9/10/15: Subsidies and Irish Agriculture: 2014 Data

Per latest data from CSO, Net Subsidies accounted for 59.6% of agricultural income in Ireland in 2014, ranging from 105.3% in the Midlands to 40.6% in South-West.

High as a kite on subsidies, Irish agriculture nonetheless managed to improve, thanks in part to lower euro valuations, its value added relative to subsidies. In 2012 net subsidies counted for 72.1% of total operating surplus (or income) in the sector, falling to 63.4% in 2013.

Key computational definition here are for GVA (Gross Value Added) and Operating Surplus (Income):

GVA at basic prices = Agricultural Output at basic prices – Intermediate consumption
Operating Surplus =    GVA at basic prices – Compensation of employees
                              –  Fixed capital consumption
                              + Other subsidies less taxes on production

Net value added in Irish agriculture in 2014 was EUR1.463 billion, up on EUR1.316 billion in 2013.

For the politicians claiming immense importance of the sector to Ireland, a quick reality check: Gross Value Added (which includes all labour inputs and capital spending in the sector, as well as subsidies net of taxes) stood at EUR2.192 billion in 2014.

And of that, subsidies accounted for 69.4 percent of total Gross Value Added - more than 2/3rds of Irish Agricultural Value Added came via a cheque from Europe, not from customers buying the goods.

In fact, claims about Irish Agricultural Sector contribution to the economy are often wildly off the mark. Per CSO data, the highest metric of this sector activity - Agricultural Output at Basic Prices is EUR7.328 billion for the entire 2014 and of these 20% (one fifth) were net subsidies.

2/3/15: EU Exporters: No More Than 20-30% Will Return to Russian Markets

A very interesting note reporting comments by Russia's head of Rosselkhoznadzor (organisation that certifies food imports and grants food market access to foreign exporters) on the post-sanctions regime for Western exporters into Russia. The full text is here: http://www.interfax.ru/russia/426955 in Russia.

The core point is that head of Rosselkhoznadzor expects the return of just 20-30% of EU exporters back to the Russian market once Russian sanctions on food imports are lifted. And that is 20-30% "at most". Quoting from Interfax report, the head of Rosselkhoznadzor thinks that "Products from the EU will find it difficult to return to Russian markets, because we will be forced to cut back on the number of European producers, allowing only 20-30% of previously active suppliers back into the market. The rest will be able to supply [exports to Russia] only after they restore [market] trust".

In another report (http://www.interfax.ru/business/427220), President Putin's press secretary stated today that Moscow is considering allowing imports of agricultural raw materials that serve as inputs for production of food in Russia, as long as actual production takes place in Russia. The statement relates to the President Putin's promise made in Budapest last month that Russia can expand cooperation with Hungary in food trade. According to the press secretary statement, this can only be done by relaxing sectoral restrictions as Hungary (or any other country) cannot be privileged in trade relations with the EU under the WTO rules.

Подробнее:http://www.kommersant.ru/doc/2677352

7/10/2014: Subsidies Rained on Irish Agriculture: 2013

Recently, CSO published accounts for Irish Agricultural sector for 2013. And what a reading these make.

"In 2013, net subsidies accounted for 66.8% of agricultural income (operating surplus) at state level." In other words, say 'thanks EU' for paying 2/3rds of our farmers' income (or whatever you might call it)...

"In the Border, Midland and Western region, net subsidies accounted for 108.8% of agricultural income, while in the Southern and Eastern region net subsidies accounted for 51.0% of agricultural income." Net subsidies accounted for 176.7% of operating surplus in the Midlands.

A table breaking down the above:

Net Subsidies fell from EUR1.801 billion (73.6% of income) in 2011 to EUR1.63 billion (73.4% of income) in 2012 to EUR1.505 billion (68.8% of income) in 2013. So over 2011-2013, net subsidies shrunk by 16.4%. Meanwhile, operating surplus (income) fell from EUR2.447 billion in 2011 to EUR2.221 billion in 2012 before rising slightly to EUR2.254 billion in 2013 - a net loss over 2 years of 7.9%.

Chart to illustrate net subsidies share of income:

Good thing we have EU taxpayers to sustain these levels of productivity in our indigenous champions of traditional life...

24/4/2014: Value Added in Irish Economy, 2010 data

CSO published analysis of value added in main sectors of the Irish economy for 2010 (yes, it takes them THAT long)... And the winners (in terms of being least important to adding value) are:

1. Construction 
2. Agriculture
3. Manufacturing of food, beverages & tobacco

Per CSO summary: "The main constituents of output at basic prices in 2010 were service industries at €219.5 billion (65% of the total), production industries at €98.7 billion (29.2%), construction at €13.2 billion (3.9%) and agriculture, forestry & fishing at €6.4 billion (1.9%)."

It is really that simple: want more value-added in the economy? Pursue development of traded opportunities in Education, Health, Arts, make other domestic sectors more human capital-intensive (aka more productive and innovative), put them out into exports markets... Do what you might, just don't appoint more ministers for Agriculture or Building Construction. Instead focus on making our agriculture more innovation and productivity-focused, allow and encourage consolidation of production, push forward with reforms removing CAP subsidies from farming, in other words, pursue greater focus on growing value added component of our agricultural sector.

Here is the breakdown:

And in more details:

Footnotes to the above chart:

(1) Includes Manufacture of coke& refined petroleum products;

(2) Includes technical, administrative and support service activities

(3) Includes food and beverage service activities

(4) Includes Manufacture of furniture; 

(5) Includes repair of motor vehicles and motorcycles

(6) Includes compulsory social security

(7) Includes recreation activities and other services

(8) Includes Social work activities

16/9/2013: Don't chill that champagne, yet... Irish Agri-food Exports

Here's one of the core reasons as to why agricultural exports are booming in Ireland:

Or more precisely, implied profit margins on sales:

So in basic terms: global food inflation is driving Ireland's agri-food exports since ca Q1 2010, while profitability improvements are contributing to the same since ca Q4 2011. The former is obviously not due to our competitiveness gains or efficiency improvements or great business strategies or policies. The latter is, err... not that much either, as costs continued to inflate since Q4 2011, albeit slower than output prices. In other words, our improved profit margin in the agri-food sector are also due to someone, somewhere on the Planet having to pay more for food.

20/10/2012: Irish Agriculture 2009-2011 - Value Added

CSO released data for gross value added in agriculture for 2009-2011 yesterday - a set of data that reveals the final figures for the various sources of income in Irish agriculture. The good news is that in 2011 the subsidies junkies have managed (in part on foot of booming agricultural prices) to derive some net value added from their activities. The bad news is that ba far the Agricultural sector in Ireland remains unproductive.

The core figures are defined as follows:

• Net subsidies: Subsidies on products less taxes on products plus subsidies on production less taxes on production.
• GVA at basic prices = Operating surplus + Compensation of employees + Fixed capital consumption - Other subsidies less taxes on production

I have written on many occasions before that Irish agriculture is an extension of the welfare state, in so far as most of the value added in it is provided for by the subsidies. Here are the latest details:

Thus, only in the South-West did 2011 net of tax subsidies cover less than 50% of the operating surplus. In Broder, Midland and Western region, net subsidies exceeded operating surplus.

Over the last 3 years:

• Value of the total output in Livestock nationwide rose from €2,225 million in 2009 to €2,281 million in 2010 and €2,665 million in 2011 - an increase for 2009-2011 of cumulative 19.8%
• Value of the total output in Livestock Products nationwide rose from €1,148 million in 2009 to €1,591 million in 2010 and €1,887 million in 2011 - an increase for 2009-2011 of cumulative 64.3%
• Value of the total output in Crops nationwide rose from €1,377 million in 2009 to €1,523 million in 2010 and €1,751 million in 2011 - an increase for 2009-2011 of cumulative 27.1%
• Value of the Total Goods Output in Agriculture nationwide rose from €4,751 million in 2009 to €5,395 million in 2010 and €6,303 million in 2011 - an increase for 2009-2011 of cumulative 32.7%
• However, there was also a 16.9% rise in Intermediate Consumption of inputs that went into supplying the above Total Goods Output in Agriculture, which rose from €4,185 million in 2009, to €4,302 million in 2010 and €4,890 million in 2011.
• At the same time, Net Subsidies (as defined above) rose only marginally - by 0.04% cumulative, from €1,813 million in 2009declining first to €1,649 million in 2010 and rising to €1,814 million in 2011.
• As the result of this, Operating Surplus in Irish Agriculture went from €1,446 million in 2009 to €1,841 million in 2010 and to €2,395 million in 2011, posting a cumulated rate of growth for 2009-2011 of 65.7%.

All of the above means that absent net subsidies, Irish Agriculture's contribution to the economy (net of costs) would have been: a loss of €367.4 million in 2009, a gain of €192.5 million in 2010 and a gain of €581.5 million in 2011. With a sector that has managed to add - out of its own activity - just €406.6 million to the economy cumulative over last 3 years, we have a lot of policy and marketing hoopla about the value of Ireland's Agriculture.

The table below summarizes inputs and outputs in the GVA calculation for Irish Agriculture:

Even taking into the account wages paid by and to Irish farmers, the overall Agriculture's importance to the economy is (on the net) minor. Oh, and above does not account for the cost of running the Department of Agriculture and other tax-related spending that effectively is an added cost to the taxpayers.

16/12/2011: Agricultural Output in Ireland 2011

Advanced estimates for production and value added in Agriculture for Ireland is out for 2011 and it makes for some interesting reading. The headline numbers are pretty exciting:

• Goods output rose from €4,7524mln in 2009 to €5,329mln (+12.8% yoy) in 2010. And it is now expected to increase to €6,190mln (+16.2%) yoy in 2011. 
• Net subsidies (net of all taxes collected) fell from €1,849mln in 2009 to €1,688mln in 2010, and now expected to rise again to €1,942mln in 2011.
• Overall, operating surplus - goods output value less intermediate inputs consumption and less subsidies - has risen year on year in 2010: from €1,544mln in 2009 to €1,967mln in 2010 (+27.4%) and is expected to rise 33.4% to €2,625mln in 2011.

Strong results, but over relatively tiny numbers. When you hear that the agriculture sector is worth €6.2 billion to the Irish economy, do keep in mind that in reality it is worth just €2.6 billion. The rest of the 'worth' is more like rich uncle buying you a dinner and sending you a subsidy cheque...

And for being the 'agriculture island' - well, our operating surplus in 2010 in agriculture stood as 12th highest in absolute terms in the EU27, same as in 2009. This is against the backdrop of Irish economy being 15th largest in EU27 in the same period. So here's the neighborhood we are in, when it comes to agriculture's contribution to our economy:

Wedged between such 'knowledge" economies with high value added as other agricultural states of Cyprus, Lithuania, Estonia, Hungary... Ireland is the only country of the advanced EU27 states that finds itself in the group of countries with agriculture's share of GDP above 1%. In fact, our share in 2010 was 1.26%. The closest to us advance EU27 member state - Finland, had the same share of 0.88%.

The fact is, you can't build a modern economy on agriculture. A healthy agricultural sector with high value added activities and high levels of specialization is something to be proud of. A generally larger agricultural sector as a share of overall economy, in contrast, is a feature of underdeveloped economies.

Economics 29/9/10: Agricultural prices

Last month I made a number of warnings concerning the price increases in some food sectors, specifically - milk and milk products. These warnings were based on my analysis of the figures for global commodities price trends and the newsflow from Russia and Central Europe. I also warned that Ireland is not insulated from these price changes due to the open nature of our trade.

The latest data from CSO today shows that my predictions are turning out to be right.

Per CSO (emphasis is mine): "Comparing July 2010 unadjusted sub-indices with July 2009 shows that:

• Milk, potatoes, sheep, vegetables, cattle and pig prices increased by 38.0%, 32.4%, 17.8%, 3.0%, 2.9% and 2.2% respectively, while cereal and poultry prices decreased by 28.9% and 2.8%.
• Energy prices increased by 15.5%, while seeds, feeding stuffs, fertilizers, plant protection products and veterinary expenses decreased by 9.3%, 8.1%, 5.2%, 0.9% and 0.1% respectively.

Of course, energy prices increases (driven by a 20.1% hike in motor fuels, year on year, but offset - before introduction of the new electricity price hikes and levy - by a -3.1% decline in the price of electricity) are reflective of our wonderfully consistent economic policies that see simultaneous:

• increases in state-controlled inputs prices and
  
• deflation of wages,

thereby undoing competitiveness gains in the private sector by overcharging in state-controlled sectors.

In monthly terms, unadjusted output prices in July were:

• Milk down -0.1%
• Cereals no change

These numbers are not yet pricing the full extent of August events, so expect uptick in Q3 figures to be significant.

Economics 8/8/10: Some Tullamore fun

Per report by RTE today (here), our Minister for Agriculture Brendan Smith said that Ireland's agri-food sector "is making a colossal contribution to economic recovery". The Minister was speaking at the Tullamore Show in Co Offaly.

I am impressed. Of course, agri-food sector is a relatively undefined (by CSO core national accounts statistics - it doesn't even exist) sector, so Minister's claims cannot be fully tested. You see, they belong to that great category of assertions that are non-falsifiable.

But we can take a look at Minister's direct sector of charge - Agriculture. Here are few charts based on latest data from the Quarterly National Accounts and National Income and Expenditure Annual Results for 2009.

Let us start with the Agriculture, Forestry & Fishing sector contribution to GDP:
Not exactly spectacular contributions to the national income - AFF sector delivered just 2.38% of national GDP in Q1 2010 - and that was above average performance. All in, the sector output was worth just €995mln. Not a pittance, but when one considers the massive levels of CAP-delivered financial subsidies the sector receives, I wonder what is so 'colossal' in this?

When measured in terms of constant factor costs, AFF sector has hardly performed any better. Its share of our GDP stands at a miserly 2.37% in Q1 2010, which is down on 2.39% achieved in Q1 2009. Back in Q1 2005 the same share was at a height of a 'colossal' 2.77%.

Annual value of the sector output, in constant market prices, never once exceeded €4,000mln since 2005 and has actually declined over the years from the peak of €3,953mln in 2005 to €3,555mln in 2009.

But may be Minister Smith's sector is 'colossal' in terms of its contribution to growth in our economy?
Again, data suggests that, sadly, this is not true either. In 2004-2009 the overall net value added in AFF sector has fallen by 4%. Other sectors experience growth in net value added of 2.5% over the same period. AFF has managed to collect massive load of subsidies over these years. Subsidies to all other sectors have been negligible and actually declined precipitously.

May be the AFF sector provided a relatively stronger shoulder for our floundering economy in 2008-2009? Not really -

• Between 2007 and 2008, Net Value Added in the AFF sector shrunk by 10.4% while NVA in all of the economy declined by 3.9%;
• Between 2008 and 2009, NVA in AFF sector has fallen by 24.4% against a drop of 8.6% in the economy-wide NVA;
• So far in the crisis - between 2008 and 2009, Net Value Added in Agriculture, Forestry & Fishing sector has declined by 32.3% while economy-wide NVA declined by less than 12.2%.

But wait, if AFF sector is not so 'colossal' in terms of growth in income or its contribution to income, may be it is a giant in terms of capital formation (aka wealth storage)?
Look at the national accounts data. The AFF sector is barely registering on the radar as a capital investment sector. True, it does appear to be more stable in the wake of the massive wave of capital values destruction since 2007 that impacted other sectors (e.g. construction, development, finance etc). But...
As you can see from above, sector share of overall capital pie remains miserably low, with exception of the two years when our land markets went nuts - 2007 and 2008 (incorporating lags).

Overall, per latest CSO data (so grossly outdated, we only have figures for 2009 so far):

• Net value added at basic prices in the entire sector was €1,197.5mln in 2007, €840.2mln in 2008 and a dramatic €204.2mln in 2009. In other words, once subsidies and consumption of capital are taken out, Irish Agriculture, Forestry and Fishing managed to post of collapse in the Net Value added of -76% between 2008 and 2009.
  

Sorry, Minister, I don't seem to find much of evidence of anything colossal going on in our AFF sector at all, apart, that is, from the subsidies it receives from the EU (€1,850mln in 2009 net of taxes paid by the sector or well in excess of the sector operating surplus of €1,612mln) and the precipitous rate of collapse in

• Goods output (down 18.1% yoy in 2009) and
  
• Operating surplus (down 30% yoy in 2009).

Of course, as I have mentioned above, the CSO nomenclature does not allow us to test the proposition of 'colossal' potential for our agri-food sector. But as far as Minister Smith's direct charge goes, we are now decades away from the days when Agriculture, Forestry & Fishing last time provided a significant, let alone 'colossal', contribution to economy or economic growth or increases in the country stock of wealth.

Which is really sad, given our natural conditions for excellent agricultural production.

Economics 24/06/2009: Agriculture's Value in Economy

Let the number speak for themselves. Per CSO data release yesterday:
Subsidies as a share of total value of production are creeping up, accounting in 2008 for 31.6% of the entire sector output. Intermediate consumption is also up, made up of various inputs. Net value added is down - the contribution of the sector to this economy through activities actually attributable to production: from 32.3% in 2004 to 13.7% in 2008. Why are we still having a Department of Agriculture in this country if the net and gross value added by this sector is smaller than the net subsidies the sector receives, i.e the sector produces less real value than it takes out of the EU in handouts...