Post on 18-Jan-2016
description
Irish Dairying – A Competitive Industry?
Fiona Thorne & Billy Fingleton
Teagasc Glanbia Regional Seminars 2006
Overview Background & Rationale
• Methods
Competitiveness Results
• FADN Results
• Productivity Analysis
• Inter-Country Cost & Returns
• IFCN Results
• Inter-Country Cost & Returns
• Implications in a reduced milk price scenario
Distribution of costs & returns for the Irish dairy sector
Conclusions & Implications of findings
Background & Rationale
Why it is important to be competitive?
•WTO
•CAP Reform
•EU Enlargement
Competitiveness is about survival & not just
about being the best
Questions answeredQuestions answered How competitive are Irish dairy farms?
• Within the EU-15?
• Within the international world of dairy production?
• Distribution of costs and returns within Ireland?
What is the future of Irish dairy production?• In the short to medium term?
• In the long term?
• In the context of WTO reform?
Methods
Measures•Profit•Partial productivity indicators
Cost elements•Cash costs•Economic costs
Cash & Economic Costs ?????
Cash Costs Economic Costs
PLUS
Methods
Measures•Profit•Partial productivity indicators
Cost elements•Cash costs•Economic costs
Data•Farm Accountancy Data Network• International Farm Comparisons Network
Cost Competitiveness & Productivity of Irish Dairy
Production (1996-2003)
Cost Competitiveness & Productivity of Irish Dairy Production (1996-2003)
Productivity of Irish Milk Production (‘96-’03)
Ireland relative to the average of all countries (Average = 100)
0
50
100
150
200
Milk yd/cow kg Milk solids/cow kg
Inde
x (I
rela
nd =
100
)
Belgium Denmark France Germany Ireland Italy Netherlands UK
Productivity of Irish Milk Production (‘96-’03)
Ireland relative to the average of all countries (Average = 100)
0
50
100
150
200
Milk yd/cow kg Milk solids/cow kg
Inde
x (I
rela
nd =
100
)
Belgium Denmark France Germany Ireland Italy Netherlands UK
Productivity of Irish Milk Production (‘96-’03)
Ireland relative to the average of all countries (Average = 100)
0
50
100
150
200
250
Stocking rate LU/ha Milk prod /lab. Units
Inde
x (I
rela
nd =
100
)
Belgium Denmark France Germany Ireland Italy Netherlands UK
Productivity of Irish Milk Production (‘96-’03)
Ireland relative to the average of all countries (Average = 100)
0
50
100
150
200
250
Stocking rate LU/ha Milk prod /lab. Units
Inde
x (I
rela
nd =
100
)
Belgium Denmark France Germany Ireland Italy Netherlands UK
Relatively low compared to competing countriesBUT, only part of the story
Productivity Levels conti…. 50-99 dairy cow category
•Rankings similar but disparities reduced Rankings over time (1996-2003)
•Average size farm:
•Milk solids per cow
•Stocking rate per hectare
•Milk solids per hectare
• ‘Larger’ dairy farm:
•No significant relative trend
•But +ive trend for milk yields & solids per cow, & labour prod.
Costs for Specialist Dairy producers per output value (1996-2003)
0
20
40
60
80
100
120
140
% o
f to
tal dair
y o
utp
ut valu
e
Total Cash Costs Imputed Owned Land Costs Imputed Labour & Other Costs
Average Irish farm: second lowest cash costs but the second highest total economic
costs;Larger Irish farms: on a par with average
total economic costs;Owned land important in longer term.
Costs for Specialist Dairy producers per kg of milk solids (1996-2003)
0
1
2
3
4
5
6
per
kg o
f m
ilkso
lids
Cash Costs Imputed (owned) land cost Non land imputed costs
1
Lowest cash costs;On a par with average total economic
costs;Owned land important in longer term.
‘Average’ versus ‘Larger’ Dairy Farms
versus
Costs for ‘Large’ Specialist Dairy producers per kg of milk solids (1996-2003)
1
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Costs p
er k
g o
f m
ilk s
old
is
Total cash costs I mputed (owned) land costs I mputed (owbed) non land costs
Sub sample of larger farms:Lowest cash costs
AND lower than average costs total economic costs;
Owned land important in longer term.
€ economic costs per kg of milk solids:
‘Large’ Irish farms relative to the average
y = -0.1032x + 206.21
R 2 = 0.8306-0.8
-0.7
-0.6
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Co
sts
rela
tive t
o t
he a
verag
e
Looking outside EU-15
A look at profit margins…..
Farm income as per cent of total returns:
Ireland v other non EU countries (2004)
-15%
0%
15%
30%
45%
60% On an international basis:Profit margins for the ‘large’ Irish dairy farms are one of the highest in the world
Cash & Economic Costs ?????
Cash Costs Economic Costs
PLUS
Total Costs and Returns of the Dairy Enterprise: Ireland v other non EU countries (2004)
US$ per 100kg milk (ECM)
0
10
20
30
40
50
60
70
80
90
Cash costs Economic Costs Dairy Enterprise Receipts
Positive outlook even in the longer term, for larger size dairy farmsCompetitiveness is about survival & NOT about being the best.
Milk Price & Competitiveness - WTO Implications
• Current Policies
• Even under current policy milk price declining;
• Extreme WTO reform
• To reduce milk price further;
• But, Ireland not adversely affected compared to other EU
countries;
•Volume of butter exports (twice World price) versus
•Volume of SMP (equiv. to World price) & cheese
• Ability to compete similar to longer term outlook presented.
Farm Quintiles by Cost Levels & Related Net Margins
0
5
10
15
20
25
Very lowcosts
Low costs Mediumcosts
High costs Very highcosts
Cent
per
litr
e
Direct Costs Overhead Costs
Source: B. Fingleton, (based on 2002 NFS)
Discussion & Conclusions
Conclusions Productivity Indicators
•Partial productivity indicators for Ireland were ‘worrying’;
•Land productivity for average size Irish farms declined from 1996 – 2003;
•BUT, Total Factor Productivity is what is N.B.
Very competitive on a cash cost basis
• Ireland had one of the lowest costs per unit of production;
•Positive outlook in the short to medium term;
Conclusions Deterioration when total economic costs are calculated:
• Implications for competitiveness in the longer term;
•Warning signal for average size Irish dairy farm;
•AND, ‘large’ Irish farms more competitive in the longer term;
Important considerations:
•Relatively low scale primary agricultural activity
•BUT, as average size increases:•Better able to cope with a cost price squeeze.
•Scope for increasing productivity levels.
Key Take Home Message
Short to medium term outlook is positive
AND in the longer term, as farm size increases, the competitive outlook is also positive.