Beef farmers have real problems and they will get worse
This week’s paper from the Central Bank on Irish agriculture showed that beef farmers, on average, make nothing from rearing beef cattle, while most of their limited income comes from the European Union single-farm payment. The Central Bank paper points out that these farms are not viable in the longer term: beef farmers have real problems.
This is the background to the current protest outside meat plants. However, the response of stopping all meat processing is totally counter-productive as it seriously misdiagnoses the real long-term problems facing the sector.
A paper by Con Lucey, published by the Institute of International and European Affairs in the summer, showed that beef farmers in Northern Ireland and England are also making nothing from raising cattle. Thus, the issue of low prices is not an “Irish” problem; rather it has much more fundamental roots that cannot be addressed by any deal between farmers and meat processors.
While the price of cattle in the EU is already very much higher than in the rest of the world, a first major problem for the sector is that EU demand for beef is weak relative to supply. This puts downward pressure on prices for all EU farmers. The Mercosur trade deal, even if it takes place, will only have a further marginal effect on the EU price, as the amount of beef which it would permit to enter the EU is only a small fraction of EU output.
A much bigger threat to our beef prices will come from the long-term policy of reducing the protection in the EU for agricultural products. This has already happened for milk, and it will eventually happen for beef.
The second major problem is that Brexit, of any variety, will add a massive negative shock to cattle prices. This could not only wipe out many beef farmers, but it is likely to have a huge effect on meat processors. They will suffer a very big loss in UK demand, and what demand remains will be at a much lower price.
A third negative force is the extremely rapid technological development of artificial beef from purely vegetable sources.
Already this is having a big impact in the US, a matter of huge concern for US farmers who are seeking regulatory changes to protect their market.
Barclays forecast that within 10 years 10 per cent of the world supply of “meat” will come from synthetic biological processes, with the artificial meat produced at dramatically lower prices than “real” beef. In turn, this will see a further major fall in world beef prices, even if the “real” meat continues to earn some premium over the synthetic stuff.
The problems in the sector today are a harbinger of much worse times to come. The value added in the meat-processing sector – wages and profits – constitutes about 15 per cent of the sector’s exports, maybe €700 million or 0.4 per cent of national income.
This could be very badly hit by Brexit, leading to job losses and probable factory closures. Such closures are more likely if markets outside the UK are damaged by the protests.
Compensation for Brexit should be targeted at helping farmers to gradually move to a more economically and environmentally sustainable form of agriculture that will offer long-term prospects of a decent income.
Trying to prop up a sector that is in long-term decline does not make sense. Switching production will result in higher incomes for farmers. In the medium term, changing land use from rearing cattle to alternatives, such as woodland and biomass, will bring about a substantial reduction in net emissions of greenhouse gases.
Because of the poor long-term prospects for beef processing in a post-Brexit world, support to keep unprofitable plants in business would not be warranted. Instead EU and Irish government assistance should be targeted both at farmers, and at workers losing their jobs in meat factories, and encouraging substitute economic opportunities for them.
That would contrast with the approach taken when sugar-processing ended, where the industry got the lion’s share of compensation, and the affected farmers were the poor relation.
The protests about challenges facing the beef sector from factory prices are diverting attention and focus from preparing for the possible tsunami that Brexit may bring.
Meat processing is already ill-equipped to deal with what may be coming down the tracks. Urgent action will be needed to assist farmers and workers when the Brexit shock hits.
Strategic leadership will be needed from government, farming organisations, processors and unions, to navigate those choppy waters and to prepare for alternative sustainable long-term agricultural production.