s age and off farm work engagement.

Research Findings (Productivity)

• Class 1 Large and young:

– largest farms, highest labour and capital inputs use, youngest farmers

• Class 2: Small and off farm workers:

– smallest farms, high off-farm work engagement

• Class 3: Old and good soil:

– oldest farmers, lowest capital input use, most favourable soil type

• Class 4: Intensive:

– highest stocking rate, high labour input use, high output per hectare

• Class 5: Extensive but relatively large:

– lowest output per ha., lowest labour input and stocking rates; BUT 2nd largest

• Class 6: Poor soil:

– located in the most disfavoured types of soils, low output per hectare and stocking rates

• Class 7:High output, high capital:

– highest output per hectare, highest capital input use

14

Identification of productivity growth amongst classes

Research Findings (Productivity)

15

Identification of productivity growth amongst classes

1.20 2.50

-2.80

2.50

-2.20

1.80

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-5.00

-3.00

-1.00

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3.00

5.00

7.00

9.00

Largest

and young

Small, off-

farm

Old, good

soil

Intensive Estensive

and large

Poor soil High

output,

high capital

An

nu

al T

FP

Gro

wth

%

Technical change is the man driver of

productivity in most cases

Productivity Growth

of the Irish Dairy

Sector

International Cash Costs of Milk Production

Source: IFCN, 2015

Positive sign for the average and larger Irish dairy farm in a non EU context

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20

40

60

80

100

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-133

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-80

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UK

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Competitiveness of Irish Agriculture

Teagasc Presentation Footer 18

60

70

80

90

100

110

120

130

140

Ind

ex (

2010 =

100)

TFP Total Output Total Input on Irish Dairy

farms 2005 -2016 (2010 - 100)

TFP Total Input Total Output

TFP Total Output & Total Input on Irish Dairy farms

2005-2016 (2010 = 100)

Teagasc Presentation Footer 19

‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16

TFP 101 105 103 99 99 100 102 97 96 102 110 113

Total

Input 97 99 99 99 96 100 102 106 113 112 114 116

Total Output 98 104 103 99 95 100 104 103 109 114 125 131

Next to look at international comparisons and sources of growth

Summary

20

• Putting the Outlook presentations into context

– International cost comparisons for cereals

– Potential positives in the Irish beef farming sector

– Charting the recent growth in the dairy sector

• Ireland in context

– High cost producer internationally for cereals

– One policy does not fit all for beef farms

– Recent growth in dairying has been at relatively low additional input

• Final note of appreciation to DAFM for funding this research