Monthly Archives: July 2016

ARE WE BEING LED BY A HORSEMAN OF THE APOCALYPSE?

So two major issues have hove into view at the same time. One, the climate-change emissions reduction targets we were expecting, the other, Brexit, came rather out of the blue. These are now unfolding upon an industry that is already bedeviled by market collapses, price falls and across-sector, farm-income crises.

For dairy was the beginning of the end Ireland investing too heavily to supply the China market with dairy commodities. It was predictable that they were investing into the downturn. The supply-side reaction should have been foreseen but apparently a China-hyped global processing industry could not believe that the good days were not here to stay. It was the old Celtic Tiger property-boom mentality at work. That said, Russia and oil prices played a significant part and, as political factors, they were near impossible to predict. Will Russia ever be back or will President Putin turn Mother Russia into the agricultural powerhouse that it should be? And of course we now have the politically-induced crisis that has the potential to out-do them all as far as rural Ireland is concerned, Brexit.

What is difficult to understand is how, in a market that is over-supplied per se, but especially with long-life powders, is Ireland’s new Minister of Agriculture still pushing dairy expansion when the country’s new processing facilities are geared up to mainly produce powder? Some Irish processors are delivering a European bottoming milk price but still we read about implementing Food Wise 2025 expansion plans. Where is the wisdom in that? Or is that particular farmer-only carriage being driven by a fifth, named Bankruptcy, horseman of the Apocalypse? At times one does wonder.

What is driving the ‘keep expanding’ chant as it begins to sound strangely reminiscent of that belonging to the followers of Icelandic football? At the farm level one can understand a short-term, crank-the-volume up approach. More production means more income even if the price is falling. It is a logical [short-term] response for an individual farmer to take. I saw the consequences of such two decades ago in Thailand where 400,000 individual smallholder rubber producers simultaneously took the same logical decision, push up each day’s yields to maintain their daily income. Cumulatively they boomed the market and then spectacularly crashed it. An industry that was lauded as a global, rural development success story went from achievement to dereliction in months. A solution was found [by yours truly] and it has been onwards and upwards since.

A troubling aspect of the Irish farming problem is that the agenda has been set in recent years by the processing sector and not the farming industry. The desire to expand milk production has been driven by the raw material demands of the processors. That said, there were plenty of advocates of expansion in the farming, media and advisory worlds. Of course, the co-operative processors can point to their rules that said that they have to process what the farmer-member says that he/she will produce. The farmers are, however, all making their own decisions whilst the role of the co-operative processor should have been to temper their members’ activities in light of their broader understanding of the markets. One could say the same for those writing national agri-food strategy [although they chose to promote expansion over steady, cautious, ‘organic’ growth]. Did too many just get caught up in the hype and invested accordingly. Sadly, the consequence for dairying is that most of Ireland’s expansion capacity has been dedicated to milk powders and that is where the global dairy market has turned sour most.

So we now have this new capacity built. For the processors the logic is to use it and to use it to the maximum extent possible. The difficulty lies in not being able to pay the farmer a price to reward them for expansion. What is the alternative, to put one’s hand up and say we got it wrong? Apparently not. What we hear instead is a further rallying call to expand. And why not, we have invested vast amounts of the national resource into stainless steel so we must use it?

The farmer has, however, felt the consequences of a price that is well below their full-cost of production [the full-cost, not the marginal one that excludes any reward to the farmer]. If we were only looking at a China-market induced dip in the cycle, farmers may by now be seeing an up-turn coming. Are they? What about Russia, what about the oil price, what about Brexit and what about that other, hither too poorly explained issue, the consequence of climate-change regulation? Has there ever been such a complicated scenario to invest [further] into?

Any farmer could be forgiven for choosing to opt out, to switch to survival mode and to look to preserve their assets, even to the degree of ceasing production whilst they still have some control over the ownership of their primary asset, the farm. Sometimes it is better to walk away and to live to fight another day. These will be personal decisions and for some taking draconian measures on the farm may be preferable to taking on more debt in an environment where it is difficult to predict the market upturn and, critically, whether that market upturn will be sufficient to repay debt. It is situation where one has to question the validity of borrow-more messages. To put it bluntly, have we reached that point where the sacrifices have to be made at the processing level if we are to save the farming foundations of the agri-food industry? Idle processing capacity may be preferable to a bankrupt farming sector. Is it time for processors to take some responsibility?

From one angle one could say that Ireland is lucky in that it has a core processing capacity that can handle its peaks. A common theme of its agri-food strategy was to ensure that its processing capacity was sufficient to meet farm production. It was a theme that illustrates the supply-driven mentality within the industry. It is not what does the consumer want, can we produce it [from a technical and financial perspective] and is the investment to do so viable at all points of the supply chain. It was the market is there [global population growth] more exports will mean more income, profits and employment. The latter assumptions are probably correct, at least for some within the supply chain. For the farmer the connection is, apparently, tenuous.

Ireland’s supply-driven, commodity bias has evolved out of history. Butter and hard cheese and milk powder are ways to convert perishable milk to storable product. In some parts of Europe, some consumer-facing farmers have nevertheless made a virtue out of the first two. It is more difficult with the latter. Is one right in suggesting that making margins out of powders is the territory of the secondary processor? It is not an activity that lends itself to adding value to milk at the farm gate. It is why it is so difficult to see how the Irish-scale dairy farm is going to make money from producing milk for powder. Yes, they are told to expand but is the likely long-term price for powder-destined milk going to be sufficient to cover all of the costs of production, including a return on capital and the payment of all investment costs. Is there a flaw in Ireland’s strategic dairy model?

The question is; is the centralized processing of milk into long-life commodities the right one for the future? Into the longer-term do we need alternatives?

And is this an issue for the dairy sector alone? The meat industry has long since gone down the large-scale, factory-processing route. Dairy processing differs in that it is partly co-operatively owned [although when reading comments about the price paid by the co-operatives, one wonders how strong the sharing ethos is [or maybe the product mix does dictate the prices paid to farmers]]. The meat factories are privately-owned and that leads to on-going conflict.

The factories do, nonetheless, have to contend with supplying a highly consolidated retail sector and a highly fragmented supply-base. Over the years the factories have moved Ireland from being an exporter of frozen beef to one that supplies fresh meat to retailers but has their modus operandi remained one of high-throughput and low margins? With such a narrow ownership does this model still deliver significant profits to the few? If so, is it a model that incentivizes the factories to deliver higher-prices to their suppliers? And does a high-volume, operations-efficiency-focused model encourage the processing of small volumes for niche-markets?

Should one conclude that neither mainstream meat or milk processing model is sufficiently agile or flexible? Is this a fundamental problem for Irish farmers who by their very scale need to be supplying premium-paying, more niche markets? Has Ireland’s processing industry and, more recently, its agri-food strategy evolved away from what is needed by the farmer? Has there been a major failure within the overall agri-food industry to target what is needed by the farmer? And is this something that explains why the farming industry seems to lurch from one income crisis to another?

Should we now be seeking to re-write agri-food strategy and to set an agenda to restructure the milk and meat processing sectors? Probably not. Just what is to be gained by taking such a confrontational approach? For many years to come Ireland will need its existing processing players; not least because there is no quick-fix, re-directional solution. Alternative, smaller-scale routes to market are needed but supporting the development of the infrastructure that they require should not mean that the government has to first re-write its own agri-food strategy.

There is what the author calls a ‘Nokia moment’. It is when you realize that what you have built is not what you want. The term goes back to watching Nokia’s fortunes in the mobile phone market and, in particular, a cost-reduction, production-restructuring move from Germany to Romania. In 2008 a major new flagship production unit was built in Romania [much to the chagrin of a German plant’s workforce]. In Romania it was all about Nokia. By 2011 the Romanian factory was closed. It was the wrong investment at the wrong time and greater forces were at work. It does not matter how big or high profile you are, there can be a point in time when it is time to move on and to accept that you are not suited to what has been your market. There may come a point in time when some of Ireland’s primary processing sector reaches their Nokia moment.

This has mainly been about markets and their implications. I have often said that small-scale, Irish family farm need to be producing the raw materials for high-value products and that they need to be at the base of supply-chains that return value to the farmer [that they can premiumize the farm-gate price]. The quid pro quo of this is that farmers need to become attuned to producing specific raw materials for these exacting supply-chains. Higher farm-gate prices will not come about without change. It is a simple, albeit tough truth and significant change is needed.

We have to create a segment of the industry that can handle change if a premium, exportable-in-volume, Irish product range is to be developed. It will be about supplying the consumer and market positioning but, even then, such a change alone will be insufficient in light of the Sword of Damocles that is hanging over the industry; climate change and meeting newly imposed emissions targets.

As far as addressing the emissions situation from Irish farming, there appears to be a laid back, it will not happen approach. As with Brexit, one needs to assume that it will. A favourite response seems to be to state that Irish farming is a World-leader when it comes to its carbon footprint and that warrants it being free to continue with its current production practices. I would certainly like to see more evidence of this World-leading position as it will need to be pretty powerful evidence if it is going to stay the EU when it comes to seeing emission reductions delivered upon.

As stated previously, I believe that there is a growing body of evidence that suggests that grass-based livestock farming can sequester significant levels of carbon. It has even been suggested that done in the appropriate way, cattle farming can be a way to return agriculturally-liberated carbon back into the soils. It is this subject that needs to be rapidly investigated and verified. It also needs to be verified in the context of the Irish approaches to cattle farming. How can it be achieved for milk and meat production and will it create a strong enough case to reverse emissions-only policy decisions? It could have major implications for the Irish cattle sector in that proven net emissions- reducing farming systems may have to be prioritized over others. Policy and incentives may have to be re-focused to encourage the change of systems. And they may not be the same changes as suggested by emissions-counting alone. The jury should still be out on this but one fears that knee-jerk reactions and too simplistic ‘solutions’ may have already jumped the gun.

The French by contrast appear to be getting it right with their 0.4% increase per year in soil organic matter objective. Do they know something that the rest of us do not? It is a positive approach and one that has much to recommend it over counting emissions and then working out how to cut the high emitters, regardless of how successfully they sequester carbon.

As also stated in an earlier blog, we need to be identifying the best farming systems in terms of net carbon emissions and raising farm incomes. A part of that policy will have to be ensuring that the message is transmitted through to consumers. To do so will require a far different supply-chain than we have at the moment. It will need to be flexible and adroit and able to place in the market those products that fulfil multiple criteria relating to eating quality, environment, ethics of all descriptions and climate-change, planet-saving credentials.  For the marketing, processing and farming sectors this is a whole new ball-game. It will be for the placement of government [tax-payer] resources.

And one would suggest again that we should see what France is up to. Apart from its interesting determination on soil organic matter, one should not forget that it is a World-leader when it comes to the production and sale of premium food products. Whilst it may be embarking on a new journey when it comes to carbon sequestration into soils it certainly is not when it comes to premium foods. Ireland can learn much on the latter and partner on the former. It may well be an approach that can deliver in terms of developing farming systems that can mitigate climate change consequences and deliver improved farm incomes.

The above said, Ireland will still need to become a more agile and flexible farming to food industry. And that is something that will not happen if the farming industry continues to be hampered by an oligopolistic processing industry that is able to focus on its own interests first. We need a farming industry that is truly sustainable, both economically and environmentally and that industry needs to be partnered with a supply-chain that can deliver market-driven results all the way back to the farmer. A leadership that is not willing to embrace change is, however, not going to deliver for the farming or rural communities, not to mention the climate. And without change, the future is, to be honest, looking a little dark. The question is, who is going to lead it out of the shadows?

Advertisements

GOING BACK TO THE FIRST PRINCIPLES OF MARKETING

After three years of following food and farming in Ireland, there is one thing that is repetitive when it comes to marketing. It is the highlighting of this or that new market opportunity.

Probably most famously of all we had the ‘opening up’ of the US for Irish beef and especially for ‘grass-fed’ beef from Ireland. Within hours a number of us were pointing out that the USDA and American Grassfed Association had clearly and legally defined what ‘grass-fed’ meant in the USA and Irish beef, or at least very, very little, was going to qualify as grass-fed.

Then there was the mention of Egypt followed by the realization that Irish farmers were not going to be able to produce beef cheap enough. One hopes for a better conclusion with regards to Turkey.

One reads about how proud Ireland is to be selling to something like 125 countries around the World. I think I recently said that Ireland ‘splatters’ beef around the World. It appears to be more about shifting beef per se rather that placing it into a market via a carefully structured supply-chain that is going to operate successfully infinitum.

For the farmers it is about downloading some beef cattle via the live export market in the belief that less animals will force their supply-chain partners to pay more for what remains in Ireland. In contrast, when one looks into the premium beef markets of say the UK one realizes that it is all about closely coordinated supply-chain partnerships. Meanwhile, Ireland operates supply chains that are quite contrary and often highly antagonistic. It is not the way forwards.

What concerns me is that it appears to be the blind leading the blind; albeit with a handful of supply-chain partners sitting in the middle who probably know exactly where they are going. The farmers complain [endlessly] about them but are they doing much about it; or able to for that matter?

As I have often written, I believe that there are opportunities out there for premium Irish beef products. The small-scale, family farming systems of Ireland should also lend themselves to producing small volumes of select, niche-market-targeted beef. Yes, there is a major issue of how the farmer gets that product to the premium-paying consumer and some small-scale, route-to-market investments need to happen. But why are they not?

I believe that at the core of the problem is good quality market evaluation. And it is not just a problem in the beef sector; it is a problem across pretty well all the sectors where new product development is needed. That is not to say that the major players in the agri-foods industry are not innovating and doing this work themselves; by and large they have the resources to do so.

It is the small-scale, local initiatives that could use direct-from-farm raw materials that are poorly served. It is the very premium food producing activities that could and should add value to farm produce that are suffering, or just not getting off the ground. By and large they are being left to find their own way; that is if they try at all. In the long-term it is a failing that is costing Irish farmers and rural communities dearly.

If Ireland is ever going to be a food nation that exports premium food products AND competes with France or Italy as a premium foods producer on international markets, the country’s potential producers need to be well supported when it comes to evaluating and understanding what their markets are and what products they need to create to best service the consumers within those markets. Just saying that you produce the best food in the World does not suffice.

These thoughts brought me back to my lecture notes from teaching at the University of London’s agricultural faculty. It also led me to look again at the farm / agricultural business management manual that I wrote for retraining academic staff in the universities and colleges of the old Soviet Union. Even back then we were teaching that market evaluation was the starting point. It is still highly relevant but in Ireland one fears that the idea of doing thorough market evaluations is lost due to the prevalent ‘commodity’ group-think mentality that grips the nation.

At the end of this post I will include the section from the manual on undertaking a market review [written in the mid-90s in an old Soviet era apartment block in Tashkent]. It is not necessarily an activity for a farmer to undertake [although maybe it is one for their representative organisations]. Some of the ideas will be relevant to those who wish to become food producers. It is, however, important that they understand what others should be producing for them. Too often they are, to be frank, being fobbed off with second-rate, superficial information. The bar needs to be raised.

Often this is not easy work and it is becoming more difficult in an era when [some] governments choose not to fund market information provision. Usually it is more likely to be found published by the foreign services of those who see themselves as trading nations. Make no bones about it, this is not easy work and often requires tenacity, but if one is going to consider themselves as being market-led it has to be done. What is the alternative, to make investments in the hope that the market is really there? Or, even more simplistically, that the global population is growing so somebody somewhere will want to eat your produce [or soak up your milk production], so long as it is cheap enough.

At times over the years I have found myself looking at products and working out the prices that exist at the various points in the supply chain from retail price back to the ex-farm price. For local sales with short-supply chains this might be relatively straight-forward. For international sales it may be more complicated but equally, give that it is more likely to mean scale, more important.

Just take the earlier mentioned cattle sales to Turkey. If this is seen as a great opportunity, where is the presentation of the data that relates to the Turkish market [consumption trends, retail prices, likely target level in the market, likely landed prices in Turkey, a summary of who are the likely competitors [to establish the likelihood of success], shipping costs, quarantine costs etc.]? It is important that those who are going to consider supplying the market are as fully informed as possible. And when they are as likely as not going to be Irish-based traders and farmers, this information needs to be provided for them. Is it and if not, why not? Without it are they not just being asked to take a punt in the dark?

The following is a section from my farm business training manual. As stated in the first paragraph, this was not written as a prescriptive methodology, it was about encouraging the student to ask questions and to be inquisitive. It was also about raising their expectations concerning the information they, as a manager, should expect to have to support their decision making. My apologies for the layout as this was a copy and paste from an old Word document.

2.2          PRODUCT MARKET ANALYSIS

Having identified the enterprise possibilities for the farm/food processing business the markets for the resultant products should be analyzed.  This should identify, for example, the volume that can be sold, the quality requirements of the market, the marketing channels and associated marketing costs and the product’s prices. The depth required will be dependent on the situation. For a small private farmer / food processor, the market may only be situated in the local town and therefore relatively easy to identify and analyze, whereas for a large agribusiness the market may cover a large geographic region and involve the supply of produce to various market outlets and processing businesses. In this case there will be many questions regarding, for example, quality requirements, supply volumes and suitable marketing and transport systems to consider.

2.2.1     Market reviews

The following sections do not define an exact methodology for undertaking a market review as each review will differ according to the business situation and product or commodity under consideration. It will, however, illustrate a few of the questions the manager may be looking to answer and a few of the general points that may warrant consideration when attempting to answer these questions.

2.2.2      Why undertake a market review?

The following points illustrate some of the reasons for preparing a review of a particular commodity or product market. It is frequently a valuable undertaking when evaluating and recommending changes to a business and, particularly, when the change introduces a new “unknown” enterprise to the business.

The main objectives of the review should be to identify;

  1. the possible volume that the farm can produce and market.
  2. the impact, if any, that the farm’s likely sales volumes will have on the market.
  3. the quality requirements for the market in question.
  4. the probable marketing channels for the farm’s produce or commodity.
  5. the probable prices the farm will receive for its product or commodity.

Points 1 and 2 are particularly important for products when the business’ proposed production volume could have an influence on the actual market. If it alters the supply and demand balance it may affect the prices received for the product. With commodities like wheat it is unlikely that the production plans of a single business will have any impact on the total supply situation and, hence, any influence on price.  With these commodities there is usually an easily accessible market for in the business’ production.  The downside of this, however, is that the business will have to accept the market’s price and the business will have little opportunity to influence it.

It is important to identify the quality requirements of an individual market to ensure production meets the markets specifications. Allied to this will be the identification of quality-price differentials within the market; i.e. the price premiums paid for produce of differing standards. If these price differentials can be identified questions relating to whether to target production at producing high yields of low quality or lower yields of higher quality can be answered.

Identifying the different marketing channels for a product or commodity will be valuable information when assessing a marketing strategy. Associated with this will be the identification of each channel’s quality standards and specifications and the marketing costs associated with selling the produce through a particular marketing channel.

All long-term and short-term planning will require price predictions which are soundly based or the results of the planning process will be of little value. The planning horizon under consideration will dictate the time period of the review; long-term investments will require long-term price predictions.

2.2.3      Geographic market size

An important initial deliberation with a market review is the geographic size of the market under consideration. Depending on the product or commodity in question it could be a global, regional, national, regional or local market. Defining this in the first instance can considerably reduce the time involved in preparing the market review. A few points to consider about the geographic size are:

  1. Product perishability. Will product perishability reduce the market size? Milk production is often located around major urban areas for this reason. It is an important consideration with fresh produce that requires controlled-atmosphere storage if it is to be transported any distance.
  2. Transport feasibility, technology and cost. This is linked to the first point but it considers cost.  In most cases it is possible to transport products to a market; but at a cost. Can this cost be justified or is it going to make transportation uneconomic?  Transport costs in relation to the product or commodity’s value should be considered.  It may be technically feasible to transport a bulky commodity like potatoes but does the transport cost in relation to the relatively low value of the potatoes make it uneconomic to transport the potatoes any great distance?
  3. Import protection. Do import regulations prohibit entry of your produce into another country’s market?  If so, the geographic market is immediately limited by the import restrictions. In some cases, imports may only be allowed when the home country’s producers cannot produce the product in question. The opposite situation will occur if the government restricts imports into one’s own domestic market. If this is the case home producers will not have to consider the impact of foreign producers supplying their home market. In these situations, one should always be aware of the possibility of import restrictions being lifted as their removal may have a major impact on prices. This is particularly important if long-term investments are being considered.
  4. With retail outlets, i.e. farm shops, the geographic market size may be limited by the transport infrastructure in the locality of the retail outlet. Access to the site may be determined by car ownership or the availability of public transport. These will all influence the catchment area for the outlet and the geographic area to which consideration should be given when assessing the potential customer base and possible competitors for a farm’s retail outlet.
  5. Product substitutions may have an impact on the overall market size under consideration. For example, sunflower oil can often be readily substituted by groundnut oil, palm oil, rapeseed oil and soybean oil. The market under consideration is not, therefore, a regional market for sunflower oil but the global market for vegetable oils. If a large scale production and processing system is being considered for one of the vegetable oils the market review needs to consider and encompasses producers and consumers in virtually all climatic zones as it is the world market which will influence the final price of the vegetable oil in the home country.
  6. Consideration should be given to whether the market size will change in the long-term. This will be important if consideration is being given to long-term investments. The time-scale for stability in the geographic market size may be dictated by, for example:
  • Are transport costs or feasibility a limiting factor, and will this change over the long-term?
  • Will there be a change in government policy relating to import protection?
  • Will the global trend towards market liberalisation have any impact?

After the market size has been identified the market can be evaluated in terms of, for example, its volume, supply base, demand and consumption, trade patterns and prices.

2.2.4      Production and supply

This will be a global, multi-national, national, regional or local review depending on 2.2.3.  Questions concerning production and supply will relate to, for example;

  • Who are the producers and suppliers for the market?
  • With retail outlets, what is the local competition like?
  • What volumes do they produce, supply or retail?
  • Are there seasonal supply patterns?
  • Are there “windows” within the annual supply profiles?

The above is reasonably self-explanatory. Another interesting question to consider, however, relates to identifying comparative advantages between producers. These advantages may be due to:

  • climate which influences yield, quality, disease incidence etc.
  • production costs; esp. labour costs where the producer is in a low cost economy or region.
  • national government support for market promotions, infrastructure etc.
  • the supplier being in a country with a weak currency where exchange rates movements reduce the supplier’s export prices. This can work the other way if the producer is using imported inputs.
  • transport costs and logistics; does a country have access to deep sea ports, international airports, existing supply channels etc.?

A final question to consider is; “how important will the supply volume from the business in question be in the overall market?”.  If it is a commodity market like wheat it will be very little; if it is a highly perishable product the volume may be significant.  If it is going to be significant will this influence future market prices?

2.2.5      Consumption and demand

This will be a global, multi-national, national, regional or local review depending on 2.2.3.  Factors to consider will include:

  1. Population growth.
  2. Per capita incomes.
  • As incomes increase consumption and expenditure moves away from basic staples towards more expensive alternatives. In the first instance consumption of staples may increase but as incomes rise further the staple will be substituted for a product which provides, or is perceived to provide, greater benefit to the consumer.  For example, as incomes increase food may be prepared with olive oil in preference to sunflower oil.
  • With retailing the income levels of customers may be important in determining the likely demands of the outlet’s customers.
  • As consumer purchasing power increases the purchase of luxury items increases.
  1. Changing diets. This may be due to, for example:
  • health concerns reducing fat intake or increasing the consumption of fresh fruit.
  • rising incomes may allow a switch to healthier products in the diet.
  1. Consumer preferences will influence consumption. Preferences are frequently related to incomes as an increase in purchasing power allows the consumer greater freedom of choice. Examples of expressions of consumer preferences are;
  • vegetarianism
  • buying processed foods rather than purchasing raw ingredients and preparing meals.
  1. Urbanisation. The urbanisation of a country’s population may encourage a move away from traditional staple diets. A developing country’s infrastructure may preclude the transportation of traditional staples into cities and it may be easier and cheaper to ship in an easily transported commodity like wheat as an alternative.
  2. Age profile. The age profile of consumers may influence demand as older customers may have a preference for traditional products. Younger consumers may favour processed prepared foods rather than prepare meals from traditional ingredients.
  3. Substitutability and price of competing products. An important impact on the consumption of one product may come from the price of an alternative product. If a consumer is considering purchasing a particular apple variety, the final selection of the individual variety is likely to be influenced by the price of other apple varieties. The consumer will be weighing up the benefits of additional quality and flavour against the price premium to be paid for different varieties. Pears may be considered as an alternative to buying apples so the price of pears will influence the buyer’s choice.
  4. Relationships with complimentary products. In some instances, the consumption of one product may be closely linked to another, i.e. it may be traditional to use two ingredients together in a festive meal. In these cases, a change in demand for one product may create a similar change in demand for the complimentary product.
  5. Government promotions and consumer subsidisation; i.e. promoting fresh fruit consumption on the basis of perceived health benefits.

2.2.6      Trade

The following are a few questions and points which may be important.

  • Who are the major exporters or suppliers onto the internal market?
  • Who are the major importers or consumers in the internal market?
  • Who are the major trading partners?
  • Who are the main competitors for the business, region or country that the review is being undertaken for?
  • When selling produce directly through retail outlets, who are the main competitors?
  • Is trade dominated by a few major businesses?
  • It is important to be aware of the influence of local or foreign government policy relating to trade. Import tariffs and/or barriers may be in place which will limit trade. Export subsidies may also exist and these may influence trade patterns and market prices.
  • Be aware of the impact of trade agreements between trading blocs?
  • Will GATT have an impact on future trade patterns in the market under investigation?
  • Will exchange rates have an influence on trade? As an exporter weak currencies are an advantage as it reduces the price of their products or commodities in overseas’ markets.  As an importer, a weak currency is a disadvantage as purchases become more expensive.  The opposite occurs for countries with strong currencies.
  • Exchange rates against the US dollar may also be important as many commodities are traded in US dollars.

2.2.7      Prices

Probably the single most important aspect of a market review will be the provision of information on which to base future price predictions for the product or commodity in question. Historic assessment of prices, quality-price differentials, market channel price differences etc., will provide a valuable basis from which to make future projections.  Frequently this information will provide the primary basis for what can be a very subjective prediction.  On occasions well researched and modelled price projections are available from economists, i.e. local agricultural universities and colleges, market research companies, but in many cases the manager is working alone so estimates based on experience and judgement may have to suffice.

The most important price information collated should relate to:

  • Average unit price
  • Quality-price relationships. It is important to identify price differentials relating to quality. Consideration can then be given to the likely trade-off between yield and quality and whether management should target production towards high yields of a lower quality and, hence, receive a lower price or towards producing lower yields of a product which is of a higher quality and which thus receives a high price.
  • Seasonality of prices. A knowledge of seasonality in prices will be important in determining whether production should be targeted at achieving the higher prices which can be received at the beginning and end of the home production season. If management attempts to produce early or late crops, will yield penalties and/or higher costs be incurred?
  • Market outlet premiums. Identification of markets where premium prices can be achieved may be important. If a market has price premiums what are the marketing, packaging/packing and transport costs associated with selling to this market? Hence, are the premiums great enough to justify the extra marketing costs.

Estimating long-term price trends will be very important when undertaking long-term planning for investment in, for example, land, orchard systems, storage facilities etc.

It is important to consider the impact of a government’s agricultural policy regime on price.  In some cases, it may actually dictate producer prices. A secondary question when considering long-term planning is therefore; how long will the policy regime exist?

As with the discussion on trade the impact of exchange rates on prices should be assessed.

Note:    When preparing data for a market review it will usually be based on historic trends.  Rather than providing data from every year it may be sufficient to present data from points in time; say every few years.  To remove annual variations when doing this it is, however, advisable to use a three or, possibly, a five year averages of the years around each point. In some counties of the CIS and Eastern Europe, however, it is possible that the rate of change in the economy in terms of prices and incomes will mean that historical data will have little value. In these situations, historical physical consumption figures and trends will be of greater value in making price projections.

 

 

IS RURAL IRELAND TO BE BREXIT’S COLLATERAL DAMAGE?

A month on and has one’s perspective on Brexit changed? Not greatly.

The positive is that the UK now has a new government; well at least a new old one. Is it a re-tread, a reshuffling of the existing Tory cards? Maybe not. Is Theresa May going to govern for the People and not the few? If so has she really been a long-term ‘sleeper’ for the political centre?

Her first steps suggest a hidden sense of humour! Or is it a deep sense of political strategy? She has firmly dealt with the Brexit leadership. Michael Gove sacked, guilty of political shenanigans and Boris, like an errant schoolboy, sent out into the big wide world to apologise for his past misdemeanours; one of which the PM may consider as Brexit itself.

Is there a hint of how the PM feels about Brexit in her treatment of Brexit-supporting rural Britain? The country’s farmers chose to leave the EU and in return the PM has gifted them Andrea Leadsom. Is it a match made in heaven?  Maybe not as she is a lady who we can expect to favour free markets and open trade. I expect that there are already a few long faces in the UK farming industry as they contemplate life without support payments. It is almost as if the new Minister has been chosen specifically to lead Britain’s farmers off into the wilderness? Is this all just a little bit Machiavellian?

But this is not about UK’s farmers; at least they had a vote. Ireland’s farmers did not.

For Ireland’s farmers and, by default, rural Ireland, Brexit could not have come at a worse time. Prices are below the cost of production and farms are being held together by off-farm earnings and support from the EU and Irish tax payer. Nothing about it is remotely satisfactory. The Brexit-created instability around Ireland’s primary export market helps not one iota.

For the beef sector Brexit is another challenge among a progression of challenges. The sector is already a misnomer surviving as it does with apparently no income? Does its resilience lie in it being small-scale, part-time and often done for the love of beef farming? If ever there is a reminder that life is more than about money it has to be Irish beef farming and, in particular, Irish suckler beef. Brexit will mean change for the beef sector as, in all likelihood, its main market becomes more exposed to global trade [will Leadsom lead anywhere else?].

One can already hear Scottish farmers realizing that their future is very much tied to the already well recognized words “Scottish Beef” and their beef’s geographic origins. Some in Ireland may suggest the same but it is an illusionary thought as, in the UK market, Irish and Scottish beef are poles apart when it comes to consumer-facing presence. Simply, over the years Ireland has failed to develop the UK market. The logical explanation is that an oligopolistic supply-chain has focused on high volumes and low margins leaving little room for the promotion of premium beef into niche markets. Beyond that, is it fair to say that premium, niche-marketing is not Ireland’s forte?

And before one mentions the retail Angus scheme; does it yield a farm-gate price premium for its 50% Angus carcasses? Not really. And is that going to change when others the World over are also producing Angus beef? A niche is not a niche when everyone joins in. Ditto with the Hereford retail schemes. It is not by chance that the Beef Industry News reported that the French have long since thought that these retail schemes, with their lack of supply control, were flawed.

Of course one should mention in the defense of the Schemes that they originated at a time when traditional breeds were in decline. One also doubts whether they could have envisaged their own future success. Their sire only rules have, nonetheless, left them vulnerable to easily creating supply and the erosion of premiums that has been their destiny. The Scheme offer important lessons for the future about supply management but first the mechanisms have to be developed to allow farmers to actually put these lessons learnt into practice.

The retail beef schemes provide a good example of what happens when farmers lose control of supply. And too often the farmers themselves are all too guilty of aiding and abetting over supply. The rush to achieve higher yields [per cow, per hectare, per person…] has rarely been tempered by caution over what it will mean for the market price. The economic ‘technological treadmill’ is well named; the hamster within just runs faster and faster. Getting on board the wheel appears to be especially liked by Irish farmers; albeit that they are often given a more than firm bunk-up onto the treadmill by their advisors. By contrast how many premium product producers have actually made a virtue out of tradition and constancy? That said, it is not about ignoring technology; it is about selecting that which can improve farm income and one’s lifestyle.

Overall, one cannot see how producing more for less is ever going to translate into improved farm incomes so long as farmers operate in an environment where they have absolutely no control over their farm-gate price. Brexit will mean even less, if that is possible. For a proportion of the Irish beef sector and, especially, the suckler farmer the future has to be about premiumizing the farm-gate price and that requires changes on the farm and changes in the supply-chain. Brexit just makes the need to change even more imperative; but will Irish beef farmers be willing to embrace change? Will their leadership even be willing to promote it?

Two years ago the dairy sector was bullish and buoyant. To many the good times were here and there was little reason to think that they would depart anytime soon. Quotas were going and it was all about expansion, investment and, as often as not, borrowing to do so. Would a 2014 Brexit vote have dented that confidence and brought about a pause to imbibe some realism?

It was obvious [when I arrived in Ireland] back in 2013 that a bubble was growing in the dairy sector. It was an observation that was based upon supply-side analysis and global reactions to the China situation. Even then one was saying that Ireland [held back by quotas] was going to arrive at the party after it was over. Indeed, the revelers had gone and Irish farmers were greeted by no more than the odour of stale beer. If it was just about China and over-investment in the supply side [and especially in milk powder supply chains] the downturn may have been manageable. But then came the Russian market embargo and the decline in the purchasing capacity of the oil-producing nations. For Irish farmers we now have a Brexit vote that is likely to cast a long shadow over the market.

The above said, one cannot overlook a major depressant for the future Irish milk price; that the post-quota milk expansion has been into milk-powder supply-chains. Due to their scale Irish dairy farms are unsuitable to supply commodity milk powders. The international comparative position of Irish dairy farms was ignored and too much was said about how, supposedly, competitive the Irish grass-based model is [it is negated by scale]. Competitiveness is also dependent on the relationship between grass and cereals and that has gone against the grass farmer in the last year or so. All in all, one wonders just how much farmer-owned capital has been spent on chasing the pipe-dream that Ireland could be a major player on global dairy commodity markets? It has been a lot.

Even disregarding Brexit and its impact upon Ireland’s main export markets, just how soon can we expect to see a significant bounce in milk prices. And by significant one means one that will return to the farmers a sustainable milk price of say 35 cpl [notwithstanding any survival [i.e. not for investment] loan repayments]? Just what will trigger this major market price shift?

Will China return in a significant way? Or will China choose to buy when the prices are low? One can assume that the Chinese will realize that the EU will need to clear its intervention stocks at some point. Ditto for now more cash-strapped oil producers. As to Russia; will we finally see the rise of Mother Russia as an agricultural super power? And at what point will we see Poland and Romania join Germany and France as EU food-producing powerhouses? It will happen and in a time frame that may leave a commodity-focused Irish agricultural sector floundering for a long time yet. Brexit is only the eye of the storm.

And lest one forget, a part of that storm is climate change. The policy demands surrounding climate change are going to impact upon Irish farmers and ignoring such is not an option. Yes, improved production efficiency will help but will that do more than touch the edges of what is needed? A wholesale review of Irish farming practices in the context of climate change has to happen and happen fast. Steady as we go with current systems is unlikely to suffice.

On a climate change note, one will return again to carbon sequestration. The more one reads the more one believes that resolving climate change is going to be about returning the carbon released by farming over the last 150 years to the soils from whence it came. ‘Carbon sequestration’ could [one would like to use a more definite ‘should’] become the great global clarion call of the next decades. But where does Irish farming stand on this issue?

It is rightfully said that Ireland has a small carbon-releasing tillage area. It is not like the great plains of Russia, the Ukraine, Romania or the ploughed-up-for-soybeans Pampas, to name but a few. It is not even like the plains of East Anglia. Ireland’s tillage lands are not a major problem in a global context. The country also has a great deal of carbon-storing permanent pastures. One can question whether Ireland should be penalized for a livestock-biased agricultural industry based upon emissions alone. It should be assessed on net emissions and that include measuring carbon sequestration; after all it is sequestration that can reverse atmospheric carbon levels as opposed to just slowing their rise. Carbon sequestration is not, however, a way to excuse Irish farming from change. The whole gamut of farming practices needs to be assessed and changes made. Irish farming will have to find the best and most effective solutions possible; its national climate change commitments will demand that and farming has to look to deliver.

To add a further degree of vision, carbon sequestering farming practices also need to be included within the presentation of Irish farm products as part of a sea-change away from commodity production to products that can enhance the farm-gate price and farm incomes. So just how far can Ireland offset its farming emissions? Just how close can it get to zero emissions? If it can do so and provide the evidence of such, then it will have something to crow about in the market place. In climate smart agriculture, Ireland does need to be a global market leader but it needs to be so in a way that the rewards for being so go to the farmer [who takes the necessary actions]. It is not an achievement that should be left to be milked by others in the supply-chain. And if proactive action is not taken by the farming community and its leaders, it sure will be.

There is a further outlying thought on the issue of carbon sequestration. There are countries that have massive tillage areas that offer opportunities for carbon sequestration. And it is possible that reintroducing grassland and specific grassland management practices may have a massive impact upon the restoration of carbon to the soils. It is quite possible that many locations will, therefore, see livestock returned to farming systems; a factor that may in itself impact upon commodity markets. Further, we may see a rise in ‘grass-fed’ and ‘eco-friendly’ products resulting from a need to return carbon to the soil in many parts of the World. So do not assume that Ireland has a right to these ‘green’ markets; others will be moving into them if they are not already doing so.

A major concern for the author is whether Ireland’s agri-food supply chains are flexible and agile enough to exploit market opportunities and especially the premium-paying ones that many of the country’s farmers need. For too long it has been about consolidation. Should one now ask whether that very consolidation is what leaves the farming [and rural communities] overly exposed to the market shocks of which Brexit is only one. Is it too easy to highlight market and price volatility and to ignore the supply-chain structural changes and directional choices that have exposed Ireland’s farmers to successive market shocks? The farming leadership needs to be asking the questions rather than, by talking up ‘volatility’, volunteering the excuses.

If Irish farmer are going to survive in anything like the numbers that currently exist [or do we accept 20% and further rural depopulation?], the country needs to be able to exploit the opportunities that an increasingly issues aware consumer should create; be they in the UK, the EU, the USA, the Middle East, India, China…. Ultimately this is not just about Brexit; it is about the reality of cumulative market changes and the need for a wholesale change that allows at least some farmers to provide high-value raw materials for high-value, premium-paying markets.

Into the medium and longer term Ireland’s farming [and political] leadership needs to understands that many Irish farmers have to be at the bedrock of supply-chains that supply the World’s top 10% of consumers [as far as price paying]. For them anything else [even the 60-70% mark] will not suffice. And banning the word ‘commodity’ would be a good start as, for a country with Ireland’s limited farming resources, it is a word that belongs in the Jurassic age. Its continuing use serves nobody apart from the few who currently inhabit Ireland’s too few routes to market.

And lest one forgets, for the tillage sector, so long as it is mainly a producer of raw materials for farming sectors that are themselves on their uppers, what prospects are there? Tillage farmers need to sell into farming sectors that supply a premium product into a premium-paying market. There is a large element of mutual destiny and Irish tillage needs to see the evolution of a genuine, top-10% market supplying livestock sector. And it needs to see market differentiation so it can escape from the inevitable farm-gate pricing based upon the price of what feeds can be imported for.

There will be a future for some to compete on markets that are heavily influenced by ‘global’ markets but it will be the few and not the many. The farming and political leadership seems to be largely unable to grasp this particular nettle but it needs to and fast. They have to start creating and implementing policies that are going to change the face of Irish food and farming for ever. Period.

One can see how easily a debate on Brexit becomes a far reaching discussion. It is inevitable because Brexit is just one issue among many facing Irish farming at present. It should, nevertheless, be the one that focuses minds. It should be focusing minds on how to support Irish farming to make the transition from commodity producer to product creator. Yes, it will remain involved in the former for a very long time yet; it is an inevitable given the investment that has been made into commodities. That said, the change in mindset is long overdue and investment at all levels of the supply-chain now has to begin so as to enable some Irish farmers to produce for supply-chains and consumers who are able to return a sustainable, market-derived, price to the farmer. Anything else is not an option.

GIVING DIRECTIVES OFF PARTIAL INFORMATION

An all too common observation about the directives given to Irish farmers is that they rarely seem to be based on a thorough understanding of the whole picture, or at least, most of it.

One of the most frequent examples is the use of partial costings to ‘illustrate’ that Ireland’s dairy farming model is low-cost and internationally competitive. It is an illusion which provides the foundations for writing strategies and making major decisions. There are academic justifications for using partial costings when making international cost comparisons but they do not provide reason for using the same when assessing the long-term capacity of a farming industry to produce low-cost milk. Simply, long-term costs have to account for family labour, debt burdens and capital employed. To ignore them is a fallacy and it is an error that will prolong the pain within the dairy sector.

Anyhow enough said about the dairy sector; it appears that the tax payer is responding to appeals to help it through its difficult times. It will be interesting to see what comes next if the long-talked about cyclical upturn does not happen on cue. Will the industry’s hierarchy be able to continue to deflect attention away from its new expansion-era product mix and its recent, powder-focused investments? Achieving bottom-of-Europe prices is not sustainable for small Irish dairy farms.

The ICSA has been complaining that too much focus has been placed upon the dairy farmers. The bad news tends to come thick and fast for the beef farmers and they are rarely not in crisis. One wonders why they continue. They do so for a number of reasons including tradition, beef is often part time and can be fit around off-farm money earning, and the presence of support payments.

It is interesting to read how often beef production is brought into question in the press; farming and otherwise. There is clearly an anti-animal farming lobby around. Within the broader agricultural industry, there are also those who question its future and certainly the future of the ‘inefficient’ suckler farmer [where ‘inefficiency’ is determined by profitability and carbon emissions].

In the context of profitability is it right to judge the viability of such an enterprise on profits per farm, per head or even per hectare? Most likely the farmer’s decision is made on the basis of profits per unit of labour employed. It may be the case that ‘dog and stick’ farming may yield better returns per hour than full-time beef farming. These days it may not lose as much as other enterprises.

And one should not forget, ‘profit’ is not just about money, it can be much more altruistic but no less valuable. It is not always just about economics. Many farmers will carry on simply for the love of what they do. They may choose to cross-subsidize their farm from other sources of finance, but that is their choice. And no amount of discussion group attendance is going to change them; not least when it means more time commitment for less return per hour. Should we criticize them for contributing too much emissions to the industry total? Not in a free world where we still judge a person’s right to emit on the basis of whether they can afford it in monetary terms. And maybe, as I will return to later, we may be wrongly judging some farmers on emissions and not NET emissions.

When it comes to implicating cattle farming in terms of causing climate change, just how great is the partial information problem? Just how much of the cited evidence is based upon adding up emissions only? Clearly there is a lobby who want to see animal agriculture brought to a halt and carbon emissions is a stick to beat the industry with. Is it, however, a balanced approach? And is the information upon which judgements are based totally up-to-date in what, upon research, one can suggest is now a fast evolving subject that has been previously neglected?

One is detecting a rising awareness that all cattle production systems are not equal. It may be that emissions are fairly linear in terms of emission per unit of output [although cow maintenance energy usage is likely to create some differentials] but just ask for tables of emissions for different cattle farming systems. This is fundamental farm budgeting information but it does not seem to be readily available. Both lobbying and policy seems to be based upon broad-brush information that lacks the subtleties needed to make sound, informed decisions; be it at the policy or farm level. From a farm business management perspective, we need to move on from counting emissions to understanding emissions and carbon sequestration. We need to judge cattle farming on NET emissions; not least because some are suggesting that some systems can be net sequesters of carbon.

As a result of a lack of information are we in danger of wrongly judging cattle farming systems? Can one equate the situation to the diesel / petrol situation whereby a carbon dioxide emission measure scored diesel engines better than petrol ones? Now, when factoring in nitrous oxide, is the reverse the case? A core part of business evaluation and decision making revolves around the use of key performance indicators [KPI] and doing so is fine; so long as you use the right KPI. With cattle farming it is looking a distinct possibility that we are starting to use the wrong KPI’s. If so it could lead to some major misdirection of the cattle industry and the resources devoted to supporting it.

The Irish cattle industry is going to be under increasing pressure from the climate change direction. Its expansion plans are questionable; not just based upon a simplistic emission-counting KPI but also from a farm income KPI. Are these KPI’s going to improve significantly by expanding across the board or substituting part-time suckler farming with, say, full-time dairy farming [not forgetting that one should also use a KPI of income per labour or management hour] or alternative beef systems? And one should also remember that there are KPI’s that relate to other environmental issues [nitrates, biodiversity and landscape management]; some of which are quite subjective and difficult to quantify. It is looking like an increasingly complex subject.

At present the focus is on production efficiency and calculating carbon emissions. Vast resources are being dedicated to it but is it too simplistic? Are we locked into KPIs that are already being out-dated? Are we also embedding them into promotions that highlight ‘sustainability’ when we do not have the full picture? I frequently talk about the need to premiumize farm-gate prices through the creation of consumer-facing, multi-characteristic products as the only way Ireland’s small farms can survive in an international market place. Getting it right in terms of NET emissions and other environmental criteria is a part of those products. But just where are we now?

I have written about Brexit at length and how it makes it imperative that Ireland moves away from commodities and into products. Ireland needs to adopt climate smart agriculture but it has to be done in a way that places its activities transparently in front of the consumer and adds value at the farm-gate. We need farming systems that create products that meet the demands of the consumer at one end and the needs of the farmer at the other. At present, it is too much about those in the middle. As with a Belted Galloway cow, it is the two black ends that count, the white bit is just there to join them together! We need food chains to operate in a similar way.

Climate change will inevitably impose some constraints on cattle production. This can be seen as a constraint on expansion-orientated production or as an opportunity to take a brief step backwards and to reassess just what is going on. If a number of KPI’s are used to evaluate systems and those KPI’s are sufficiently broad-based it may be that we have to rethink ‘old-fashioned’ suckler beef systems. We may have to rethink the way we graze, the breeds we use, the abandon with which we apply nitrogen, the use of clover, the employment of multi-species swards…

Grass-fed may be at the core of more sustainable beef production but it is unlikely to be the whole story. There is a long list of relevant characteristics [to include within a premium to the consumer product] and it is a list that will be about more than cost reduction through higher growth rates and attaining a perfect 365-day calving index. Small-scale beef farming will have to become far more sophisticated than that to survive. It may also be rather more interesting and appealing to those who do it for the love of it as much as for the money. This will make unpleasant reading for some but the alternative may be that we dismiss some farming systems that could offer a better way forwards simply because we are not judging them on complete and holistic criteria [or KPI’s if you wish].

Meeting the complete and complex demands of the higher-income and/or more food-aware consumer [in Ireland, the UK, the USA, Japan, Europe, the Middle East…] is an opportunity and it may be the only one for small-scale Irish family farms facing Brexit and climate change. It is however only an opportunity if the best systems are being adopted in terms of delivering upon net emissions, environmental and landscape issues, animal welfare and eating quality. And it is only an opportunity if such a complete product can actually be delivered to the premium-paying consumer. To achieve all of this is going to take some vision and broad-minded and rapid thinking. Climate change is upon us but we appear to have been slow out of the blocks when it comes to evaluating our cattle farming systems and establishing an information base that will allow us to properly determine the way to go down on the farm. As a consequence, we need to get more fully informed and fast.

HEADING INTO A DECADE OF MAJOR CHANGE?

So Brexit has happened and as the Leavers will tell us, “live with it”! The Remainers may talk of a second referendum but for those in the farming and food industries, we need to plan for Brexit. And as I have said, it has major implication for Irish farming. It is probably the most significant event for rural Ireland since the Emergency.

As a consequence of Brexit Ireland may be facing freer global trade faster than the anti-TTIP / Mercosur campaigners could have envisaged a month ago. Just how serious are the consequences of Ireland’s main export destination being opened up to New Zealand, Australia, Argentina and Brazil. And we may even see some surprises in that market like Russia exporting GMO-free products to the same premium-paying customers that Ireland needs to target. An independent Scotland may also be in the mix; and one can assume that the Scots will focus on the top of the English market.

Ireland sees itself as a producer of World-class food. At the moment its farmers are World-class producer of raw materials for others. This means lower prices at the farm gate. For the farmer-owned co-operatives this means lower prices at the co-op’s gate. It is a system that works well for the downstream supply-chain but not the farmer. Is it sustainable for the farmer into the future? Was it ever a sustainable model when fully-costed? Or is it one that has to be supported by the CAP/taxpayer and off-farm incomes? Low prices simply do not marry up with small family farms.

Ireland needs to position itself at the premium end of the market as its small-scale farms need premium prices to be financially sustainable. It is a reality that it has failed to grasp, not least due to illusions over its national competitiveness. A viewpoint that means it has failed to grasp the need to become product and not commodity focused and, critically, to develop a high market profile for Irish produce. If Brexit happens, it is the latter that could be apocalyptic for Irish farming and, by default, rural Ireland. Food Harvest 2020 and its 2025 successor’s expansion plans for feeding nine billion people in 2050 will then be seen for what they were; short-term, Celtic-Tiger-boom thinking that encouraged investment into a cyclical downturn [or is it a return to reality?] that may now get a whole lot worse courtesy of a Brexit.

Brexit is nevertheless just one potential change that is on the horizon. It will have major impacts but there are many other issues that may be a coming over the horizon together. They are diverse but all could lead to the next decade being one of great change for farming. Many will pose further threats to an Irish farming industry that is locked into commodity supply chains and a commodity-producing mentality [the single greatest threat to the future of Irish family farming]. If one takes a business-as-usual approach to the coming years, the future is unlikely to be rosy. However, if one recognizes what lies ahead and refocuses to meet the demands of a changing market place, Irish family farming could be well placed to take advantage of change.

The following are a few thoughts on what may be the next decade’s ‘breaking news’.

FOOD AND NUTRITION

The author is not a nutritionist so the reader may wish to take the following with a pinch of salt. If, nonetheless, one believes that there has to be clearer link between the consumer and the farmer, an awareness of food trends is needed and the nutrition debate has to be followed.

Is there a problem arising from the long-time delays between what we eat and the consequences? If one reads, for example, The Big Fat Surprise by Nina Teicholz one could be forgiven for thinking that there is. One can see the emergence of a debate around long-held views about our diet. One can also see that we will not get any definitive answers for a long-time. In terms of advice, changes may occur but they will most likely be gradual rather than radical.

The question for a producer of foods for premium markets has to be where their market segment is going. Are their consumers more aware of issues like nutrition? Are they more likely to make independent choices [ that they have the wherewithal to support]? The benefits of organic may still be debated but does that stop those who can afford it from buying it? Indeed, if the price differential did not exist between conventional and organic, just where would organic consumption levels be?

Some might say that the science questions the benefits of eating organic but ultimately what the consumer wants the consumer gets; assuming that they can afford it. And the ‘mavericks’ amongst food consumers often seem to be willing to to fund their own choices? Also, is the rise of social media increasing awareness of alternative ideas and, hence, the choices that are being made by some. All of this makes predicting where food trends are going that much more difficult.

Debates to follow include the sugar / ‘bad’ [highly refined] carbohydrates one. Some may suggest that the obesity / diabetes type 2 crisis is rooted in the over consumption of this food group. It leads onto an interesting issue of where one sources their calories from. Others are now suggesting the reverse of the low-fat / high carbohydrate model is the way to go. Just what are the implications for food producers if more people elect to try a higher-fat / lower-carbohydrate diet. As with the rise of gluten-free diets, meeting these new consumer demands is another challenge for the food and farming industries. For a grass-to-protein/fats, farming industry it may create opportunities.

A second debate is the good / bad fat one. Are traditional animal fats like butter becoming ‘rehabilitated’. Consumption patterns may support this view. A move to a higher-fat diet may benefit beef, butter and hard cheese producers. Then there is the Omega 3 versus Omega 6 question and whether mainly/totally grass-fed dairy and meat products are the healthier option.

Another debate is highly-processed versus low-processed foods. Is low-processed [often traditional, artisan and ‘natural] the way to go? Is it a food trend that correlates with to premium products? Will this provide opportunities for Irish farmers to produce natural, ‘simple’, traditional foods and thus get closer to one particular consumer?

Clearly there is a demographic that is happy with highly-processed, ‘innovative’ foods that have technological and scientific origins and this cannot be ignored in a country that has a food-tech capability. How much the food-tech sector trickles benefit through to the farming community is another matter, but one cannot under-play ‘agri-foods’ role in Ireland.

As an aside, one would suggest that a clear demarcation between the ‘agri-food’ and farming sectors is made. It would help clarify confusion over, for example, imported raw materials for food processing. A case in point is the use of palm oil as the fat in baby nutrition products. Infant formula is often heralded as an Irish success story but does it yield returns to farmers? It would be better if farmers understood the nature of the agri-food sector and the farming press and others stopped hood-winking them about the benefits they gain from supplying raw materials to a sector that could source the same ingredients via international trade [thus helping to peg local Irish milk prices to the wider ‘global’ dairy market]. The farming community should then aim to shift towards providing for supply-chains that can provide the farmer with a better income.

The next few years for nutrition is going to be fascinating. Will there be a revolution, gradual change or a verification of what has been preached for decades? For instance, will the food pyramid with its emphasis on carbohydrates survive? Or will we move to teachings about balancing blood sugar levels? If it is the latter it will have major implications; not least for our sourcing of calories, the combination of foods we eat and understanding of, for example, the glycemic index. These changes will have consequences for farmers and food producers and interpreting them will be a challenge; not least in the context of seeing a change and translating it into an opportunity for Irish farmers.

CONSUMER DEMANDS

The Irish farming industry is supply-driven rather than market led. In part this is due to its historical distance from its export markets. It is still inherent in its commodity emphasis and its concentration on cost efficiency as opposed to price enhancement; something that is embedded by a disconnect between its two national research/advisory and marketing agencies.

Market-led means understanding what your targeted consumer wants and producing a product that fulfils that demand. It is not about billions of people want to eat so just produce food [when you hear talk of feeding the nine billion by 2050 you can be pretty sure that not much sophisticated marketing is happening]. In comparison, the feeding of the premium-price-paying consumer requires sophistication and a willingness to understand the multitude of factors that are driving their choice.

So what are ‘produced-on-the-farm’ product consumers looking for in their products?

ANIMAL WELFARE is clearly a major issue. It is interesting to see the promotion of ‘free-range’ cows in the UK. Will it catch on? If free-range eggs now account for more than 50% of eggs sold in the UK, maybe there is a lot of mileage in free-range yet. One tends to talk dairy and beef in Ireland, but will this impact upon demand trends for poultry and pigs? Should Ireland be looking to develop its pig and poultry farms to meet the ‘ethical’ demands of consumers and, if so, does this provide tillage farmers with an opportunity to supply eco-friendly grains to a premiumized livestock sector?

CLIMATE FRIENDLY [as well as eco-friendly] will become an important product characteristic for some. Here we are talking about enhancing consumer-facing credentials [which are not to be confused with business-to-business accreditation of sustainable supply-chains].

In recent years much has been made of emissions from cattle farming and it is a major issue in Ireland. It is, however, a debate that needs to move on from emissions per se to net emissions. It may be the case that emissions-reduction concepts have not yet caught up with the idea that some livestock systems may be a valuable [possibly invaluable] tool in returning carbon from whence it came, the soil. We need to ensure that we are not about to throw the baby out with the bath water in our haste to identify ways to reduce emissions. This is not to provide an ‘opt-out’ for Ireland, it is about ensuring that the systems used for livestock production are the least damaging [or enhancing] ones possible. The merits of the systems then want placing in front of the food consumer.

The term CARBON SEQUESTRATION has become of significant interest to the author as he has researched just how to incorporate carbon emissions into farm management planning. The latter should be straight forward; just determine the emissions from different production choices and then work out how to maximize farm income within the context of an emissions constraint. Apparently the information regarding carbon emissions from agricultural activities is not yet that sophisticated. It begs the question of how much carbon emissions related policy is being done on the hoof? At present, are we being asked to make serious policy decisions on incomplete information or, worse, information that is becoming dated and superseded?

A number of people in the farming industry are now talking about net emissions and saying that we are quantifying emissions but not sequestration. Are there major differences between farming systems in terms of net emissions and are they being over-looked in favour of the more headline-grabbing emission figures of recent years? The devil is in the detail but why let that get in the way?

This is not about making excuses for the livestock industry; it is about taking a holistic view of the situation. And not least because there is a school of thought that is saying that livestock and some farming/grassland systems can be net sequesters of carbon and that by taking a blanket-thinking approach to carbon and livestock systems we may be ignoring vital knowledge. If a large proportion of global warming can be traced to carbon released by crop production, maybe we need to be looking more closely at how to develop farming systems that sequester carbon into the soil. Grassland management and ruminants may be key to doing so.

Achieving carbon neutral foods [or better] is likely to be a fast evolving subject. In the context of global climate change agreements, it may also move up the agenda and into the realms of consumer awareness. If so, and given Ireland’s emphasis on pasture-based farming, Irish foods need to be to the forefront in terms of the farming systems used and how the ensuing products are presented.

SOIL MANAGEMENT has been something of a Cinderella subject over the years. Will it now become something of a trendy issue? France is indeed setting about increasing the carbon stored in its soils by 0.4% per year. Will we all begin to ask about the health of soils and those billions of organisms that lie within? In a decade’s time are we going to see food being promoted on the basis of how soil, the most fundamental of resources, is being managed? Do not rule it out.

On a related note, will ARTIFICIAL NITROGEN USAGE become an issue of greater consumer interest? Will using less be a broader than regulatory issue. One cannot expect to see a seismic switch to buying organic due to market price differentials but do not be surprised if farming systems that are less reliant on artificial nitrogen come to the fore. Irish farming is dependent on imported nitrogen fertilisers; will this have to change? Will there be an increasing emphasis on the use of clovers? Will this extend to using more multi-species swards? Are we going to see the rise of the [nitrogen-fixing] legume? Hence, will the term ‘diversity’ [not just biodiversity] play a greater role in farming decisions and in farm enterprise diversity? Will the premium-paying consumer be interested in buying into farming systems where diverse objectives are a highly visible priority?

And one has not even touched on the question of nitrates and water quality. Are these all issues that need to be considered not only in terms of regulation but also within product promotion? At every turn there is what could be considered a constraint; or are they opportunities?

One can already hear the ‘technologists’ screaming ‘foul’. Is one suggesting that it is about EMPLOYING LESS TECHNOLOGY? In a fashion one is but it is really more about replacing one technology with another. Technologies reach their use-by date and others replace them. The new ones may look ‘retro’ but they will evolve and they will certainly need as much management as current systems. It is always about change and that means that some ‘modern’ approaches become superseded. And ultimately the choice lies with the consumer not the provider.

There are many issues ahead of us and we do not have the answers to many. It may mean creating new techniques and technologies and for some they will be a backwardo step, to discard the modern for what may be viewed as more traditional. Ultimately one has to recognize that the consumer is king and it is the consumer who will decide what is acceptable or not. And the further up the value ladder one goes, the more aware and demanding that consumer will become.

The choice for Ireland, a small country ‘designed’ for niche market food production, is whether it is going to go with the flow and produce for an issues-aware, premium-paying customer or is it going to go down the techno-food route even though that may only deliver for its food industry. It is the route it is taking at present and one could argue that farm incomes reflect the choice.

It is interesting that a slogan of the Brexit Leave campaign was “Take back control”. Are we now at that juncture for the Irish farming industry. Does its survival depend on taking back some control beyond the farm gate? Does it need to have a greater say in how its routes to market are operated [and owned]? Equally, does it also have to take back control when it comes back to the resources it uses and reducing its dependence on technologies owned by others? If so, rethinking is needed.

And when it comes to issues like GMOs, the debate has a way to run. Nonetheless, the author would short-circuit this debate by asking the simple question; are they technologies that your consumer wants to see employed in the production of their food? If the answer is no, that is the decision made. Of course this point will be rejected by many who say that the consumer should trust the science and they should actually not be allowed to halt the adoption of certain food-producing technologies. It is fair to say that many consumers do not have an issue with some technologies [or is it a case that they cannot afford to?] but are they the target consumers for an improving-farm-incomes-focused Irish farming industry? Consumers have to be listened to or they will take their custom elsewhere. Simply they prefer to make their own judgements and they may not be made following due consideration for the science; that is just the nature of consumers.

I am not sure if the term ‘FARMER WELFARE’ is one that would ring well with the consumer but given the on-going farm income crisis maybe it should? That said, the concept of ‘Fair Trade’ is now well established and it is not an issue that should be over-looked, not least when products actually have their roots down on the family farm. It is a characteristic that is not well presented within Ireland’s food products and it needs to be. Is, however, promoting the family-farm origins somewhat inhibited by the presence of a processing sector that is, by and large, industrial in scale?

LOCALIZATION is something that I have written about before. It is a difficult band-wagon to climb aboard when you are an export-orientated country. The idea of being ‘everybody’s local’ is one to consider. It is not just about being local; it is about presenting a range of characteristics that illustrate that the product is what you would be able to buy locally even if you cannot. In this, Ireland’s strong international image is a big plus. There is also no reason to believe that Ireland’s Diaspora would not help promote the charms of rural Ireland that ‘local’ would encapsulate. There is an image of Ireland and its food products that is still poorly presented and, sadly to say so, very poorly presented in its vital English market. That needs to change. And maybe a start would be to identify what premium-paying English consumers are looking for; it may just be that its near neighbour is better positioned to provide it than it currently realizes.

TRACEABILITY AND CREATING THE COMPLETE PRODUCT is a necessity when meeting the requirements of demanding consumer. To begin with traceability has to go beyond the broad, all-inclusive nature of national quality-assurance schemes. They can set a base line but given the large size of the hoops they put in place [so as to be near all-inclusive] they become easily mimicked. They confer market access and as the first-mover advantage wains; little or no premium. Packaging and presenting the unique selling points of a product is somewhat more challenging, and it needs to be. If it is not, why should a consumer pay a premium for the product? The creation of complete, premium products is something that Ireland is particularly poor at and especially so, for an island that sees itself as a food island with a glowing international reputation for its food.

BREXIT MEANS FAR MORE EXPOSURE TO INTERNATIONAL MARKETS

One cannot doubt that Irish farming will be more exposed to broader international markets post Brexit. It is something that will rapidly make ‘feeding the growing global population’ look like the hoary old chestnut that is. For a country of Ireland’s size, playing a role in feeding the World’s population is not that relevant. Its scale and farming structure means that it needs to focus on consumers who can pay a price that makes Irish farming economically sustainable. It is a shift in mind-set that is more important now, post-Brexit, than it was before. And it was important then.

To this end, one cannot under-estimate the importance of understanding your own production and cost base [in absolute terms and compared to market competitors]. It needs to be fully appreciated going forwards, not least because marketing decisions need to be based on an understanding of what is technically AND financially feasible. One also cannot underestimate just how crucial the coming year or so will be to Irish farming and to rural Ireland. Does farming continue to focus on producing low-cost commodities with an almost inevitability that farmers will be forced out of the industry to make way for a few? Or does it decide to embrace change AND the consumer.

Brexit may well reduce the CAP pot and, consequentially, reduce farm support payments. Brexit and a greater exposure to global markets will most likely bring a further chill wind. Is it realistic to assume that Irish farmers, who are already facing pan-sector income crises, will be able to economize their way out of trouble and into greener pastures? If the answer is ‘probably not’, just what is the solution? Does it lie in seeking to get greater rewards from the market place?

An analogy is to look at local food production. In the past the countryside was dotted with small creameries but they were replaced by large-scale centralized processing. Farming will follow suit and farmers will exit the industry due to unfettered economic forces. That may be acceptable to some but it will not be to others. The question is whether the latter are going to demand that this future course is changed. If they do not, rural Ireland will not be as before. For those who wish to see a thriving rural Ireland, it is a time for a long-overdue change to the financial outcomes from farming and that means concentrating on farm-gate price premiumization. And that is a whole new ball game, but then again what else is Brexit itself but a whole new ball game?

BREXIT IN A WORLD THAT DOES NOT CHANGE

I have not rushed into the post-Brexit debate, it needed a period of reflection. I did, however, go into the Referendum with the viewpoint that the most impacted upon place was not going to be within the United Kingdom itself but rural Ireland.

One imagines that in the end the UK will muddle through. Its farming industry will face yet unquantified consequences but its saving grace is that it has a massive home market [relative to its own food production capacity] and that offers direct marketing safety valves. Would I like to be a large-scale, non-environmental-zone located commodity producer? No not at all as it is they that will be sacrificed by the UK’s right-wing, free-market governments on the alter of providing lowest-cost food to a predominately urban population. Current market conditions across a whole range of commodities only provide harbingers of what lies ahead for those who are not able to cosy up to the consumer. From a market-positioning perspective, farming and food is now entering a new era; get local or get steam-rollered by the  truly large-scale agri-food nations of the World.

Irish farmers, in contrast, do not have the luxury of a large domestic market. Getting local is just so much more difficult for anyone who has sales aspirations beyond micro, niche and artisan. Simply Ireland’s home market is too small. That said, and conversely, Ireland still maintains the farm-scale more typical of suppliers to niche-markets. Small needs premium prices, and especially so when small is so small [on global terms] that cost efficiencies are never going to lead to financial sustainability. Well not in a world where one fully costs the costs of production! That Ireland is a low-cost producer is an illusion that has been fostered for far too long and it is a particular pigeon that will now only come home to roost that much faster with Brexit.

I wrote an article a while ago entitled ‘Moving from Globalisation to Localisation’, it is an even more relevant idea now. Many of Ireland’s farms need to be the foundation stones of supply-chains that produce premium products [as recognized and paid for by the consumer] and deliver a premium-price-linked reward to the farmer. That was the case pre-Brexit and it remains the case post-Brexit.

It was interesting to  note Prof Keith Woodford [Lincoln, NZ] saying only a few days ago that New Zealand is eight years behind where it should be in terms of making a transition into higher-value products. I would say at least the same for Ireland. Is it coincidental that eight years ago correlates with the timing of the Chinese melamine scandal and the growth in the Chinese market? Probably, as it was the trigger for a massive over-investment globally in terms of dairy commodities, the subsequent bubble and its later deflation [the demand-side reasons for the burst are well known, China, Russia, oil price falls…]. Sadly chasing a bubble that was already floating off into the distance has meant that Ireland ignored its earlier food strategies that recommended moving away from seasonality and into products. It is a strategic error that Brexit will now only compound.

Increased global market exposure from the possible TTIP and Mercosur trade agreements is now frequently discussed. As these are being negotiated by the EU can one assume that the UK will no longer be party to them? Ireland as an EU member can have some influence on their formation but just how much influence can Ireland have on trade agreements between the UK and the same trading groups [and trade agreements will be on the UK’s agenda]? Will the UK now be more nimble and able to establish and adopt trade agreements faster than the EU; thus accelerating the potential consequences of TTIP and Mercosur. If the UK is governed by those influenced by free-trade idealists one cannot see Ireland benefiting. Surely it will soon be greatly exposed to competition from the major producers / exporters for its existing UK market? And even if such a position does not eventually emerge, it should prepare for the worst case scenario.

In the light of difficul trade scenarios is a commodities-as-usual policy going to work for Ireland? The author cannot see how but that is a viewpoint that does not seem to be shared by others. Or is it a case that ‘commodities will not work for Irish farmers’ is the slowest falling penny in history?

And rumour has it that Vladimir Putin is pushing forward Russian agricultural and food investment with a national self-sufficiency target of 2020 in mind [is this now a motive behind continued trade embargos?]. Hence, do not expect Russia to come to the rescue of global markets anytime soon. Russia is also not just thinking dairy, it will be thinking beef. Ditto for others in Eastern Europe.

We have so often heard about the demands from global population growth over the next 30+ years but we appear to choose to ignore supply-side reactions and the potential that there is around the World for higher food production when the investment capital flows. The author has been involved with capital and agri-food investments over the years and one can rest assured, capital does not flow into small investments; its own overhead costs means it wants to go big and that means large-scale commodity production. A point that begs the question; does Ireland have the capital or scale to compete with major commodity-focused investments? It is a question that we should all know the answer to.

One would like to think that Irish food has a reputation and standing within the UK market that would offer some defence against greater international competition. Sadly it does not [something that should be seen as a major marketing failure]. Ireland has Kerrygold butter but where does that stand against the likes of Denmark’s Lurpak in the UK market? Is Pilgrim’s Choice really Irish; the UK consumer could be forgiven for asking the question? And where is New Zealand going to be in the mix; it does have historic ties with the UK market place. Where is Irish beef to be found in the UK? As I have long since said, in mince, meatballs and burgers and in the basic and budget ranges. There will be no clamour for Irish beef post-Brexit, just why should there be? The UK had strong historical links with South America when it comes to beef…. A wake-up call is needed in Ireland and fast.

To be frank, Ireland is facing Brexit and potentially major disruption to its number one export market with virtually no UK-consumer-supported food products to ‘defend’ itself with. Kerrygold and a handful of family-run farming/food businesses with products like Cashel Blue carry the green, white and orange for Ireland in the UK market. Near invisible is the best way to describe Ireland as a food supplier to the UK market. For those who wish to walk the aisles of the UK supermarket they will see this for themselves. And if you do so venture forth be prepared for a shocking enlightenment.

Also one should note that it is not just about market access. It is not just about ensuring further UK market access via the establishment of new trade agreements with the UK. Ireland has had access for years and just how much financial benefit in terms of farm incomes has that created for Ireland’s farmers? It has to be about ensuring market access AND selling products that have characteristics that enhance the price and, ultimately, the market-derived returns to the farmer.

So just what are the unique selling points for Irish foods? What are the USP’s which will convince the UK consumer that Ireland has food products that they MUST have? Products that they will demand over and above others from countries that a newly trade liberated UK food industry can access tariff free?

There is talk of grass-fed but to what degree is it grass-fed, how is it verified and how is this communicated to the willing-to-pay-a-premium-for-it consumer? What is the provenance of its feeds? Is it produced on family farms? Is it traded fairly? Is it produced in a green and eco-friendly way? Is it, is it, is it? Simply Ireland’s USP’s are well hidden and so long as it is about producing commodities because ‘commodities is what we do’, they will remain so. And Irish farmers, with their small-scale production units will continue, as of now, to produce high-quality raw materials for a supply-chain that sells commodities. And as of now, those within the supply chain will reap the rewards whilst the farmer will still carry most of the capital cost, the risk and provide the management and labour. In return the farmer will be left to  scratch around in the dirt for whatever crumbs just happen to be left. And as of now, too often there will be none.

So does Brexit matter to Irish farming? Yes it does, very much so, but to address its implications Irish farming needs to first extract itself from the group-think in its ‘upper’ echelons that has placed a stranglehold upon its ability to change and to transform itself into a truly market-led, responsive-to-the-consumer, World-class farming industry. This is, nonetheless, nothing new, as a reluctance to identify a need to change has existed for years and every new crisis that arrives is left to ratchet up the pressure on the farming community yet further. Brexit is just another market-linked crisis that appears to be being met again with intransigence. It does not bode well for Irish farmers. Major change is needed but it was needed before Brexit. Let us just hope that Brexit does finally focus minds on recognizing that change has to happen, pretending otherwise is just not an option.