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Outlook 2001

Julian Binfield, Trevor Donnellan, Kevin Hanrahan, Thia Hennessy, Kieran McQuinn, and Pat Westhoff. Outlook 2001 Baseline Projections, BSE Impacts, and Export Subsidy Reduction Scenarios: At Aggregate and Farm Levels. Background. What is FAPRI-Ireland? What type of modelling?

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Outlook 2001

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  1. Julian Binfield, Trevor Donnellan, Kevin Hanrahan, Thia Hennessy, Kieran McQuinn, and Pat Westhoff Outlook 2001 Baseline Projections, BSE Impacts, and Export Subsidy Reduction Scenarios: At Aggregate and Farm Levels

  2. Background • What is FAPRI-Ireland? • What type of modelling? • What’s a baseline? • How does it work? • Analyses so far

  3. FAPRI-Ireland • Established in 1995 – following J Bruton’s visit • Partnership with FAPRI-Missouri • Ireland • Teagasc • Irish Universities • Industry • Modelling policy scenarios - agri-food sector

  4. Modelling • Economic models  projections • Not prediciton  based on best information • Two types of modelling

  5. FAPRI-Ireland Modelling 1. Aggregate Modelling • Examines the market level • Individual commodity models • Prices and volumes 2. Farm Level Modelling • Prices from commodity models • Representative farms • How will farmers react?

  6. Baseline • Not reality – will never occur • ‘Current policy situation continues unchanged’ • Yardstick to measure policy scenarios

  7. World Model of Agriculture World supply and Demand European Model of Agriculture How does it work? FAPRI-Ireland Commodity Models Representative Farms

  8. Analyses so far • 1998 – analysis of Agenda 2000 proposals – results were used in negotiations • 1999 – analysis of agreed Agenda 2000 • 2000 – annual baseline and exchange rates • 2001 – annual baseline, BSE and WTO

  9. Aggregate Outlook to 2010 • Value of Output in 2010 down by 6% on 2000 • Cattle output value down 17%

  10. Irish Cattle Price Baseline Price Down 13% on 2000

  11. Aggregate Outlook to 2010 • Value of Output in 2010 down by 6% on 2000 • Cattle output value down 17% • Sheep sector output value falls by 15%

  12. Irish Sheep Price Baseline Price Down 8% on 2000

  13. Aggregate Outlook to 2010 • Value of Output in 2010 down by 6% on 2000 • Cattle output value down 17% • Sheep sector output value falls by 15% • Milk output value falls by 2%

  14. Milk Sector Revenue £ 83m 2010 Output Value down 2% on 2000 2010 Revenue up 6% on 2000

  15. Aggregate Outlook to 2010 • Value of Output in 2010 down by 6% on 2000 • Cattle output value down 17% • Milk output value falls by 2% • Operating Surplus in 2010 up 4% on 2000 • Subsidies rise 45% over the period 2000-2010: Account for 40% of GVA by 2010 • Input expenditure falls 1%

  16. Subsidies

  17. BASELINE OUTLOOK AT FARM LEVEL

  18. Four Dairy Farms 1. Small less than 20,000 gals contracting (11,000) 2. 30,000 gals young and developing (8,000) 3. Large 100,000 gals (1,000) 4. Typical 40,000 gals (13,000) Four Cattle Farms 1. Small full-time old £5000 (28,000) 2. Commercial full-time £20,000 (5,000) 3. Part-time efficient £8,000 (8,000) 4. Hobby £2,000 (15,000) Representative Farms

  19. Static Analysis • What will farm profits be if farms are operated as they are today? • Value of gross output is mostly maintained • Inflation biggest enemy • Dairy farms margins down 10-15% by 2010 • Cattle farms margins down 15-20% by 2010 • Hobby-style farm margins down 50%

  20. Dynamic Analysis - Dairy Farms • Key to success is quota • Typical dairy farm by 2010 farm margins are 35% higher than in 1998 (nominal terms) • Purchasing quota leased and extra increase in quota farmed by 25% (up to 47,000 gals) • Operating Store cattle only

  21. Dynamic Analysis - Dairy Farms • Developer farm margins up 35% by 2010 from 1998 • Increase in quota farmed by 35% • Large farm margins up 15% higher in 2010 than in 1998 (real loss) • Leased quota purchased no extra but benefits from increase in SBP limit

  22. Dynamic Analysis - Dairy Farms • Small dairy farm to exit in 2005 • Expansion uneconomical • Price cost squeeze • Lure of off farm incomes • Part-time beef system

  23. Dynamic Analysis - Cattle Farms • Key to Success Maximise Premia Payments • All Farms Margins volatile from 2000-04 • Small margins 30% higher in 2010 than in 1998 (nominal) • Extensification and SCP claimed on heifers • Off farm job not an option

  24. Dynamic Analysis - Cattle Farms • Large full-time margins volatile in short term but 15% higher in 2010 • Benefits from SBP limit increase and rents more land continues as full-time farm

  25. Dynamic Analysis - Cattle Farms • Part-time efficient farm will maintain 1998 margins in 2010 although volatile in the intervening period • Reduce stocking rate to qualify for 1.4 extensification • Hobby farm by 2010 margins 15% below 1998 • Cost structure - continue in farming?

  26. BSE SCENARIOS

  27. BSE Scenarios BSE Scenario 1: 7-Point Plan 1. Boost Organic Farming 2. Reduce Stocking Density 2lus to 1.8 lus 3. 90 head limit SBP compulsory 4. Special Purchase Scheme 5. SCP eligible on 40% heifers 20% compulsory 6. Individualisation of SBP 7. Non application of intervention ceiling

  28. Results of 7-Point Scenario • Policy constraints curbs production • Irish beef prices 7% higher than baseline in 2010 • Effects of policy constraints evident at farm level • Small cattle farms benefits from new SCP rules • Margins 15% higher than baseline in 2010 • HOWEVER if individualisation were imposed the benefit is mostly lost

  29. Results of 7-Point Scenario • Larger cattle farms worse off than baseline • Margins affected by 90 head limit on SBP and reduction in stocking densities • HOWEVER estimated that only 10% of cattle farms are in this category • HOWEVER large number of dairy farms would be severely affected

  30. BSE Scenarios Scenario 2: A More Pessimistic Outlook • Expectations for demand worse than in baseline in medium term • No return in demand to pre-crisis levels • With exception of cows, all bovines over 30 months are slaughtered

  31. Results of Pessimistic Scenario • By 2010 beef prices 8% lower than baseline • Carcass weight 10% lower • Market value of beef sector 17% lower than baseline • No change in farm plans but margins 5% lower than baseline for all farms

  32. Export Subsidy Scenarios • EU Export Refund limit reduction: period 2004-09 (analogous to URAA) • Export Limits at 58 per cent of the URAA base • EU Export Refund Elimination: period 2004-09 • We have not assumed anything about compensation for the resulting • price drops at farm level. • Dairy and beef sectors are main beneficiaries of export refunds and • these are the sectors worst affected. • Export refund reduction - only limited impact • Main impact is on dairy sector

  33. Dairy : Export Subsidy Elimination Irish Farm Milk Price 3.7% fat Revenue of Irish Milk sector 2010 Value Down 20% on 2000 2010 Revenue down 13% on 2000 2010 price down 24% on 2010 baseline

  34. Beef : Export Subsidy Elimination Irish Cattle Price Revenue of Irish Cattle Down 20% on 2010 baseline 2010 Value down 34% on 2000 2010 Revenue Down 13% on 2000

  35. Operating Surplus • In 2010 Income is down - • 19% relative to 2010 baseline or • 15% relative to 2000

  36. Conclusion and Thanks • Paul, Kevin, Thia and Trevor would like to thank you all for your attention • We welcome comments and queries relating to the FAPRI-IRELAND project • Full details of our work and our individual contact details are available from the FAPRI-Ireland website • Go to http://www.tnet.teagasc.ie/fapri/

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