Ever since arriving in Ireland back in 2013, the author has been amazed at how active the press and the agricultural establishment has been at telling farmers what they need to know and the information that they should be basing their farming and investment decisions upon.
For the first couple of years, this was about how important the agri-food sector was to an ailing economy. It was about farmers pulling on their green jerseys to help the country by providing the raw materials for a food processing industry that was a major export earner. It was and still is about the headline export earnings figure. It remains the number that is foremost when it comes to agri-food strategy and how successful the agri-food sector is. Ask a politician about the health of the farming industry and the likelihood is that they will reply with export earnings figure.
The headline figure is always gross; it is never net. Or should we be talking about the agri-food trade balance? True the gross figure reflects the wider economic activity within Ireland but what about all the farm-input imports that the farming sector needs; its energy, its one million tonnes or so of nitrogen fertilizers, its one million tonnes of protein feeds; its pesticides and its farm machinery? And then there are the imported raw materials that are not produced by Ireland’s farmers that the food processing sector uses; be it, for example, palm oil or cocoa powder. And finally, one can add in all the imported food that is consumed by the Irish population; imported in part because the food processing sector chooses to focus on producing for export rather than feeding the Irish people. It may be a case of making decisions based upon where the processor-exporters see their comparative advantage but whilst they export to feed China, are they feeding the Irish at home?
One should also add that the headline figure for export earnings has been influenced by recent high food prices. It will be interesting to see if the export earnings have been maintained [or even risen] over recent months at a time when farm-gate prices have fallen. If they do continue to move ahead whilst farm incomes and farm-gate prices have fallen one should be asking just what is going on. In a country that is meant to have a co-operative ethos in its dairy sector, one would expect that processing sector earnings should in some way be reflected in farm-gate prices.
One did notice the indecent haste with which the Food Harvest 2020 agri-food strategy was updated to Food Wise 2025 before the last election. One wonders if it was done so before the current farm income crisis became too evident. For the farming community, after a couple of years of farm-gate prices being below the cost of production, it is now all about farm incomes. Sadly, we remain with an agri-food strategy that is about export earnings from the ‘agri-food’ sector and not about enhancing farm incomes. It is apparently now locked in until 2025 and immune to change despite the all-sectors farm income crisis, Brexit and climate change. As when Margaret Thatcher was asked to perform a U-turn, the answer is “the lady is not for turning”.
One can argue that the national agri-food strategies are working well. Agri-food exports have been rising [at least in monetary terms (one will not go into the details of volume)] and it appears that the returns being generated by the processing sector have been okay. That is not surprising if one believes [cynically or otherwise] that a primary objective of both strategies was/is to support farming to more efficiently produce low-cost raw materials for the processing sector. Even more cynically, one could suggest that this objective does not give due consideration to farm incomes.
It appears that analysing the two strategies impact on farm incomes was not undertaken at the strategy development stage [or that the farmers’ leadership insisted that it should be so done]. The habit of many in the establishment of saying that Ireland is a low-cost producer of farm products [based upon partial costings] only makes matters worse. That Ireland is a low-cost producer is indeed one of the greatest yarns spun to farmers. Just why is the idea perpetuated that Ireland is an internationally leading low-cost milk producer when Teagasc’s own report in 2011 into international cost comparisons concluded that, on a full-cost basis, Ireland was only average. With larger farms it could be a low-cost producer, but the scale required can only be achieved by land consolidation, massive farm investment and a significant decline in farmer numbers; none of which are going to happen overnight or even by 2025.
So, we have a successful agri-food strategy in operation and that is supported by Irish farming’s low-cost farming systems. Is that Yarn #1?
Another of the author’s favourites yarns is the one that said that Irish farmers should expand post the end of milk quotas because the world needed and would absorb any amount of food produced; after all the global population was going to reach nine billion souls by 2025. Rarely did anyone say where these people were going to be living or whether they could afford to purchase food produced in Ireland. Indeed, one has already heard of ‘success’ stories whereby Irish milk powder is sold in sub-Saharan Africa. The author did ask the simple question; “will it provide an improved return to the Irish dairy farmer?”. Not unsurprisingly, a definitive answer was not forthcoming. Apparently, the idea of analysing the supply chain backwards from the retail price to the farmer is not done. Or maybe it is beyond the investigatory capacity of Ireland’s farming journalists [even to the extent of asking the question]. Across most sectors, there is the naïve assumption that just by exporting produce, the Irish farmer will benefit. Yes, somebody does benefit but judging by current levels of farm income, it is not the farmer.
So, higher exports will lead to improved farm incomes and farmers should invest to expand on the assumption that the latter will automatically happen. Is that Yarn #2?
A third yarn is that particular agri-food exports illustrate how successful the agri-food sector as a whole [including farming] is. Although not definitively said, it can be construed that the message to farmers is that they should consider that success when it comes to their own on-farm investment decisions.
In the dairy sector, it seems rare to ask who benefits from those exports and whether there is any ‘trickle down’ to the farmer [who incidentally often must make the major proportion of the investment required to increase volumes]. In the meat sector, however, most farmers would swiftly ask the question due to the limited private ownership of the factories. The difference is probably explained by the more complicated structure of the milk-processing sector [where some co-operative ownership remains]. The author’s recommendation is to look at the latter in terms of who owns the primary and secondary processing activities and to keep in mind that it is second that owns the brands and sells the finished products. And also, ask if in recent years the cooperatives have invested in primary processing or the [probably] more profitable higher-value-added secondary-processing along with its associated brand-owning, nearer-to-the-consumer activities?
Of note, is the success story that is Irish infant formula [yes, there is controversy around infant formula but there is a need for it, so why not Ireland]. Recent years have seen significant rises in Irish formula exports. On the assumption that category 098.93 of the CSO export data is dominated by formula exports, exports have risen from 105,000 tonnes in 2012 to 161,000 in 2015. In value terms, exports have risen from about €680 million in 2012 to €1.17 billion in 2015.
Interestingly, for the first 8 months of 2016, export volumes have been about the same [104,000 tonnes] but export value has risen from €758 to €854 million. The value rise is largely attributable to a c.50% rise in sales to the lucrative Chinese market [includes Hong Kong]. In 2012 the average sale price for exports in this category was nearly €6,500 per tonne whereas it was close to €7,300 in 2015 and over €8,200 for January to August 2016. This is largely driven by the growth in China/HK which accounted for 10% of sales volume in 2012 and 25% in 2016. By contrast, the mature EU market has a much lower unit sales value [under €4/kg in 2016 compared to China at nearly €15/kg].
If one accepts that export earnings are a good key performance indicator [KPI] for the Irish agri-food sector the latest export earnings figures from the CSO for the 098.93 category indicates what a rip-roaring success infant formula manufacturing and selling is for the agri-food industry.
From a farming perspective, has the performance of the infant formula sector benefited Irish dairy farmers? From reading the press and hearing comments from politicians and farmer leaders, one would assume so. Let us, however place this in a different context.
Few dairy farmers would doubt that 2015/16 has been a poor year for farm-gate milk prices. Would they have been even worse if not for the infant formula sector [a sector that has seen a 12.5% growth in sales in 2016]? Irish dairy farmers produced 6.75 billion litres in the September to August 2015/2016 period whilst the infant formula sector export sales were €1.25 billion. This equates to an export sales figure equivalent to 18.5 cpl. It is a thought-provoking statistic. Should these export sales figures be delivering a better return to dairy farmers?
Are, nevertheless, these sales made by that part of the milk processing that is owned by the dairy farmer? The answer is only that which is indirectly owned as shareholdings in the PLCs by the cooperatives. Farmer ownership is too often limited to low-value-creating primary-processing whilst processing into consumer products and brand ownership lies in the secondary processing sector [which is often owned by the private sector]. One should ask just what proportion of infant formula sales from Ireland are made by Nestle, Danone and Abbott Nutrition? If the brands and manufacturing of infant formula is controlled by privately-owned multi-nationals, just what level of ‘trickledown’ to farmers should we expect?
It is often said that it is important to use Ireland’s green and grass-fed images to promote infant formula; that there should be an Irish brand in the market place that promotes these virtues. It is also often said that ‘product of Ireland’ should be more in evidence. Is either realistic? The common labelling used with infant formula, at least when reviewing the online retail listings, is ‘produced in the EU’. Hipp Organic does, at least, manage to specify ‘produce of Germany’. If one looks at the ingredient lists for infant formula, it then becomes self-explanatory.
If one peruses the information [easily accessible via online supermarket listings] for a widely available ‘First Milk’ formula one can work out that the fat, carbohydrate/sugar and protein contents of the powder are about 23%, 47% and 8% respectively. Where it gets interesting is when one also looks at the ingredients that fulfil these nutritional categories.
Now one may think that the fat content in baby milk powder comes from milk from [in this case Irish ‘grass-fed’] cows. Well one would be wrong. The typical ingredient list specifies “vegetable oils (Palm, Rapeseed, Coconut, Sunflower)”. One can be certain that none of these, rapeseed oil included, are of Irish origin. Hence, straight away, one can see how difficult it is to ‘play up’ the Irish farming origins of the infant formula. They are manufactured in Ireland and their manufacture may create economic activity and employment in the wider economy, but they are not derived from dairy fats as is the case with butter or cheddar cheese.
The carbohydrate source is lactose [from milk] and the protein source from demineralised whey [from milk]. Can one assume that these are or Irish origin? It is a question that warrants further investigation given that in 2015 Ireland IMPORTED about 55,000 tonnes of lactose and 40,000 tonnes of whey [it also imported 48,000 below -1.5% fat milk powder (with the value of all three items being about €200 million)]. These are being used by the food industry and in quantities that brings into question whether many food products can be linked to Irish farm production.
As a note, Ireland imported 92,000 tonnes of palm oil in 2015. It also imported 46,000 tonnes of soybean oil. Neither of these are widely used by the general population for cooking. Hence, as with proteins for animal feeds in farming, the food processing sector is reliant on imported vegetable oils. This again shows how difficult it is for the processing industry, with its complex food products, to build their sales promotions around ‘produce of Irish farms’.
So, should farmers be more sceptical when they are told that they are directly benefiting from the export activities of the agri-food industry? One would say so. One is not questioning whether Ireland has a successful food industry but one is questioning whether its success is trickling down to the farmer. Are we even right in expecting that it should? Or should we accept that, as with many manufacturing processes, raw materials and components are sourced from the most appropriate supplier. It is then about being processed in Ireland using Irish people, skills and technology? It is beneficial to the economy but, judging by recent farms incomes, not necessarily so to the farmer.
It is a clear reason why Ireland needs to separate its agri-food strategy into one for food processing and one for farming [and rural Ireland]. Government expenditure to each sector can then be better targeted, justified and rationalized. It may then be appropriate to judge the food industry’s performance on export earnings whilst farming can be first evaluated in terms of farm incomes.
One would also suggest that the farming community and its leadership needs to become far more aggressive in terms of critically analysing what they are told and specifically the broad-brush measurements of ‘success’ that are used. Yarns are just too common place but, too often, they are going unchallenged.