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End User Meeting Brussels, 14.06.2001 Working Package 4 (Economics) First Year´s Example

End User Meeting Brussels, 14.06.2001 Working Package 4 (Economics) First Year´s Example. Where are the farms located that are the most vulnerable with regard to a milk price reduction?. By Peter Hinrichs & Petra Jaegersberg Federal Agricultural Research Centre (FAL), Braunschweig, Germany.

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End User Meeting Brussels, 14.06.2001 Working Package 4 (Economics) First Year´s Example

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  1. End User Meeting Brussels, 14.06.2001 Working Package 4 (Economics)First Year´s Example Where are the farms locatedthat are the most vulnerable with regard to a milk price reduction? By Peter Hinrichs & Petra JaegersbergFederal Agricultural Research Centre (FAL),Braunschweig, Germany

  2. Vulnerability ...- in this context -means, how strongly a dairy farm will be “hurt“ by a price drop.... has to be defined in economic terms:- The surplus for net investments (farm growth) vanishes- the liquidity reserve shrinks below a critical amount, and/or- the income does no longer pay for the farmer´s basic needs.Defining a vulnerablility indicator:Relation between milk price as product-bound parameter and a criterion denoting the whole farm´s economic performance, the Family Farm Income. From this, we subtract the amount the unpaid family workers‘ need for their living, which is derived from the paid workers` net wages. VulnerabilityBy Peter Hinrichs & Petra Jaegersberg

  3. Calculation scheme of the surplus available for net investment and/or improved liquidity. 0,00€ Farm Net Value Added Family Farm Income Price drop Family workers`Income claim Paid Rents, Interest and VAT on Investment Net Sub-sidies Com-pens-ation Paid Wages Surplus available for net investment, more consumption or risk prevention(as long as subsidies remain unchanged) VulnerabilityBy Peter Hinrichs & Petra Jaegersberg

  4. Our primary vulnerability indicator:Surplus of Family Farm Income over income claims of family workers, per milk quantity produced and sold (expressed in € / 100 kg milk).This surplus is used for:Net investment (farm growth) More consumption Liquidity risk preventionOur criterion: If the FFI - Income claims > 0: the long term losses do not exceed the initial decrease of receipts, and the farms have a chance to recover form the initial impact<< 0:the farms will be handicapped materially. The amount of the price drop was taken from the actual mid-2001 discussion about the New Agenda: 0,0525 € per kg milk. A compensation of 66 % is assumed. The resulting price drop: 0,0175 € per kg milk. VulnerabilityBy Peter Hinrichs & Petra Jaegersberg

  5. 3 289 4 627 27 174 457 4 681 23 958 6 130 10 814 252 12 734 2 912 1 508 2 709 3 738 15 895 Milk Prod 1000t € 0,00 -30,00 30,00 60,00 B DK Net subsidies D GR Compensation E F Final price decline IRL Family workers' income claim (after tax) per 100 kg milk sold I L NL Total wages paid per 100 kg milk sold A PT SF Total net payments for other external factors, per 100 kg milk sold S UK Available Surplus (€ /100 kg milk) in Europe‘s milk producing farms (by member country) Peter Hinrichs & Petra Jaegersberg: Vulnerability

  6. Farm Type Milk Prod. 1000 t € -30 0 30 60 411 69 667 412 21 072 431 6 954 432 130 44 896 6 502 711 2 805 712 2 805 721 1 668 723 116 81 14 664 82 514 Net Subsidies Family workers' income claim (after tax) / 100 kgM sold Compensation Total wages paid per 100 kg milk sold Final price decline Total net payments for other external factors, per 100 kg milk sold Available Surplus (€/100 kg milk) in Europe‘s milk producing farms by FADN farm type Peter Hinrichs & Petra Jaegersberg: Vulnerability

  7. -30,00 0,00 30,00 Common systems (P1) 9 901 Lowland systems (G2) 17 670 Upland systems (G3) 3 481 Intensive grass (G1) 29 841 Conventional (CG1 (M1/2)) 22 018 Low-input (CG2 (M1/2)) 4 707 Small mixed (CG3 (M1/2)) 5 628 Industrial (L1) 6 650 Commercial (L2) 10 420 Small-scale (L3) 665 Low-input grassland 9 635 Extens. Grass (XX) 269 (IRE only) Family workers' income claim (after tax) / 100 kgM sold Net Subsidies Total wages paid per 100 kg milk sold Compensation Total net payments for other external factors, per 100 kg milk sold Final price decline Available surplus (€/100 kg milk) in Europe‘s milk producing farms by production system Peter Hinrichs & Petra Jaegersberg: Vulnerability

  8. Conc. Perm. Feed € Past. Herd Milk Milk Wage kt Milk /100 € ha / k t M Region Type ProdSys size 0 30 yield price Rate kg Milk 6916 30,0 9,4 120 6 145 186 D-Sachsen, 81, Convent. F-BasseNorm, 411, IntGrass 42 5324 34,2 7,3 98 5 969 I-Lombardia, 411, Industrial 696 126 7557 45,2 7,9 0 9 865 32 5531 48,4 7,4 0 12 I-EmiRom, 411, Commerc. Netherlands, 411, IntGrass 3080 64 7478 33,1 10,5 57 5 Ireland, 411, Lowland 3300 41 4699 31,0 5,3 161 5 UK-WestEngl, 411, IntGrass 1086 94 6501 32,4 8,6 47 6 GR-Mak-Thrak, 81, Commerc. 15 3965 32,2 1,9 0 12 76 E-Galicia, 411, IntGrass 1333 18 4667 28,1 2,8 17 6 PT-NorCent, 411, Commerc. 528 5854 29,4 1,6 2 11 24 Austria, 411, LI-Grass 778 14 4874 34,7 4,9 210 5 451 30 7987 34,8 13,5 145 11 S-Skog&Mell, 411, LI-Grass Family workers' income claim (after tax) / 100 kgM sold Net Subsidies Total wages paid per 100 kg milk sold Compensation Total net payments for other external factors, per 100 kg milk sold Final price decline Available Surplus(€/100 kg milk) in selected groups of European dairy farms (by EU farm type & production system) Peter Hinrichs & Petra Jaegersberg: Vulnerability

  9. 100.000 80.000 60.000 40.000 20.000 € 0 2007 2000 2001 2002 2003 2004 2005 2006 MP - 0% MP -5,6% MP -17 % MP-17%, high loans Family Farm Income of a 100 cow farm in Eastern Germany, with different milk price projections and the influence of high loans Peter Hinrichs & Petra Jaegersberg: Vulnerability

  10. Family Farm Income of a 165 cow farm in Wales/UK with the effect of exchange rate & milk price Peter Hinrichs & Petra Jaegersberg: Vulnerability

  11. Summary1) The most vulnerable farms are those ones that are already handicapped without a price drop.2) There are great national differences: Italy, Ireland, Spain, Greece, Austria and versus Sweden, Finland and Germany (without subsidies), Denmark and Portugal.3) Within the countries, the regional variance is less spectacular, although in the Mediterranian countries, it is much greater than in Northern Europe. 4) A special case is the UK where the strong British Pound distorted the price / cost relation remarkably. VulnerabilityBy Peter Hinrichs & Petra Jaegersberg

  12. Summary (cont.)5) A comparison of the EU farm types shows that there is no specialization bonus in most of the countries. In the contrary, the mixed (livestock) farms looked more successful in the year 1997/98 than the specialized dairy farms, due mainly to higher subsidies for crops and non-dairy livestock.6) Grouping by production system revealed advantages of:- dairy farms withoutpermanent grassland (commerc./industr.)- large herds (scale effects, labour productivity, investment costs)7) Additionally, there are significant effects of the Milk Prices, the Wages, the Land Rents, and Interest on borrowed capital. VulnerabilityBy Peter Hinrichs & Petra Jaegersberg

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