Bank of Ireland Business Banking ROI
Agriculture
2015 Review / 2016 Outlook
Milk quota abolition, the introduction of new farm payments, commodity price volatility and the weakened euro
shaped the Irish Agricultural sector during 2015. Farm cash-flow typically remained resilient throughout the period.
2015 Key Trends / Changes
2015 Sector Developments
•• Milk quotas were abolished on 1st April 2015, with 2015 annual
production increasing by 13% on 2014 levels, offsetting the cashflow impact of lower prices.
The Targeted Agricultural Modernisation Scheme
(TAMS II) opened for applications in 2015 and will
encourage on-farm investment. The general TAMS II
farm building grant scheme for all farmers has a budget
of €170m to be utilised by 2020. This scheme offers the
standard grant rate of 40% on a wide range of projects
up to an investment ceiling of €80k. Therefore, a farmer
investing the maximum €80k on eligible items can receive
grant aid of €32k. Eligible projects include animal housing,
slurry stores, silage pits, etc.
•• Farmers applied to the new Basic Payment Scheme (BPS) for
the first time in H1 2015. Replacing Single Farm Payment, the BPS
will run to 2019 before review and is worth c.€1.2bn annually to Irish
farmers. Changes to individual payments will be gradual with more
intensive farmers likely to see the greatest payment reductions.
2015 Market Performance
Dairy: Milk prices fell by 24% year-on-year to c.25 cent per litre driven
mainly by over-supply on the global market and reduced demand from
China. Dairy farmers incurred the EU super levy (overproduction fine) for
the final time in 2015 with the national bill of €69m payable to the EU
over three years through Dairy Co-Ops.
Beef: Beef prices increased by 8% during 2015. Reduced cattle
supplies and a favourable FX market were the key drivers. Feed prices
reduced by c.6% while compound feed use also decreased owing to
excellent grass growing conditions.
Sheep: Lamb prices increased by c.2% in 2015, with supplies also
increasing by 2% on 2014 levels. Feed prices fell, however unlike beef,
usage increased by 5%.
Grain: A bumper global cereal harvest led to increases in grain stocks
and similar grain prices to 2014 were payable to farmers. Increases
in average yields for barley and wheat of 3% and 4% respectively
combined with a slight reduction in direct costs of production saw
gross margins increase very modestly in 2015 for cereal farmers.
Pigs: Pig farmers in general had a difficult 2015, with prices 11%
lower and supplies 6.5% higher than in 2014. While pig feed prices
also decreased, the reduction was not proportionate to the reduction
in finished pig prices and margin over feed costs reduced by 25% on
the 2014 level.
2015 Key Numbers:
€10.8
billion
€10.8bn: Value of Irish agri-food exports.
105,900: people employed in Irish
Agriculture, Forestry and Fishing.
Farm Partnership Changes
The Department of Agriculture created a new Farm
Partnership Register in 2015. Registered farm partnerships
were traditionally only relevant in the dairy sector and were
linked to opportunities for farmers to access additional milk
quota. The new partnership register remains very dairy
focused but is now also open to non-dairy farmers, 15% of
Registered Partnerships are of beef, tillage and other nondairy enterprises.
Incentives for partnerships include:
•• Enhanced Tax Stock Relief •• €5k annual tax credit for up to 5 years for family
partnerships where the family farm will be passed to
the younger farmer at the end of a specified period
not exceeding 5 years
•• Grant aid for partnership set-up costs
Farmers setting up partnerships need to clearly define
each partner’s role, responsibility, contribution to and share
of revenue at the outset before they commit to formally
working together.
Given the fragmented nature of Irish farms and the benefits
offered to those farming in partnerships, further growth of
these collaborative farming arrangements is anticipated
during 2016.
Food Wise 2025
A Ten Year Strategy for the Irish agri food sector was
launched at the end of June. Chaired by former Glanbia
CEO John Moloney, the strategy sets out an ambitious
growth target of €19bn (+€9bn) for annual Irish Agri Food
Exports by 2025, an 85% increase from the current threeyear average. This growth will be driven chiefly by expansion
in dairy, beef, seafood and consumer food and drinks
exports.
€1.5bn investment required on dairy farms
to achieve 50% increase in production.
€
25% current account overdraft utilisation
levels by agri customers in 2015.
Bank of Ireland Information Classification: Green - Public
Bank of Ireland of Ireland is regulated by the Central Bank of Ireland.
Bank of Ireland Business Banking ROI
Agriculture
2015 Review / 2016 Outlook
Milk production from Irish dairy farms will continue to grow during 2016, despite the current trough in commodity
prices. Average farm income across all enterprises will be strongly influenced by what happens within the dairy
sector. The increased supplies of cattle set to come to market in H2 2016 have the potential to negatively influence
beef prices. With over 40% of Irish food and drink exports going to the UK and a further 28% going to non-EU
markets, the strength of the euro to sterling, the US dollar and other international currencies will continue to play a
key role in determining the competitiveness of Irish exports during 2016.
2016 Agricultural Sector Outlook:
Dairy
Pigs
•• Dairy markets are unlikely to increase beyond current pricing
levels in H1 2016. Surplus stock levels remain high in
international markets and need to be worked through before
prices increase. The onset of market recovery is anticipated
in late 2016 as the impacts of projected falls in production in
exporting regions, e.g. New Zealand and the US, are felt on
world markets. Bank of Ireland anticipates that dairy farmers
may need cash-flow support during 2016, until farm gate
prices recover from current levels.
•• Pig farmers should see an increase in pig prices during
2016, with the price recovery partly dependent on
increased pig-meat imports from China. Feed costs are
also expected to increase, but not to the same extent as
finished pig prices. The average margin over feed costs
per kg of pig meat sold should increase from 2015 levels
of c.37 cents per kg.
Beef & Sheep
•• Beef supplies in H2 2016 are forecast to increase on
2015 levels. Exchange rates will remain critical to any
price movements with any additional supply likely to place
downward pressure on live and finished cattle prices.
•• Lamb prices are forecast to increase again in 2016, by c.3%
on 2015 levels, in response to continued growth in demand
within the EU and relatively static EU production levels.
Grain
•• 2016 grain yields globally and nationally are unlikely to
reach the levels of the 2015 harvest with forward prices
for November 2016 for dried wheat and barley c.4%–5%
higher than current spot prices. The potential for weather
and political factors to impact yields positively or negatively
throughout the year is ever present and can rapidly change
price forecasts.
Bank of Ireland
•• Bank of Ireland is confident about the prospects for
this sector as a whole. We understand that agricultural
commodity markets have become increasingly volatile in
recent years and given Ireland’s dependence on export
markets this volatility significantly impacts Irish farm
incomes and cash-flows. Our proven financial capabilities
and appetite, combined with our regionally based team
of agricultural managers, led by our Head of Agriculture,
provides us with a strong platform to support our
customers through these cycles and continue to meet the
funding and investment requirements of Irish farmers and
agri-businesses.
•• We developed our Agri-Flex suite of lending products
to be adaptable and responsive to short-term changes
in cash-flow and income, and to support customers as
they make their investment decisions to maintain growth
and profitability in this dynamic sector. We have a strong
appetite to support progressive, innovative farmers and
agri-businesses with their development plans in 2016.
Seán Farrell
Head of Agriculture
Seán joined the Bank in 2011 having previously worked as the National Agriculture Manager and in
senior regional agri manager roles with ACC Bank and also with the Irish Farmers Association. Since
joining, Seán has built on the Bank’s strong links with many external agricultural stakeholders. He has also
overseen the recruitment of three agri development managers in the South East and South West Regions
and is closely involved with the roll out of the Bank’s agri recruitment strategy including the appointment of
new recruitment managers to all regions.
Contact:
Seán Farrell
Email:
[email protected]
Mobile: 087 627 1044
Seán holds a BSc in Agricultural Science from UCD and HDip in Agri Business from Waterford IT. He is
a former President of the Agricultural Science Association, the representative organisation for agricultural
science graduates.
Bank of Ireland Information Classification: Green - Public
Sources: Teagasc, Bord Bia, CSO,
Department of Agriculture, Food and the Marine.
Bank of Ireland is regulated by the Central Bank of Ireland.