EU dairy farms report 2012

Transcription

1 EU dairy farms report 212 based on FADN data

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3 EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR AGRICULTURE AND RURAL DEVELOPMENT Directorate L. Economic analysis, perspectives and evaluations L.3. Microeconomic analysis of EU agricultural holdings Brussels, April 213 Executive summary EU DAIRY FARMS REPORT 212 This annual report provides an overview of EU dairy farms based on the latest available data from the Farm Accountancy Data Network (FADN) for It provides trends in milk margin per tonne and in income per work unit from 21 to 29, as well as estimates of milk gross margins for 21 and 211. Since 29 was the year of the milk crisis, its main focus is the analysis of the effects of the crisis. The sample of milk specialised farms for 29 represented 73 % of dairy cows and 78 % of milk production in the 27 EU Member States (EU-27). The price in 29 was 17 % less than the average milk price in 27 a very good year. This, together with only a small decline in cost of production, prompted the milk crisis. At EU-27 level, gross margin 2 fell by 37 % from a peak in 27 to 94 (euros per tonne). It is estimated that gross margin should return to its 27 level by 211. The impact of the crisis was felt differently in the respective EU groups (see the graph below) due to variations in the fall in milk prices and in the way the groups adapted to the situation. 25 Trend in milk gross margin EU-15 EU-1 EU-2 EU e 211e Source: EU FADN DG AGRI, Model of the allocation of milk costs. The 1 countries that joined the EU in 24 (EU-1) experienced the sharpest decline in gross margin (to % less than in 27) due to a more severe cut in milk prices (-24 %), which could not be fully offset by the decrease in operating costs (-1 %). In the 15 Member States that belonged to the EU 1 2 Report based on 21 data will be available soon. Gross margin = (milk price + coupled payments) (feed, veterinary, energy costs and other operating costs). Decoupled payments, progressively introduced from 25, are not included in margins, but they are part of income. Commission européenne/europesecommissie, 149 Bruxelles/Brussel, BELGIQUE/BELGIË Tel

4 EU Dairy farms report 212 before 24 (EU-15), the decrease in prices was less pronounced (-17 %), but the milk gross margin, which was 36 % less than in 27, fell below 1, its lowest level in the decade. In Bulgaria and Romania (EU-2), the impact of the crisis seems to have been less severe, due largely to a more proportional decrease in milk prices and feed costs. All in all, the proportion of specialised farms in the EU-27 with a positive gross margin fell from 98 % in 27 to 92 % in 29. This situation naturally had an impact on the income of milk specialised farms. After years of continuous increase, average Farm Net Value Added per Annual Work Unit (FNVA/AWU) in the EU-27 decreased to EUR/AWU on average, 25 % lower than in 27. Dairy specialised farms generally provide higher incomes per AWU than other types of farming, but this was no longer the case in 29 for the first time in years, their average income did not rank in the top three types of farming, although it remained above the total average. As with gross margins, the income level varied among the EU groups, with income being three to seven times higher in the EU-15 than in the EU-1 or EU-2, mainly due to huge differences in farms size (see charts below). 16 Index 21 = 1 Income trend in nominal and real terms - EU milk specialised farms EU 15 FNVA/AWU nominal EU 15 FNVA/AWU real EU 1 FNVA/AWU nominal EU 1 FNVA/AWU real EU 2 FNVA/AWU nominal EU 2 FNVA/AWU real Source: EU FADN DG AGRI, ESTAT (HICP index EUR 21). The evolution of income also differed in the respective EU groups. After years of continuous increase in the EU-1 and EU-15, income fell between 27 and 29 following the fall in margins (see graphs below). The decrease was more marked in the EU-1 (43 % less than in 27), owing to the drop in margins and a decrease in average milk production on specialised farms, which was not offset by the increase in direct payments and subsidies. However, these payments, even though they represented only 2 % of the total receipts in EU-1 in 29, made up 73 % of the FNWA/AWU (at EUR/AWU). In the EU-15, direct payments and subsidies (of which 7 % were decoupled payments) were also a crucial part of support income, as they represented 56 % of the FNVA/AWU, which in 29 fell back to its 21 level in nominal terms ( EUR/AWU). The situation was quite different in the EU-2 where, in spite of the drop in prices, income increased in 29, thanks to an increase in apparent labour productivity (the average number of cows per farm increased in parallel with a decrease in the average labour force per farm). However, better prices are likely to lead to a recovery in the margins in 21 and 211 (to 27 levels in the EU-15, and above them in the EU-1 and EU-2), and therefore an increase in income. 2

5 EU Dairy farms report 212 EU FADN DG AGRI, Model of the allocation of milk costs. Source: EU average results conceal a wide range of situations at national and regional levels, as illustrated in the report. 3

6 EU Dairy farms report 212 Table of contents 1. INTRODUCTION MILK SPECIALISED FARMS IN THE EU ANALYSIS OF MILK MARGINS Breakdown by EU group EU EU EU EU National level EU-15 Member States EU-1 Member States EU-2 Member States INCOME ANALYSIS Breakdown by EU groups EU EU EU EU National level EU-15 Member States EU-1 Member States EU-2 Member States

7 EU Dairy farms report 212 Box 1: The Farm Accountancy Data Network (FADN) The FADN 3 is a European system of sample surveys that take place each year and collect structural and accountancy data relating to farms; the aim is to monitor the income and business activities of agricultural holdings and to evaluate the impacts of the Common Agricultural Policy (CAP). The FADN survey covers only those farms exceeding a minimum economic size (threshold) so as to cover the most relevant part of the agricultural activity of each EU Member State, i.e. at least 9 % of the Standard Gross Margin and 9 % of Utilised Agricultural Area covered in the Farm Structure Survey (FSS, Eurostat). For 29, the sample consists of approximately 78 holdings in the EU-27, which represent 5.4 million farms (39 %) out of a total of some 14 million farms included in the FSS. The survey is intended to provide representative data in three dimensions: by region, economic size and type of farming. The FADN is the only harmonised source of microeconomic data, which means that the accounting principles are the same in all EU Member States. The most recent FADN data available for this report are for the 29 accounting year; this is because of the time needed to collect, check and correct the data of all the EU Member States. The next edition of this report, using FADN data till 21, is scheduled for later this year. 3 For more information on FADN: 5

8 EU Dairy farms report INTRODUCTION This report provides an overview of EU dairy farms based on the latest available FADN data, i.e. for 29. Cost of production and gross margins for 21 and 211 are also estimated. The main feature of the five-year period has been the high level of volatility in agriculture in general, and in the milk sector in particular. In 27, producers experienced a sharp increase in milk prices alongside a general boom in agricultural prices. Input prices followed suit, albeit with a time lag and to a different extent. Producer prices then fell dramatically in mid-28 while input prices remained quite high, prompting the 29 milk crisis. Milk prices recovered in 21 and 211. This report provides an analysis of the economic situation of EU dairy farms, focusing on the impact of the 29 milk crisis. Chapter 2 describes the sample of milk specialised farms on which the results presented in this report are based. The third section provides an analysis of milk margin by EU group and Member State. The fourth section is dedicated to income analysis at EU and national level. Detailed data by EU group, Member State and region are provided in the Annex, together with explanations on the methodology. 2. MILK SPECIALISED FARMS IN THE EU This study is based on farms mainly oriented towards milk production. 4 In the FADN 29, the sample is made up of farms, representing farms in the EU-27; 55 % are in the EU-15, 22 % in the EU-1 and 24 % in the EU-2. While the coverage of the sector is very high in most EU-15 Member States, it is generally lower in other Member States. Farms in these Member States, particularly large farms in Slovakia and the Czech Republic, diversify their activities a lot, so the proportion of specialised farms is not high. The share of the sector covered by specialised farms in the FADN is more than 8 % in the EU-15 and around 5 % in the EU-2 and EU-1. There are big differences in coverage among Member States: only 17 % of milk production in Slovakia and 19 % in the Czech Republic, but full production in Ireland and Finland. 5 Globally, the FADN sample covers 73 % of the dairy cows, and the margin and production costs are valid for 78 % of EU-27 milk production. 6 There are large differences among milk farms across the EU (Table 1). Farms in the EU-15 are in general much larger and have higher yields than in the EU-1 and EU-2. Milk specialised farms in the EU-15 have 52 dairy cows on average, with a milk yield of kg/cow, producing 364 t of milk per year, whereas in the EU-1 they have 17 dairy cows, with a yield of kg/cow, and produce 97 t of milk per year. Farm size is even lower in the EU-2 where farms have 7 dairy cows on average, with a yield of kg/cow, and produce 27 t of milk per year. These data reflect the diversity of milk farm structures in the EU-27, which are linked to the differences in natural potential and also in the social, economic and regulatory context. In particular, the different national policies on milk quota The main criteria used to define specialised milk farms is a share of milk sector higher than 5 % of the total output and coupled subsidies (see methodology in Annex I). It enables reliable estimates of cost of production and margins to be obtained. There is an overrepresentation in some Member States mainly because the representation was based on the last information available when preparing the report the Eurostat Farm Structure Survey 27. See also Table 2 and 3 in Annex I. The results for Cyprus are not displayed because the sample is too small. 6

9 EU Dairy farms report 212 management are very likely to have had an impact on the level of restructuring within each Member State. Table 1: Structural information on milk specialised farms by Member State (29) FADN 29 Forage area ha Dairy cows LU Total labour AWU Average specialised milk farms Share of family labour % Milk yield kg/cow Milk production /farm tonnes Milk output- /tonne Share of milk production as % of sector Belgium % % Denmark % % Germany % % Greece % % Spain % % France % % Ireland % % Italy % % Luxembourg % % The Netherlands % % Austria % % Portugal % % Finland % % Sweden % % The United Kingdom % % EU % % Cyprus The Czech Republic % % Estonia % % Hungary % % Lithuania % % Latvia % % Malta % % Poland % % Slovakia % % Slovenia % % EU % % Bulgaria % % Romania % % EU % % EU % % Source: EU FADN, Eurostat production statistics treatment DG AGRI.: data are not displayed, fewer than 15 farms in the sample. 7

10 EU Dairy farms report 212 Box 2: Impact of the volatility of milk prices on the results: the case of Spain When comparing results from one year to another, the sample, or population of milk specialised farms for which results are provided, may vary. The main factor of change in the observed population is the specialisation rate, i.e. the share of milk output and subsidies in total output and coupled subsidies. The milk output (quantity of milk x price of milk) is sensitive to the relative price of milk and other products of the farm. When agricultural prices are stable, so is the specialisation rate. But in the last few years, the volatility of milk and other agricultural prices has meant that a farm which was considered specialised in a given year could not belong to the population of observed farms the next year, and vice versa. For example, in 27, milk prices were very high, and the share of milk output and subsidies of total output and coupled subsidies may have increased if the output of the other activities of the farms remained stable or decreased. This in turn means that many more farms would qualify as specialised dairy farms. This happened in Spain for example. In 27, farms smaller than 8 ESU 7 (small farms) represented 25 % of all milk specialised farms, whereas their share was around 1 % in a normal year and % in 29, while the share of farms of other size classes remained more or less stable. This naturally had an impact on the average results: for example, the average number of dairy cows per farm decreased from around 37 in previous years to 31 in 27. As these small farms represent a very small proportion of the total production of milk by specialised farms (3 % in 27, around 2 % in a normal year), this had an impact on the average milk production per farm average milk production on specialised farms in Spain was 217 t in 27, against 264 t in 29. If small farms had been excluded from the sample, the average milk production per farm would have been 28 t per farm in 27, and the trend between 27 and 29 more in line with that at macro level. Consequently, a direct comparison of the 27 and 29 results for Spain is not fully suitable. It should be noted that due to different agricultural situations, volatility has greater consequences for the EU-1, making comparisons over time more difficult for this EU group and for some of its Member States. Solutions to mitigate such effects will be explored in the next editions of this report. Besides, it should be noted that technical changes in selection plans (e.g. clustering rules) can sometimes also have an impact on the global picture. That was the case in Hungary, for example. 7 ESU: Economic size unit. See FADN website. 8

11 EU Dairy farms report ANALYSIS OF MILK MARGINS This chapter highlights the main results for revenues, costs and margins of dairy activity, which are presented in terms of current euros per tonne () of milk produced. It focuses on the impact of the crisis on dairy activity, by comparing, where possible (see Box 3), the results for 27 with those for The tables in Annex II show the detailed results by EU group, Member State and region. Three different margin indicators are studied. 9 The gross margin (over operating costs) is generally used when making comparisons with alternative types of production (labour, land and capital costs still have to be paid, whichever type of production is chosen). The net margin (before own factors) is calculated as the gross margin minus depreciation and external factors (wages, rent, interest paid). The net economic margin allows assessment of the residual revenue (profit or loss) obtained from production, after remuneration of all production factors including imputed family factors (opportunity costs for family factors). The method is summarised in Box 3 and detailed in Annex I. Box 3: Summary of the method The FADN database contains information about output and subsidies per product, but as far as costs are concerned it only provides information relating to the farm as a whole. Hence, the direct contribution of each enterprise to the farm income is not available, which means that the cost of production by product have to be estimated. The EU FADN unit has built several models to estimate costs and margins for the different products: arable crops, milk and beef, and permanent crops. These models allocate farm costs to a particular product using different ratios. Annex I gives details of the model for estimating milk cost of production and margins which is used in this analysis (see Methodology 1). Since 28, imputed costs for unpaid family factors have been estimated (family labour costs and own capital costs). The aim is to enable a comparison to be made between Member States with different structures in terms of labour (share of family and paid labour), land (rented/owned) and capital. The methodology for estimating the opportunity costs of family labour, land and capital is explained in Annex I (see Methodology 2). The output, operating costs and gross margin (over operating costs) for 21 and 211 are estimated on the basis of milk prices, milk yield indices and input price indices. It is assumed that structures remain unchanged (e.g. the number of cows remains the same), but a change in milk production resulting from a change in average yield per cow is taken into consideration. The sources of the indices used are the following: - for the milk price: the Commission s Directorate-General for Agriculture (DG AGRI) - for milk yield and input prices: Eurostat databases (agricultural production, agricultural prices and price indices). 8 9 Due to very good prices for milk, 27 may not be the most reliable base year for comparison; however, it is the first one for which we have data at EU-27 level, thus allowing comparisons to be made between EU groups. For a detailed definition of the margins and costs presented, please refer to the description of the milk model in Annex I. 9

12 EU Dairy farms report Breakdown by EU group EU-27 The milk gross margin fell by 37 % between 27 and 29 due to a 17 % decrease in milk prices, but the margin is expected to recover by 211 thanks to higher milk prices compensating for an increase in operating costs. At EU-27 level, the operating costs for milk production consist mainly of feed costs (around 5 % of operating costs, two-thirds of which are for purchased feed and 1/3 for home-grown feed) together with energy, machinery and building upkeep and contract work, each representing a little less than 1 % of operating costs. Since the decoupling of direct support, revenues from milk have depended mostly on the price and the quantity produced. In the short term, gross margin is therefore mainly influenced by the milk price and feed costs. Between 27 and 29, the average price for milk fell by 17 % owing to an increase in production while operating costs per tonne remained stable. 1 As a consequence, the average milk gross margin fell by 37 % to 94 (Figure 1). However, thanks to higher milk prices, which more than compensated for the increase in operating costs, 21 and 211 saw a recovery in gross margin, which is expected to return to its 27 level in 211. In 27, 98 % of milk specialised farms had a positive gross margin. By 29, this figure has fallen by 6 percentage points, but should have almost recovered by 211 (97 % of specialised dairy farms). Following the fall in gross margin, the average net margin (gross margin minus depreciation and external factors, both of which remained mostly unchanged) fell sevenfold between 27 and 29 to 9. After deducting opportunity costs for family labour and capital, we obtain the net economic margin, which plunged from -23 to -85 between these two years. As long as imputed family labour costs remained stable, the opportunity costs for own capital doubled, mostly due to a steep increase in the real interest rate. 11 Yet the main driver here too is the decrease in milk price. The negative net economic margin means that on average farmers do not obtain what could be considered an adequate remuneration for their own labour and capital. In 29, only 13 % of EU-27 specialised dairy farms had a positive net economic margin (29 % in a good year such as 27). Given the trend in gross margin, net economic margin should improve in 21 and costs were lower than in 28, thanks to lower feed costs, but not low enough to compensate for the fall in the milk price. See Methodology 2 for further explanation. The real interest rate used to calculate own capital unpaid costs corresponds roughly to the difference between the long-term interest rate and inflation. In contrast to previous years, inflation in most Members States, especially in the EU-1, fell considerably, even approaching zero in 29. As a consequence, the real interest rate rose considerably that year, causing own capital unpaid costs to rise abruptly. These costs are only estimates, however, and should be interpreted with caution. 1

13 EU Dairy farms report 212 Figure 1: Trend in milk cost of production and margins, EU-27 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. 11

14 EU Dairy farms report EU-15 Trends in the EU-15 were similar to those in the EU-27. In 29, the average gross margin in the EU-15 fell below 1 to 95, its lowest level in a decade (see Figure 5), and 36 % lower than in 27. In the EU-27, the decrease in milk prices between these two years (-17 % to 291 ) was the main driver of this drop, since operating costs per tonne remained fairly stable. The impact on specialised farms was noticeable, with the percentage of farms with a positive gross margin falling from 98 % to 93 %. Here again, thanks to an increase in milk prices, the average milk gross margin in the EU-15 is expected to recover to its level of 27 by 211. Given that depreciation and external factor costs per tonne remained stable, net margin also fell abruptly in 29 (following the fall in gross margin) to 7 with coupled payments. This was by far the lowest level in the decade. Due to the rise in the real interest rate, opportunity costs for own capital increased abruptly in 29 (Figure 4) whereas opportunity costs for family labour per tonne remained nearly unchanged. Indeed, apparent labour productivity (milk production per AWU) kept on increasing in 29 (Figure 2), which offset the limited gain in imputed wage for family labour (Figure 3). As a result, net economic margin fell too, and in 29 only 1 % of EU-15 specialised dairy farms had a positive net economic margin (28 % in a good year such as 27). Figure 2: Apparent labour productivity Figure 3: Imputed wage for family labour Source: EU FADN DG AGRI, Model of the allocation of costs for milk. Figure 4: Opportunity costs for own capital and real interest rate Source: EU FADN DG AGRI. 12

15 EU Dairy farms report 212 Figure 5: Trend in milk cost of production and margins, EU-15 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. 13

16 EU Dairy farms report EU-1 The EU-1 were more severely hit by the milk crisis despite a cut in their operating costs, but the increase in prices is expected to bring the gross margin in 211 to its highest level since 24. The EU-1 were more severely hit by the milk crisis than the EU-15. Milk prices (214 /t in 29) decreased on average by 24 % compared to 27, causing gross margin per tonne to fall to 69 (Figure 6), despite a genuine cut in the operating costs per tonne (mainly feed costs), as the average milk production per farm decreased on specialised farms (from 12 to 97 t/farm). In 29, 87 % of EU-1 specialised dairy farms had a positive gross margin. 12 However, thanks to improving milk prices, gross margin is expected to recover as from 21, to reach its highest level since 24 in 211 of 133 on average. Figure 6: Trend in milk cost of production and margins, EU-1 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. 12 Because of the milk price volatility between 27 and 29, and due to the farm structure in the EU-1, a direct comparison of 27 and 29 may not be fully possible, as in some EU-1 Member States, the population of specialised dairy farms has changed (see Box 2). For example, the average production per farm increased (from 59 to 62 t/farm) when all the farms (specialised and nonspecialised) are taken into consideration. 14

17 EU Dairy farms report 212 In line with the trend in gross margin, net margin also dropped dramatically (to 2 ) between 27 and 29, while external factor costs per tonne remained stable and depreciation increased very slightly. Whereas most costs were cut between 27 and 29, opportunity costs for family labour continued to increase, primarily because of the growth in imputed wage yet they were lower in 29 than in 28 (Figure 8). Apparent labour productivity of unpaid worker appears to have decreased a little in 29 (Figure 7), due to the decrease in the average number of cows per farm, and the increase in the labour force. However, this slight decrease in milk produced per FWU could be attributed to the change in the population of specialised dairy farms (see Box 2), and should be interpreted with caution. The opportunity costs for own capital increased too, together with the real interest rate (Figure 9). As a result, net economic margin followed the same trend as other margin indicators, reaching -85 in 29, the same level as in the EU-15. Figure 7: Apparent labour productivity Figure 8: Imputed wage for family labour Source: EU FADN DG AGRI, Model of the allocation of costs for milk. Figure 9: Opportunity cost for own capital and real interest rate Source: EU FADN DG AGRI, Model of the allocation of costs for milk. 15

18 EU Dairy farms report EU-2 The EU-2 was also affected by the crisis but to a lesser extent thanks to a significant increase in production. Milk prices, despite a fall, remained high, while operating costs per tonne, which were already low, decreased. As a result, the average gross margin in the EU-2 for 29 was 147 (Figure 1), which is significantly higher than in the other EU groups, and 94 % of EU-2 specialised dairy farms had a positive gross margin. Depreciation increased slightly but remained quite low compared to the other EU groups, and external factor costs per tonne remained stable. This meant that the net margin, despite narrowing following the fall in gross margin, remained very high, at 91. The net economic margin, however, fell steeply in 29, even though family labour costs fell quite considerably due to an increase in apparent labour productivity. Indeed milk production per FWU may have increased steeply between 27 and 29, thanks to a parallel rise in the average number of dairy cows and decline in the number of FWU. This increase in productivity more than compensated for the increase in imputed wage (+13 %). Yet these family labour costs remain extremely high compared to the other EU groups, due to the small average size of the herd. Figure 1: Trend in milk cost of production and margins, EU-2 13 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. 13 In view of the problems recording the labour force in Romania for 28, and its weight in the EU-2 aggregate, results for this year are (temporarily) not displayed. Generally speaking, as Bulgaria and Romania are still in the process of implementing their sample, comparisons over time may not be fully reliable. However, results are becoming increasingly representative. 16

19 EU Dairy farms report National level The 29 milk crisis was felt differently across the EU. This section analyses the effects of the crisis, based on trends in costs and margins in the Member States provided in Annex II EU-15 Member States Ireland was the EU-15 Member State most affected by the crisis, with a fall of 63 % in the gross margin and 16 % in the number of specialised dairy farms with a positive gross margin compared to 27. Following a 29 % fall in milk price (the biggest in the EU-15, and the lowest milk price), and stable operating costs, the Irish average gross margin fell to 58. The situation was worse only in Sweden, where the average gross margin was 53 and where only 8 % of the specialised dairy farms had a positive gross margin in 29, despite a less dramatic decrease in prices (-15 %). However, because of high feed costs, Sweden generally has quite a low gross margin compared to the EU-15 average. By contrast, the gross margin in Italy remained the highest of the EU-15 (196 ), thanks to high value added products with high prices and limited costs. The average gross margin remained high in Finland (162 ), despite having the highest costs in the EU-15, owing to the very high milk price, which increased, and significant coupled national aid. Between these two extremes, Member States can be split into three groups with respect to the impact of the crisis on their gross margins. In Denmark, Luxembourg, the Netherlands, Germany and Belgium, the fall in gross margin between 27 and 29 was around 5 %. In Sweden, Spain, France, the United Kingdom and Austria, the decrease was between 25 % and 4 %, while Portugal fared rather well with a decrease of 11 %. This was mostly driven by the fall in milk prices, except in the case of Denmark, where the fall in price was fairly limited (- 1 %), but where there was a huge increase in operating costs (+19 %), possibly due to the increase in forage area (+18 %). Germany and France, the two major EU producers (combined production of 37 % of EU-27), had an average gross margin of 81, which was below the EU-27 average of 95. It is worth noting, however, that German data correspond to the campaign year (July 29 to June 21) whereas the data for the other Member States is for the calendar year (January to December 29). Therefore, the effects of the fall in prices in 29 have already been incorporated in the German results for the accounting year 28, while the 29 results already take into account the recovery in milk prices that took place in 21. Not surprisingly, the average net margin also fell. It was particularly low (-114 ) in Denmark, due to very high financial charges 14 and high wages family labour force represents only 53 % of the total labour force in Denmark. Net margin was positive in only seven Member States in 29 due to the fall in prices (see Figure 11). 14 Substantial investment has taken place in Denmark over the last decade, and the average debt per farm is high. Together with the Netherlands, it usually has the highest average interest costs. In Denmark, however, the financial charges are also very high due to the choice of instruments for financing the modernisation, which proved to be toxic in light of the financial crisis: they increased steeply in 28, reaching 86 in 29. (For more information see, for example, Les modèles laitiers du nord de l Union européenne à l épreuve de la volatilité, Institut de l élevage, 212). 17

20 EU Dairy farms report 212 Figure 11: Milk cost of production and margins in the EU-15 Member States, 29 18

21 EU Dairy farms report 212 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. After deduction of all costs (imputed own factors), the resulting average net economic margin was positive only in Italy (8 ). Net economic margin was particularly negative in Finland (-229 ), due to very high family labour costs of 214 (high level of wages). Opportunity costs for own capital 15 were high in Austria (74 ) and Ireland (71 ), however they pay relatively little in interest charges. By contrast, they were very low in Belgium (13 ), France (13 ), Denmark (8 ), Sweden (6 ), and the United Kingdom (1 ). In the United Kingdom, interest charges are also quite low, which could indicate a reduced level of investment in the dairy activity. According to the estimates, the situation in terms of gross margins should have greatly improved in most EU-15 Member States by 211, with the exception of Portugal and Sweden where the improvement in milk prices may not fully offset higher feed and energy costs EU-1 Member States The situation in the EU-1 Member States was different. In Malta, there was virtually no crisis as, on average, the gross margin increased by 13 % between 27 and 29 to reach 96, just above the EU-27 average. Indeed, the price paid to milk producers increased steeply in 28, and despite a slight decrease in 29, it remained very high (435 ), which more than offset the increase in operating costs. In other EU-1 Member States, where it is more difficult to make comparisons between 27 and 29, the situation was less favourable. It was particularly bad in Slovakia, where the average gross margin was negative (-81 ), due in part to very high other direct input costs. 16 In Latvia and Slovenia, where falls in milk prices were respectively the greatest (-31 %) and least (-5 %), the decrease in The opportunity cost for own capital corresponds to the interest the farmer would get from putting the money in the bank instead of investing in agriculture. Slovakian milk specialised farms are few and very big (on average 27 dairy cows and 618 ha of fodder area); they rely heavily on paid labour and very little on unpaid labour (they are cooperatives or companies), and may produce a significant amount of other products (they are not very specialised). Therefore it is difficult to allocate non-specific costs properly and the Slovakian estimates should be interpreted with caution. Besides, it seems that there was a break in the time series (from 28) with regards to the registration of other farming overheads, which may account for a significant part of the change. 19

22 EU Dairy farms report 212 gross margin with coupled payments was almost the same (-36 % and -32 % respectively). In Latvia (-68 %), the situation would have been much worse without the grant of national coupled aid. It seems that in most EU-1 Member States, specialised farms decreased their milk production and cut their operating costs per tonne, but this was not enough to compensate for the marked drop in the milk price. As a result, the gross margin was halved in the Czech Republic and Hungary, which also had low gross margins (34 and 28 ). The decrease was slightly less in Poland (the main EU-1 producer), Lithuania (both 8 ) and Estonia (56 ). In Lithuania, the percentage of farms with a positive gross margin remained very high (95 %), which was not the case in the other Member States. However, according to estimates, all EU-1 Member States should have more than recovered to their 27 levels by 211 in terms of gross margin (except Poland, where only gross margin is expected to recover). In line with the trend in gross margin, net margins decreased in all EU-1 countries with the exception of Malta. In 29, net margins (without coupled payments) were positive in only three EU-1 countries: Lithuania, Malta and Poland. They ranged between 4 (Malta) and -318 (Slovakia), where depreciation and wages constituted very high costs. Generally speaking, depreciation in the EU-1 Member States stands at around the EU-27 average (46 ), but is highest in the very large farms of Slovakia (84 ) and the very small farms of Slovenia (86 ). Such a high level in Slovenia may be surprising, but it is nearly the same level as in neighbouring Austria. Slovenia s ranking dropped in terms of net economic margin (-219 ), due to significant imputed family labour costs. Family labour represents 99 % of the labour force in Slovenia, which is quite unusual in the EU-1 Member States. In 29, the average net economic margin was negative in all EU-1 Member States. Figure 12: Milk cost of production and margins in the EU-1 Member States, 29 2

23 EU Dairy farms report 212 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. 21

24 EU Dairy farms report EU-2 Member States Bulgaria and Romania fared quite differently, due to different structures in terms of cost of production. Romanian milk specialised farms receive a fairly high price for milk (282 ), 17 supplemented by coupled national aid (9 ), which brings their milk revenues up to the EU-15 average. At the same time, their average operating costs are among the lowest in the EU-27 (on the same level as Poland, with feed, in particular, being cheaper in Romania). Due to these factors, Romanian milk specialised farms had an excellent gross margin (165 in 29, second only to Italy in the EU-27), despite the decrease in the milk price. The percentage of specialised farms with a positive gross margin remained at 97 %, probably thanks to a 9 % cut in operating costs. By contrast, in Bulgaria, operating costs (mainly other direct inputs) increased, which caused the gross margin to go down to 6, while the percentage of farms with a positive gross margin fell by 23 percentage points (to 74 %). The gap between Bulgarian and Romanian net margins is similar to that between gross margins (the difference between the two is around 1 ). Bulgarian net margins are only positive thanks to national coupled payments (8 ). However, due to the presence of many very small farms in the sample, the opportunity costs for family labour and own capital are much higher in Romania (155 ) than in Bulgaria (66 ), and therefore the difference in net economic margin between these two countries is much lower (13 ). As in most of the other Member States, net economic margin was negative in these two countries. 17 For various reasons, milk prices in Romania are currently under further review. Producers around Bucharest appear to get extremely high prices (around 6 ), and there also seem to be two prices for milk, which is possibly linked to the production of high quality (buffalo?) milk in some regions. Besides, Romanian non-specialised milk farms receive a much lower price for their milk. One explanation could be the considerable difference in the quality of the milk provided by specialised and non-specialised farms in this country. 22

25 EU Dairy farms report 212 Figure 13: Milk cost of production and margins in the EU-2 Member States, 29 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. 23

26 EU Dairy farms report INCOME ANALYSIS As shown above, on average, the margins of the dairy activity on dairy specialised farms dropped in 29. This chapter focuses on the effects on the income of dairy specialised farms at the level of the whole farm, therefore also incorporating the results of other activities that may be carried on the farm. The following income indicators are studied: Farm Net Value Added (FNVA) equals total output (total production value), plus direct payments minus intermediate consumption and depreciation. It represents the amount available to remunerate all fixed production factors (land, labour and capital), either owned by the farm or external. Farm Net Income (FNI) equals FNVA minus external factors, plus balance on subsidies and taxes on investments. It is the amount available to remunerate family factors (labour, land and capital). Remuneration of Family Labour (RFL) is calculated only for family farms. 18 It equals FNI minus the opportunity cost for own capital. It represents the amount available to remunerate family labour. These indicators are expressed per Annual Work Unit (AWU), for FNVA and FNI, or per Family Work Unit (FWU) for RFL, to take account of the differences in the labour force remunerated on the holding. All income indicators are calculated before deduction of income taxes and expressed in current euros unless otherwise stated. Detailed tables are presented in Annex II Breakdown by EU groups EU-27 In 29, contrary to previous years, the average income of dairy specialised farms did not rank in the top three types of farming. In line with the negative trend in the margin indicators (Figure 14), income indicators for milk specialised farms in the EU-27 fell between 27 and 29. Farm net value added decreased by 25 % to EUR/AWU, farm net income decreased by 38 %, while the remuneration of family labour was halved (7 389 EUR/FWU on average). 18 For the purpose of this report, family farms are defined as farms employing an unpaid labour force, which usually corresponds to a family labour force. 24

27 EU Dairy farms report 212 Figure 14: Trend in income of milk specialised farms, EU-27 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. Figure 15 shows the great differences in income between the EU groups. Compared to 28, the gap in the FNVA/AWU widened between the EU-15 and EU-1, whereas it narrowed between the EU-12 and the EU-2, where the FNVA/AWU remains eight times lower than in the EU-15. Figure 15: Income of milk specialised farms by EU group, 29 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. As illustrated by Figure 16, the differences in income between the EU groups have more to do with differences in farm size than in margin per tonne. Since the decoupling of direct 25

28 EU Dairy farms report 212 payments, these are no longer included in the gross margin but are part of income. Due to the drop in milk revenues, the share of direct payments and subsidies (first and second pillars, EU and national) in the FNVA/AWU increased. The proportion of direct payments in 29 was, on average, 56 % in the EU-15, 72 % in the EU-1 and 25 % in the EU-2, where direct support is still being phased in. Figure 16: FNVA/AWU and some variables by EU group, 29 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. In 29, milk specialised farms still showed results above the EU-27 total average across all types of farming, despite the drop in their income. Yet, contrary to the previous years, they were no longer in the top three of types of farming for income (Figure 17). They ranked fourth after Granivores, Wine and Horticulture farms for FNVA/AWU, and fourth also for FNI/AWU after Granivores, Wine and Other grazing livestock farms. However, they plunged to sixth position for RFL/FWU, putting them just above the EU-27 average at EUR/FWU. Therefore on average for the EU-27, in 29, milk specialised farms were worse off in terms of income than other types of farming. 26

29 EU Dairy farms report 212 Figure 17: Comparison of the income of milk farms with other farms, EU-27, 29 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. 27

30 EU Dairy farms report EU-15 In real terms, in 29, the income of milk specialised farms of EU-15 fell below its 21 level. In the EU-15, the income of milk specialised farms increased significantly between 21 and 27 in both nominal and real terms (Figure 19). In 28 income was still above the 26 figure (in both in nominal and real terms), but in 29 it plunged to its 21 level in nominal terms ( EUR/AWU) and 14 points below it in real terms. Figure 18: Income trends in nominal and real terms, EU-15 Source: EU FADN DG AGRI, ESTAT (HICP index EUR 21). This steep drop had a more pronounced effect on the remuneration of family labour than on other income indicators (Figure 19), partly due to the increase in the imputed remuneration of own capital (see footnote 11). The percentage of farms with a positive remuneration of family labour fell from 93 % in 27 to 73 % in 29. Following the decoupling of direct payments and subsidies, the trend in margin has mirrored the trend in income. 28

31 EU Dairy farms report 212 Figure 19: Trend in income of milk specialised farms, EU-15 Source: EU FADN DG AGRI, Model of the allocation of costs for milk EU-1 In the EU-1, the income of milk specialised farms in 29 fell below the 24 level, even in nominal terms. The income of milk specialised farms in the EU-1 similarly experienced a steep drop from 27 onwards (Figure 21), falling back to its 24 level in nominal terms and to 8 % of its 24 level in real terms. 29

32 EU Dairy farms report 212 Figure 2: Income trends in nominal and real terms, EU-1 Source: EU FADN DG AGRI, ESTAT (HICP index EUR 21). In the EU-1, the decrease in total output was the same as the decrease in milk revenues due to a decline in production. The fall in the FNVA/AWU (-43 %) between 27 and 29 mirrored the drop in the gross margin per tonne, despite an increase in decoupled payments, which were essential to support income (Figure 21). Farm net income and remuneration of family labour were also halved between 27 and 29, while remuneration of family labour was positive in 76 % of farms. Figure 21: Trends in income of milk specialised farms, EU-1 3

33 EU Dairy farms report 212 Source: EU FADN DG AGRI, Model of the allocation of costs for milk EU-2 In contrast to the other EU groups, income in the EU-2 increased between 27 and 29 despite the drop in margins. This is mainly due to a decrease in the labour force coupled with an increase in production, but these results should be interpreted with caution. Income in the EU-2 remained quite stable (even increasing by 1 % in nominal terms) between 27 and 29, mostly thanks to a decrease in the labour force coupled with an increase in production (Figure 22 and detailed tables in Annex II). However, due to the large number of small to very small farms in the Romanian sample, and in view of the weight of this sample in the EU-2 aggregate, these results should be interpreted with caution. Figure 22: Trend in income of milk specialised farms, EU-2 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. 31

34 EU Dairy farms report National level EU-15 Member States Figure 23 shows the average income indicators of milk specialised farms by Member State in the EU-15 in 29. Farm net value added per AWU ranged from EUR/AWU in Portugal to EUR/AWU in Italy. If, in most cases, the fall in gross margin was transmitted directly to the FNVA/AWU, the ranking in terms of the FNVA/AWU did not necessarily match the ranking in terms of gross margin. For example, in the United Kingdom, the gross margin was among the lowest in the EU-15, but the FNVA/AWU was among the highest, thanks to the large herd size (117 cows on average). Yet herd size is not always the explanation: Belgian farms fare better than German ones with a similar average number of dairy cows, thanks to lower costs. Farmers in all countries adapted to the low milk prices by maintaining the milk yield nearly unchanged between 27 and 29. However, this did not prevent a continuous structural adjustment as the quantity of milk produced per AWU increased in all Member States (except in Italy, Ireland and United-Kingdom) due to the increase in the average numbers of dairy cows or of labour force per farm. Nearly everywhere, intermediate costs and depreciation increased while market receipts decreased due to the fall in milk prices. As a consequence the FNVA/AWU went down in all Member States except Finland, the only country where milk prices increased. Direct payments and subsidies helped to support income in this situation. They represented between 8 % and 36 % of the total receipts of milk farms in Member States in 29, compensating for the huge drop in market income, which was negative even in Luxemburg and in Finland. As regards farm net income, Italy retained its first place with EUR/AWU, while Denmark, which had almost the same FNVA/AWU, fell to last place ( EUR/AWU), due to high wages (47 % of the labour force is paid labour force) and high financial costs. As these two elements increased significantly between 27 and 29 (+19 % and +27 % respectively), Denmark was also the country that suffered most between these two years, with a drop in FNI/AWU of 254 %. Given the margin results above, Ireland, on the other hand, fared better in terms of FNI/AWU, thanks to a very positive balance on investments, subsidies and taxes due to it fulfilling cross-compliance obligations for farm waste management facilities. However, in terms of the remuneration of family labour, this was positive for only 49 % of Irish family farms in 29 and, on average, it was very low: 3 22 EUR/FWU. It was also much lower than the EU-15 average in France and Germany (5 832 EUR/FWU and EUR/AWU respectively), even though the German results took into account the 21 recovery in milk prices, due to the difference between the German accounting year and that of the other Member States, 19 resulting in a delay in the trend (see 3.2.1). For the first time since 21, Denmark was not the only EU-15 country with a negative average remuneration of family labour. This was also the case in Luxembourg and the Netherlands. Both these countries had very high opportunity costs for own capital, something which is normal for the Netherlands and due to the real interest rate trend in Luxembourg. 19 The accounting year 29 coincides with the calendar year in most Member States but in Germany it started on 1 July 29 and ended on 3 June 21. This period incorporates the beginning of the recovery from the milk crisis. 32

35 EU Dairy farms report 212 Figure 23: Income indicators for milk farms in the EU-15 Member States, 29 2 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. 2 On the green graph showing gross margin and FNVA/AWU, only the total level (FNVA/AWU) is comparable between countries, as in some Member States (LU, FI), the total amount of direct payments and subsidies per AWU is actually higher than the FNVA/AWU. 33

36 EU Dairy farms report 212 Figure 24: Income indicators for milk farms in the EU-1 Member States, Source: EU FADN DG AGRI, Model of the allocation of costs for milk. 21 On the green graph showing gross margin and FNVA/AWU, only the total level (FNVA/AWU) is comparable between countries, as in some Member States (CZ, LV, SK, SI), the total amount of direct payments and subsidies per AWU is actually higher than the FNVA/AWU. 34

37 EU Dairy farms report EU-1 Member States Figure 24 shows the average income indicators of milk specialised farms by Member State in the EU-1 in 29. In most of them, the decrease in the FNVA/AWU between 27 and 29 has been less pronounced than the decrease in dairy gross margin, thanks to an increase in decoupled payments, and to the fact that, on average, the drop in milk revenues did not translate to a corresponding drop in the farm total output. Nevertheless, this was not the case in Malta, which faced an increase in intermediate consumption, already very high, or in Poland, where the fall in milk revenues was reflected in total output, or in Slovenia. In all of the EU-1 Member States, direct payments and subsidies represented more than 5 % of the FNVA/AWU, and even accounted for more than 1 % of it in four of them (the Czech Republic, Latvia, Slovakia and Slovenia). In Poland, the main EU-1 producer, the ratio of direct payments to FNVA stood at 59 %, around the EU-15 average. In 29, the external factors increased in almost all EU-1 Member States. Once deducted from the FNVA/AWU, the resulting FNI/AWU ranged from EUR/AWU in Slovakia (wages paid) to EUR/AWU in Malta. Lithuania, with EUR/AWU, fared rather well, due to its fairly low reliance on an external labour force, and the substantial balance on investment subsidies and taxes. The remuneration of family labour was quite low, although it remained positive, in all EU- 1 Member States except for Slovenia, due to the low FNI/AWU and the rise in opportunity costs for capital (real interest rate) EU-2 Member States In 29, the situation of Bulgaria and Romania was quite different (Figure 25). Indeed, in Bulgaria, the value of income indicators for specialised dairy farms decreased between 27 and 29, whereas they increased in Romania, due to the decrease in the labour force and the increase in standard output. Despite higher direct payments and subsidies in Bulgaria, all the income indicators were better in Romania than in Bulgaria, because of lower intermediate consumption and external factors. However, they remained below those of the EU-1 Member States. This may be related to differences in farm size (averaging 7 dairy cows in the EU-2 compared with 52 in the EU-15 and 17 in the EU-1) and in direct payments and subsidies (the EU part of direct payments has not yet been fully phased in). 35

38 EU Dairy farms report 212 Figure 25: Income indicators for milk farms in the EU-2 Member States, 29 Source: EU FADN DG AGRI, Model of the allocation of costs for milk. 36