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The FAPRI-Ireland Partnership Developing the Outlook for Irish Agriculture

The FAPRI-Ireland Partnership Developing the Outlook for Irish Agriculture. Trevor Donnellan Thia Hennessy Rural Economy Research Centre Teagasc HQ. Overview. What is FAPRI-Ireland What do we do? How do we do it? Aggregate Level Analysis Farm Level Analysis

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The FAPRI-Ireland Partnership Developing the Outlook for Irish Agriculture

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  1. The FAPRI-Ireland PartnershipDeveloping the Outlook for Irish Agriculture Trevor Donnellan Thia Hennessy Rural Economy Research Centre Teagasc HQ

  2. Overview • What is FAPRI-Ireland • What do we do? • How do we do it? • Aggregate Level Analysis • Farm Level Analysis • Future Developments - Interaction with Advisors

  3. Agriculture: A Time of Change ? Dairy farmers should not be given the impression that the present system, with its intrinsic rigidities, can last forever. The recent debate on long-term prospects has revealed factors of uncertainty; in particular the results of the next WTO Round could also affect the dairy sector. (European Commission 1997)

  4. FAPRI- Ireland Partnership: Who are we? • Founded in 1997 - initiated by John Bruton (when Taoiseach) • Partners • Teagasc (Irish Ag. and Food Dev. Authority) • Nat. University of Ireland at Cork, Dublin, Galway, Maynooth and Trinity College • FAPRI (Missouri -USA) • Partner Project in Northern Ireland

  5. Background • Now in Second Phase - Continuation from Previous Project • Previous Analyses • Commission Agenda 2000 Proposals (December 1998) • the Final Berlin Agenda 2000 Agreement (May 1999) • the London Club Agenda 2000 Dairy Alternative (Sept 1999) • the impact of Exchange Movements on Farm Income (March 2000) • the impact of a reduction or elimination of Export Subsidies (April 2001)

  6. We Can’t Ignore the Outside World • Irish Agriculture very export dependent • Our Domestic market of lesser importance • Must understand international scene • International Policy • International Supply and Demand • Exchange rates

  7. Linking FAPRI-Ireland to the Outside World FAPRI World Model FAPRI EU Model Ireland Macro Economic Models Ireland Model Ireland Farm Model

  8. Types of Modelling Used Commodity Models • Commodity Level Modelling • Econometric Modelling • individual models for each commodity • commodity models linked to form overall model • Farm Level Modelling • Linear Programming • incorporating results of commodity models • representative farms selected and modelled Farm Models

  9. Agricultural Output: Ireland 1999

  10. Commodity Models Trevor Donnellan

  11. Commodity Model Inter Linkages Sheep Output Values Beef Output Values Milk Output Values Pig Output Values Dairy Cereals Poultry Output Values Dairy Meal Price Cereal Prices, Production,Value & Hectares Dairy Cow Numbers Dairy Cow Numbers Poultry Prices Poultry Numbers Beef Inputs Cattle Feed Price Poultry Meal Prices Cattle Numbers Dairy Cow Numbers Beef Cow Numbers Pig Numbers Poultry Pig Meal Price Sheep Pigs Cattle Feed Price

  12. What this work is NOT • Just remind ourselves this is NOT a forecast it is a projection • Who could have forecast • China Accession • EU Expansion • Weather • 11th September ?

  13. Projecting the Future: How do we do it? • We don’t have a crystal ball !!!!!! • Assume future policy • Relationships between data analysed • Models solved = “The Meltdown” • Results go to Farm Models • Models solved • Consultations with Experts • Final Revisions

  14. How We Do It Macro Economic Projections - WEFA, Link, DRI Final Analysis Or Baseline Model Analysis Policy Assumptions Expert Review

  15. Our Main Ability • Is NOT that we can predict the future • We can assess impact of new policies • First we make a baseline projection • Then we look at policy changes • Produce policy change projections • Look at the difference

  16. Baseline Policy Assumptions • Policies Currently In Place, Remain In Place • International Agreements Hold • No New Policies No New Policy Assumptions

  17. A Scenario Elimination of Export Subsidies

  18. Scenario:Export Subsidy Elimination • Total abolition of export subsidies 2004-2009 • Related assumptions are important • Elimination of export subsidies could lead to a large build up of intervention stocks • Not a credible Commission approach • Must reduce intervention prices - so market clears • Intervention Butter price -20% and SMP -10% • Assume quotas remain in place up to 2010

  19. Dairy : Export Subsidy Elimination Irish Farm Milk Price 3.7% fat Revenue of Irish Milk sector 2010 Value Down 20% on 2000 2010 Revenue down 13% on 2000 Under export subsidy elimination the 2010 price down 20% on 2010 baseline

  20. Beef : Export Subsidy Elimination Irish Cattle Price Revenue of Irish Cattle 2010 Value down 34% on 2000 2010 Revenue Down 13% on 2000 Under export subsidy elimination down 20% on 2010 baseline

  21. Farm Models Thia Hennessy

  22. How we model farms • Representative farms • Apply price projections to farms • Impact on income • Project how farmers will react

  23. Representative Farms • National Farm Survey - 1200 farms • Not all – ‘typical farm’ • Cluster Analysis • Homogenous groups • Similar size, efficiency and demographics

  24. Representative Dairy Farms

  25. Representative Cattle Farms

  26. Modellingthe Farms • Static analysis - no response • Dynamic analysis – response • Programming Models

  27. ModellingResponse • Profit Maximisation • Farm net margin • Max =ctxt+ct+1xt+1+….ct+nxt+n subject to bt<aixi+ajxj+……anxn • Complexity of agricultural policy • e.g:extensification, premia schemes, livestock unit measures

  28. Results of Static Analysis • Gross Output remains static • Price – cost squeeze • Margins are falling • Combat with economies of scale or efficiency • Run faster to standstill

  29. Results – Typical Dairy Farm

  30. Results – 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% (47,000) • Negative impact on GM - Cashflow

  31. Results – Developer Dairy Farm

  32. Results – Developer Dairy Farm • Developer farm margins up 35% by 2010 • Increase in quota farmed by 35% • Large farm margins up 15% higher in 2010 than in 1998 (real loss) • Leased quota purchased no extra

  33. Results Small Dairy Farm • Small dairy farm to exit • Expansion uneconomical • Price cost squeeze • Lure of off farm incomes • Part-time beef system

  34. Results - Cattle Farms • Key to Success Maximise Premia Payments • All Farms Margins volatile from 2000-04 • Small margins 30% higher in 2010 than in 1998 • Extensification and SCP claimed on heifers • Off farm job not an option

  35. Results - Cattle Farms • 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

  36. Results - Cattle Farms • Part-time efficient farm will maintain 1998 margins in 2010 although volatile in the intervening period • Reduce stocking rate to qualify for 1.4 • Hobby farm by 2010 margins 15% below 1998 • Cost structure - continue in farming?

  37. Future Developments To develop PAT - policy analysis tool. PAT is a user friendly policy impact analysis decision support tool for use in farm planning and decision making.

  38. Rationale • Direct payments -large portion of income • More complex criteria • Many considerations • Back of envelope planning outdated • PAT can answers questions easily

  39. How will PAT work? • Based on FAPRI-Ireland farm models • Use FAPRI-Ireland projections & scenarios • User-friendly windows interface • Enter farm data • Initial development – user group

  40. What answers will PATprovide? • What will my profit levels be in 5 years if I don’t change current plan? • What is my best strategy for the next 5 years? • How will a new policy scenario affect my profits?

  41. Benefits • Of use to advisors • Information to farmers • Handle policy issues and maximise DPs • Better understanding of policy issues • Facilitates technology transfer • Take policy analysis to a wider arena

  42. So to Wrap Things Up Some Conclusions

  43. What Can Make This Work ‘ Wrong ‘ ? • Great uncertainty over Euro exchange rate • World Economy • Oil prices – will they or won’t they? • Weather • Different Policies pursued

  44. Conclusions • Commodity models examine policy at aggregate level • Farm models take commodity model results and determine the effects on specific types of farms

  45. Future Work • Reform of the CAP • More WTO Implications • Environment - Kyoto • European Models

  46. Further Information Further information on our work is available on our website at: www.tnet.teagasc.ie/fapri

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