Anyone for farming?

The recent EU Budget and WTO negotiations highlight once again the relatively bleak future facing agriculture.

Competition will come from all quarters e.g. South American beef producers and North American grain producers operate on a scale which is incomprehensible here. You only have to read of dairy herds of 1,000 cows in New Zealand managed by a single person to guess the ultimate impact of globalisation on the most profitable sector of the Irish farming.

Peter Mandelson voiced the opinion that the future for farming in Ireland lies in specialisation and added value product, rather than trying to compete in commodity markets where economies of scale will inevitably win out. I’m sure he may be right, but the problem with his proposal is that it probably won’t be the farmer who sees the bulk of the financial benefit of specialisation.

The Value Chain

The three main players in the value chain are the producer of raw material, the processor who turns the raw material into added-value product and the retailer who sells to the ultimate customer. In commoditised markets, the producer of the raw materials tends to get the lowest share of the profits available and holds the least pricing power. In addition, the scope for an individual producer (farmer) to create added-value product and garner the financial benefit is quite limited.

Major Strategic Mistakes

Farmers “sold their birthright for a mess of potage“.

Farmers used to control the food processors when they owned the Co-operatives. Starting with Kerry Co-op in 1986, most of the larger co-ops have gone the PLC route and, in the process, control has passed from the local farming community to the investment community.
Capital intensive, low margin businesses such as cattle slaughtering have been abandoned by most co-ops, to the benefit of large scale operators like Goodman. Competition from huge international brands such as Nestle and Danone has forced dairy co-ops here to make business decisions which have not always favoured the milk producers. Major Irish agri-food business now invests more outside Ireland than at home. This includes publicly qouted companies such as Kerry, Glanbia, IAWS & Greencore all of which either currently earn the majority of their profits from overseas activities or are planning to do so.

Farmers chose PLC shares, which allowed them release the value of their holding, over control of the processor of their produce, thereby reducing themselves to the lowest level of the value chain. They are price-takers, with little ability to negotiate better prices for the raw materials they produce.

The farming community has been very poorly served by the Government, the farm organisations and the lack of foresight of farmers themselves. It's been like watching a car crash in slow motion. All the participants can see exactly what is going to happen but all seem incapable of taking evasive action.

Instead of recognising the inevitability of the current situation, they have continued to pursue the Brussels money and kept producing traditional but increasingly uneconomic outputs.
Investment should have been ploughed into farmer education and research and development of farming product niches.

Testing the viability of new food segments and categories etc which would be directly beneficial to the farmers themselves, rather than just benefiting the processor and retailer elements of the value chain, should have been a top priority.

Developing and testing scaleable business models might have led to a re-formation of smaller niche co-operatives, owned by farmers in common enterprise clusters, to enable them to produce the added-value products for market.

A body such as An Bord Bia might have overall charge of actively marketing the produce internationally, as Bord Bainne did for years for the dairy industry.

It’s probably too late. Activities such as "farmers markets" are very limited in scope as currently formatted. They're an overpriced minority outlet for spotty vegetables which appeal to the middle-classes who want to make a lifestyle statement and are prepared to pay vanity prices for the privelege. They will never provide a meaningful income for a large number of producers unless they also become big, regular weekly markets in all towns, selling ordinary produce to ordinary shoppers at competitive prices. None of your organic nonsense, unless it's clearly segregated into a "Poser's Corner".

Future Hypothesis

Ireland’s indigenous manufacturing industries have already been decimated as low-cost labour in the far east makes it uncompetitive to produce low-added value goods here.

Currently our farmers are paid by Brussels regardless of what, if anything, they actually produce. If they simply stop farming in the morning, the cheque will still continue to come in the post until 2013.

Post-2013, when the current CAP is reviewed, and doubtless heavily modified, and when trade-distorting subsidies are removed, it’s entirely possible that Ireland will not have any meaningful indigenous manufacturing or agricultural activity.

We will be a nation of service providers.