A Future for Dairy Farmers After Fischler

1
A Future for Dairy Farmers After Fischler?

• Thia Hennessy
• FAPRI-Ireland, Teagasc

2
Structure of the Presentation

• Main Elements of the Fischler Reforms
• Effect on prices, costs etc..
• Options on farms
• Outlook for the sector?

3
The Fischler Reforms

• Relative to Agenda 2000
• Intervention price for butter down 10
• No change on milk powder prices
• Reduction on intervention volumes

4
Fischler Reforms

• Compensation
• 1.2c/litre in 2004 coupled to production
• 2.5c/litre in 2005 decoupled from April 1st
• 3.5c/litre from 2006 onwards decoupled
• Livestock cereal premia decoupled from 2005

5
Ministers Decisions

• Some decisions allowed to Ministers discretion
• Announced his decoupling decisions
• Dairy premium from 2005 instead of 2008
• All payments including slaughter premium

6
Single Farm Payment
FARM SYSTEM
SFP 2006
Dairy
13,700
19,700
Dairy Other
Cattle Rearing
10,000
Cattle Other
14,000
Sheep
10,000
13,500
Average
Including full dairy payment before modulation
7
The Effect on Prices?
8
Irish Farm Milk Price

• Agenda 2000
• price 23c/litre from 2007
• Fischler
• 22c/litre (1/gal) from 2007
• compo 3.5 c/l (16c/gal)

BUT Future policy changes cannot be ruled out -
WTO
9
2002 - Costs of Production
64p
62p
46p
54p
75p
61p
Source B Fingleton
10
2007 - Costs of Production
What would costs be in 2007 inflation 3 each
year?
11
2007 - Costs of Production and Price
What about price?
12
The Outlook for the Sector
13
A look at the whole sector

• Major restructuring decline in farm numbers
• Due to pull as well as push factors
• Decoupled payment - 8,000 for average farmer
• More opportunities for committed farmers

14
Dairy Farm Numbers
26,500
18,000
15
What are your options?
16
What are your options?

• Doing the same is not viable
• Milk calf prices are declining, costs
  increasing
• Incomes will decline without expansion
• Expansion can offset price squeeze
• Exit or retire

17
The Options

• Dont need alternative enterprises
• Resources freed up
• Used to expand dairy herd
• Lower input system reduce costs of production
• Enter REPS
• Expansion from 50 cows to 65 cows can off set
  price squeeze - quota?

18
Quota?

• More quota available from 2005 onwards
• How much available at what price?
• Depends on the transfer scheme
• Continuation of current scheme price will reduce
  ring fencing?
• Auction type system- price will increase
  initially but will stabilise overtime
• Know what you can afford

19
If you have decided to exit, then when should you
sell your quota?
20
When to sell your quota?

• Difficult decision sell quota
• in 2004 forfeit payments but get 1.41/gal quota
  price
• in 2005 get payment but get lower quota and dairy
  stock price
• When should a retiring farmer sell?

21
What is the decoupled payment worth?

• Depends on modulation ( 3 - 5 )
• Depends on National Reserve ( 3 )
• Income tax ( 5, 25, 47 )
• How long will the payments last? ( 2012 )
• Inflation ( 3 per year )

22
What is the decoupled payment worth?

• Low-income no modulation, 3 reserve and only
  5 taxes - 1.02 per gallon (23c/litre)
• Middle-income full modulation, 3 reserve and
  25 taxes 77c per gallon (17c/litre)
• High-income - full modulation, 3 reserve and 47
  taxes 54c per gallon (12c/litre)

23
Should I Stay or Should I Go Now?

• Depends on 2005 quota price
• Depends on 2005 dairy stock values
• Dairy stock value unchanged and quota price is
  70c, 90c per gallon in 2005
• Dairy stock value falls by 15 and quota price is
  70c, 90c per gallon in 2005
• Dairy stock value falls by 25 and quota price is
  70c, 90c

24
Should I Stay or Should I Go Now?
25
The Advice

• Quota price and stock values unknown
• Low-income farmers wait
• Middle-income about 5050 depends on individual
  herds
• High-income farms should go this year

26
Take Home Message

• Restructuring as a result of the Fischler Reforms
• Prices will fall and compensation decoupled
• Quota acquired from 2005 no compensation

27
Thank You

• www.tnet.teagasc.ie/fapri

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