Economic Letter: Irish farming sector facing uncertain outlook as Brexit looms

• The agri-food sector makes an important contribution to economic activity, accounting for just under 8 per cent of national income (GNI*) in 2018.
• Beef and sheep farms, which represent around 70% of farms, face significant viability challenges
• The West, Mid-West and Midland regions are most exposed to Brexit-related shocks

An Economic Letter by Central Bank economist Dr Thomas Conefrey published today examines the recent economic performance of Irish agriculture in light of the sector’s current challenges. Its findings suggest that the imminent risk of a damaging Brexit outcome looms large over the sector and has compounded long-running concerns over low incomes.

The analysis shows that beef and sheep farms (around 7 out of every 10 farms) on average face significant viability challenges and are heavily reliant on direct payments. Around one third of all farms are classified as economically vulnerable. Any future negative shock – even one less material than Brexit – would further expose the underlying weaknesses in the sector.

In relation to Brexit, the research suggests that the negative impact on Irish farming will not be evenly distributed. With a greater dependence on low-margin beef farming, the West, Mid-West and Midland regions are both less resilient, and more exposed, than the South and East.

Other findings:

• Primary agriculture along with food processing and the manufacture of beverages employed 153,000 in Q1 2019, or just under 7 per cent of all jobs.
• The agri-food sector generated just over €13bn in exports in 2018, around 10 per cent of Ireland’s overall merchandise exports.
• Specialist beef production is the most common farm type or activity, accounting for over half of all farms in 2016 (78,300). Specialist dairy and sheep farms account for just under 12 per cent (16,000 farms) and 11 per cent (15,000 farms) of all farms respectively.
• The South-East and South-West have the highest proportion of specialist dairy farms – the most viable farming system. Almost one-in-four farms in the South West are dairy farms, compared to around one-in-forty in the West. The Midlands, Mid West and West are the areas with the highest proportion of beef farms at close to 70 per cent, well above the national average of 57 per cent.
• Despite falling by almost a third compared to the previous year, dairy farms had the highest family farm income in 2018 of €61,446. Tillage farms had the second highest FFI of just under €41,000. Other farming systems such as sheep and cattle farms have very weak profitability and have a high dependence on direct payments.
• Given the viability challenges facing many farms, options should be explored that would have the dual benefits of safeguarding the incomes of farmers while also delivering reductions in Ireland’s greenhouse gas emissions. 

Commenting on the research, Mark Cassidy, Director of Economics and Statistics said:

“Agriculture makes a significant contribution to the Irish economy and also has important distributional effects in the economy. However, low profitability in certain sectors and high reliance on direct payments are weaknesses in the sector that should not be ignored. It provides the context in which all other risks facing Irish agriculture should be considered. With this in mind, risks such as a no-deal Brexit or other negative shocks have the potential to exacerbate existing challenges facing some farmers.”

Notes:

• The views presented in Economic Letters are those of the authors and do not necessarily represent the official views of the Central Bank of Ireland.