Teagasc publish analysis of farm income impacts of COVID-19

A new report by Teagasc economists explores the possible impact of COVID-19 on farm incomes in Ireland this year. Analysis of a range of scenarios finds that income in 2020 across the sector as a whole will drop relative to the income forecast for 2020 in the absence of the COVID-19 pandemic. The scenario impacts on sector incomes range from a drop of 22% to as much as 50% depending on the scenario analysed. In relative terms, incomes on beef farms are the hardest hit.

Unlike many other sectors, farming and food production has been able to continue during the lockdown, maintaining essential food supplies in Ireland and in export markets.  However, with the closure of restaurants, bars, hotels and work canteens, there has been a steep drop in demand in the food service sector, both in Ireland and in Irish export markets.  Demand has increased from supermarkets, due to the upsurge in home consumption, but this has not been sufficient to offset reductions in food service demand, a particularly important component of the overall market demand for Irish agri-food output.

Agricultural commodity prices are already in decline due to the protracted period of reduced demand that has resulted from the COVID-19 restrictions. How far agricultural commodity prices will fall before they stabilise and eventually begin to recover is difficult to anticipate. It depends to a large extent on how successful governments around the world will be in controlling the impact of the virus, relaxing the associated lockdown measures and creating an environment for a return to normal customer purchasing behaviour.

The nature of farming requires farmers to make production decisions, months, and in some cases years, before the resulting output is available for the food chain. Production decisions for 2020 were made in advance of the current emergency, leaving farmers with little scope to adjust their production volume and cost base in response to the dramatic COVID-19 driven fall off in demand.  This long lag in the adjustment of supply in response to falling demand, suggests that a deep price reduction may occur in the short term before supply and demand begin to come into balance. Declines in farm gate prices of cattle and milk are already evident.

In the short-term, substantial stocks of unsold output will build up, either in storage or on farm in the form of live animals. The increase in stock levels will cause low prices to persist, pushing a recovery in farm profitability further out into the future.

The analysis finds that, in percentage terms, the beef sector is set to be worst affected. The scenario impacts on average family farm income range from a decline of 39% to a decline of 78% under the most extreme scenario examined. A large drop in income on sheep farms is also anticipated. While lamb prices have yet to experience a reduction in prices, a large decline in prices is expected as lamb production enters its seasonal peak.

Across the three scenarios examined the decline in dairy farm income in 2020 ranges from 21% to as much as 49%. In absolute terms, the drop in average dairy farm incomes will likely be the largest across the sectors examined, albeit from a higher base. Dairy farmers with milk in forward contracts will experience smaller income reductions.

Tillage farm incomes are not anticipated to be affected to the same degree as beef and dairy farm incomes.

The report concludes that the total income reduction in Irish agriculture in 2020, as a result of the COVID-19 pandemic, could range from €0.7 billion to as much as €1.6 billion, depending on the scenario examined.

To view the full report visit:  https://www.teagasc.ie/publications/2020/covid-19-initial-economic-assessment-of-its-impact-on-irish-agriculture.php

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