Contact: Mr Seamus Funge
The Irish Grain and Feed Association represents animal compound feed producers, grain merchants, grain and feed ingredient importers and suppliers to the industry.
Value of Animal Feed
Animal feed represents the largest input to Irish agriculture costing £650m in 1998 as estimated by the Central Statistics Office.
Grain Usage and Imports
The animal feed industry is the largest user of cereals. In the cereal year 1998/99, 1,055,000 tonnes of native grain and 445,000 tonnes of imported grain were used for animal feeding (excluding grain retained on-farm or traded inter-farm). Imports of feed wheat increased sharply to a level of 280,000 tonnes. That additional volume of feed wheat is capable of being produced in this country within the constraints of the National Base Area.
Cost of Procurement
Animal feed compounding is not a high added value industry: raw materials account for the largest element of cost. The cost of procurement of imported grain and ingredients is necessarily high because of our geographic location and Irish grain growers have displayed an ability over the years to negotiate prices for native grain comparable to the landed price of imported grain or the intervention price whichever is the higher. The cost of Irish produced animal compound feeds is high therefore relative to many other EU Member States and this has major implications for the profitability of the livestock production sector and for intensively produced livestock in particular. Not only is the ability of the sector to maintain and increase exports impaired as a result, it is also ill-equipped to compete with the rising level of imports of livestock products.
Grain and Intensive Livestock Areas
The fact that pig and poultry production tends to be concentrated in areas which are geographically removed from the main grain growing areas adds further to the procurement cost of raw materials. In 1998 the four south eastern counties of Carlow, Kilkenny, Waterford and Wexford produced 24,000 tonnes of pig feed which represented only 3% of the national production of 775,000 tonnes. With regard to poultry feed the south eastern production amounted to 13,000 tonnes or 2.6% of the total national production of 501,000 tonnes. The same counties accounted for 29.4% of the area devoted to cereal production (per area aid applications). On the other hand, counties Cavan, Monaghan, Longford, Westmeath, Laois and Offaly produced 39% of national pig feed output and 48% of poultry feeds but represented 10.8% only of the cereal area, the vast bulk of which was located in Laois and Offaly.
Grain Volumes
Irish grain production has averaged 2m tonnes (green) over the past twenty years. This years volume will be above average. The consistent level of production is being achieved by a continuously declining number of growers and a shrinking area, which has fallen from 444,000 ha in 1980 to an estimated 278,000 ha in 1999.
Grain Trading
Approximately 50% of the feed grain and milling wheat crops amounting to 800,000 tonnes is bought green by the trade directly from the field at harvest time to be dried and stored for sale throughout the marketing year. A further 300,000 tonnes is bought during the year from growers who initially dry and store their grain or simply store it under aerated conditions.
The capacity of modern harvesting equipment enables the grain crop to be harvested within a short period of a few weeks, weather permitting. The process of taking in a years supply of grain at grain stores is carried out during that period under extreme pressure and frequently under chaotic conditions. Trading companies need to acquire an optimum volume of grain over which to spread the fixed costs of their installations resulting in a high degree of competition for the available grain. Pricing the crop is not a scientific process and there are many imponderables which will affect the value of the grain during the following marketing year. These include the overall domestic supply/demand balance, the EU and world wide situation which will determine the cost of imported supplies, the cost of alternative commodities, currency exchange movements, and in the past green £ devaluations and revaluations. Grower representatives largely through the use of the agricultural media create a frenzy of expectation of prices well above realistic levels. As a result prices paid for grain at harvest time tend to exceed what a prudent person would pay operating under “normal” and placid trading conditions and enjoying the time and facility to weigh up all of the economic factors likely to bear on the evaluation.
As a consequence grain trading margins over the years have been on average lamentably below the level required to provide an acceptable level of return on capital employed. This has resulted in the sector being starved of capital investment, the logical consequence of which will be a run down of the infrastructure for grain intake, drying and storage. This could damage our ability as a nation to market the grain harvest with consequent adverse implications for grain growers.
When Agenda 2000 is fully implemented in respect of grain the green price of feed grain will be approximately IR£60 per tonne based on the intervention price. This is a 40% reduction in the price which applied immediately prior to the implementation of the MacSharry reform of the Common Agricultural Policy in 1993. The price collapse further restricts the ability of the trade, whose operational costs have increased in the interim, to earn an acceptable margin. While growers are paid compensation for the fall in cereal prices there is no compensation whatsoever available to grain merchants who represent an indispensable link in the chain of distribution of grain from the field to cereal based industries.
Significant Factors
We bring these matters to the attention of the Committee as significant factors influencing the cost of livestock production and the viability of the grain trade.