IN Northern Ireland, farming always takes centre stage during May, when all of the sector’s actors come together for the biggest show in town. Balmoral provides the opportunity to reflect on the performance of the industry since the last show and to look forward to the seasons ahead.
What is clear is that drama is never far away in the sector, with volatility the name of the game, as swings in currency, prices and weather impact on farmers. When we look at farm income over the last 40 years, there are dramatic spikes and troughs in incomes on an almost annual basis, with little stability evident.
Indeed, last year, we saw Total Income From Farming (TIFF) fall back significantly – a fall in the region of 24 percent. However, context is important, which is that 2017 was a record year for farm income, with an increase of 82 percent in real terms compared to 2016. This was driven by the recovery in the milk price, as the ‘dairy girls’ provided something of a boost to farm income. So last year’s fall has to be seen in this light and indeed despite the drop, TIFF (inflation adjusted) remains at one of the highest levels in the last 25 years and one-third above the forty-year long-term average.
Overall, whilst UK households have viewed the last 10 years as a decade to forget from an income perspective, the opposite has been true for farming, despite some ups and downs. It has been a significantly better decade than the preceding one, with the favourable exchange rate the key factor. Indeed farming, alongside TV production and movie-making, has been one of Northern Ireland’s more buoyant industries in recent years.
You could say that in 2018, it has been something of a Game of Farms, with some sub-sectors being major winners and others being clear losers. On the positive side, egg production saw a record high in 2018, with 149 million eggs produced in Northern Ireland; a rise of over 7 percent on the year before. The beef, dairy, pig and poultry sectors also all saw reasonable growth in production. Meanwhile, crops fared less well, with potato production down 29 percent and wheat production down 20 percent. Sheep production also dropped just over three percent.
Looking ahead, one thing we can be sure of is that there will continue to be volatility in the farming sector. But the big question is whether there will be more volatility than normal (the short answer is most likely yes). There will also likely be unforeseen things that come from left field to impact on the sector and its performance.
A new ‘line of duties’ is one potential watch-out, no matter what happens with Brexit. The Trump Presidency has heralded a new era of protectionism and this has already been evident in tariffs being levied on US and Chinese trade and Trump is expected to soon turn his attention to the EU. So, the era of free and open trade is being challenged and the tide is now going in the opposite direction, and this has the potential to impact on the local farming sector and its ability to access markets competitively. The well-established rules of the game are changing, but to what we don’t yet know.
Then there is the impact the RHI situation will have on farm competitiveness and income. While there are fears of some tariffs going up, this is one that is going down, and not in a good way. Some farmers had come to rely on income via the scheme and payments from it are not going to be what they had anticipated, therefore leaving a hole in their finances.
Agriculture policy is also in a major state of flux having been one thing that has been consistent for the past 40 years. Indeed, Northern Ireland farmers are going to have to compete against farmers from the likes of the Republic of Ireland who will continue to receive significant subsidies from Europe at a time when Northern Ireland farmers don’t know what the future will hold for subsidies here. No matter what, we know we won’t be competing on a level playing field.
Perhaps less obviously at present, African swine flu, which is currently sweeping through the pig herds of China, will have repercussions around the world, including in Northern Ireland. But this is another situation that is said to be potentially unparalleled in the last four decades. Reduced supply of pork will impact on prices of not just pig, but will also lead to a surge in meat prices generally. Experts are saying that China will have to cull 130 million pigs. Whilst this could be a short-term positive for some farmers and farming sectors, it is another example of volatility that the sector will have to contend with. And it could impact on the ability to export meat to particular markets at all as authorities move to contain the movement of contaminated meat.
And whilst it may have some positives for some farmers (as well as vegan sausage roll makers), it certainly will not be welcomed by consumers who will likely see the price of meat products in the local butchers and supermarkets increase. (Watch out for the next Ulster Bank Ulster Fry Index to find out how much.)
Using the Game of Thrones strapline ‘winter is coming’ to describe the current environment in which farming finds itself may be too dramatic. However, farmers do need to remain vigilant due to the potential additional volatility ahead. This year’s Balmoral Show was due to be the first for Northern Ireland outside of the EU. It didn’t pan out like that, and anticipating when that day will actually come is becoming increasingly a guessing game. But whilst the Brexit melodrama has been extended for at least another season, there is no shortage of other drama to keep farmers on the edge of their seats.
:: Richard Ramsey is the chief economist, Northern Ireland at Ulster Bank
