Tuesday, January 2, 2018

Dairy bubbles

Before Christmas the CSO published an advance estimate of output, input and income for the agriculture sector.  If we look at the bottom line things are estimated to have been a whole lot better for the sector in 2017.

Agriculture Entrepreneurial Income 2000-2017

The figures are nominal which warrants some caution when making comparisons to some of the early years shown but the growth in 2017 is undoubtable.  In aggregate, farms incomes grew rapidly in 2017. The €1 billion increase in 2017 is equal to the total for 2009.

We can look at the individual items that lead to entrepreneurial income to see what drove the increase in 2017.

Agriculture Output Input and Income

Entrepreneurial income is the value of output produced plus subsidies less intermediate consumption, compensation of employees, depreciation, rent and interest.  In the main most items were relatively unchanged in 2017.  The one thing that did increase was the value of livestock products and this is almost wholly made up of milk.

Until recently the value of milk production was influenced by the impact of price intervention and output quotas.  As these have been removed (the quotas were lifted in April 2015) the value of milk production is not influenced by the world price of milk and the amount of output produced.  This has led to the volatility seen in recent years.

Agriculture Milk Output 2000-2017

The €1 billion increase in agriculture income is strongly linked to the €700 million increase in the value of milk produced.  Some of this was due to the continued expansion of the sector with volume expected to be up almost 9 per cent but most of the near 40 increase in the value of milk output is due to a 30 per increase in the average price received for milk in 2017.

And most of this increase is working through into an increase in national income.  When we look at our balance of external trade in dairy products it seems likely that the 2017 outcome will be €500-600 million higher than it was in 2016.

External Trade Dairy Balance

When they published their Outlook 2018 a few weeks ago Teagasc said:

Average dairy farm income in Ireland in 2017 set to exceed €90,000 – the highest ever figure - representing an increase of about €40,000 on the 2016 level.

Not too shabby.  Three-quarters of the increase was driven by price effects so it won’t directly feed into increases into real GDP/GNP/GNI/GNI*/NNI or whatever you’re having yourself.  But the money is an injection into the circular flow and if it is spent will contribute to an increase in real activity. The recipients may choose to save it (or equivalently use it to pay off some debt that funded some of the recent expansion) but there is no doubt that having this surge in income is way better than not having it.  But if prices can go up by 30 per cent…

No comments:

Post a Comment