Outlook 2001

Outlook 2001

Baseline Projections, BSE Impacts, and Export Subsidy Reduction Scenarios: At Aggregate and Farm Levels

Julian Binfield, Trevor Donnellan, Kevin Hanrahan, Thia Hennessy,

Kieran McQuinn, and Pat Westhoff

Background

• What is FAPRI-Ireland?

• What type of modelling?

• What’s a baseline?

• How does it work?

• Analyses so far

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

Modelling

• Economic models projections

• Not prediciton based on best

information

• Two types of modelling

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?

Baseline

• Not reality – will never occur

• ‘Current policy situation

continues unchanged’

• Yardstick to measure policy scenarios

How does it work?

World Model of AgricultureWorld supply and Demand

European Model of Agriculture

Representative Farms

FAPRI-Ireland Commodity Models

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

Aggregate Outlook to 2010• Value of Output in 2010 down by 6% on

2000– Cattle output value down 17%

Irish Cattle Price Baseline

0

20

40

60

80

100

120

1995 1997 1999 2001 2003 2005 2007 2009

IR£

Per

100

kg

Price Down13% on 2000


2000– Cattle output value down 17%– Sheep sector output value falls by 15%

Irish Sheep Price Baseline

0

10

20

30

40

50

60

70

1995 1997 1999 2001 2003 2005 2007 2009

IR£

Per

100

kg

Price Down8% on 2000


2000– Cattle output value down 17%– Sheep sector output value falls by 15%– Milk output value falls by 2%

Milk Sector Revenue

0

200

400

600

800

1,000

1,200

1,400

2000 2002 2004 2006 2008 2010

(£ 0

00

) m

illio

n

Value of Milk Sold Direct Compensation

2010 Output Value down 2% on 2000

£ 83m

2010 Revenue up 6% on 2000


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%

Subsidies

0

200

400

600

800

1000

1200

1400

1998 2000 2002 2004 2006 2008 2010

IR£

Mill

ion

On Products On Production

BASELINE OUTLOOK AT FARM LEVEL

Representative Farms

• 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)

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%

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


• 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


• Small dairy farm to exit in 2005

• Expansion uneconomical

• Price cost squeeze

• Lure of off farm incomes

• Part-time beef system

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


• 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


• 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?

BSE SCENARIOS

BSE Scenarios

BSE Scenario 1: 7-Point Plan1. 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

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

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

BSE ScenariosScenario 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

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

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

Dairy : Export Subsidy Elimination

15

17

19

21

23

25

27

29

1995 1997 1999 2001 2003 2005 2007 2009

Eur

o pe

r 10

0kg

Baseline Elimination

0

200

400

600

800

1,000

1,200

1,400

2000 2002 2004 2006 2008 2010(£

000

) mill

ion

Value of Milk Sold Direct Compensation

Irish Farm Milk Price 3.7% fat Revenue of Irish Milk sector

2010 price down 24% on 2010 baseline2010 Value Down 20% on 2000

2010 Revenue down 13% on 2000

Beef : Export Subsidy Elimination

0

500

1,000

1,500

2,000

2000 2002 2004 2006 2008 2010(£

000

) m

illio

n

Value of Cattle Sold Direct Compensation

Irish Cattle Price Revenue of Irish Cattle

20

40

60

80

100

120

1995 1997 1999 2001 2003 2005 2007 2009

IR£

Per 1

00kg

Baseline Elimination

Down 20% on 2010 baseline 2010 Value down 34% on 2000

2010 Revenue Down 13% on 2000

Operating Surplus

1,000

1,200

1,400

1,600

1,800

2,000

2,200

1998 2000 2002 2004 2006 2008 2010

IR£ M

illio

n

Baseline Reduction Elimination

In 2010 Income is down -

• 19% relative to 2010 baseline or

• 15% relative to 2000

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/

Documents

Outlook 2001