End User Meeting Brussels, 14.06.2001
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End User Meeting Brussels, 14.06.2001 Working Package 4 (Economics) First Year´s Example. Where are the farms located that are the most vulnerable with regard to a milk price reduction?. By Peter Hinrichs & Petra Jaegersberg Federal Agricultural Research Centre (FAL), Braunschweig, Germany.

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End User Meeting Brussels, 14.06.2001 Working Package 4 (Economics) First Year´s Example

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End user meeting brussels 14 06 2001 working package 4 economics first year s example

End User Meeting Brussels, 14.06.2001 Working Package 4 (Economics)First Year´s Example

Where are the farms locatedthat are the most vulnerable with regard to a milk price reduction?

By Peter Hinrichs & Petra JaegersbergFederal Agricultural Research Centre (FAL),Braunschweig, Germany


End user meeting brussels 14 06 2001 working package 4 economics first year s example

Vulnerability ...- in this context -means, how strongly a dairy farm will be “hurt“ by a price drop.... has to be defined in economic terms:- The surplus for net investments (farm growth) vanishes- the liquidity reserve shrinks below a critical amount, and/or- the income does no longer pay for the farmer´s basic needs.Defining a vulnerablility indicator:Relation between milk price as product-bound parameter and a criterion denoting the whole farm´s economic performance, the Family Farm Income. From this, we subtract the amount the unpaid family workers‘ need for their living, which is derived from the paid workers` net wages.

VulnerabilityBy Peter Hinrichs & Petra Jaegersberg


End user meeting brussels 14 06 2001 working package 4 economics first year s example

Calculation scheme of the surplus available

for net investment and/or improved liquidity.

0,00€

Farm Net Value Added

Family Farm Income

Price drop

Family workers`Income claim

Paid Rents, Interest and VAT on Investment

Net Sub-sidies

Com-pens-ation

Paid Wages

Surplus available for net investment, more consumption or risk prevention(as long as subsidies remain unchanged)

VulnerabilityBy Peter Hinrichs & Petra Jaegersberg


End user meeting brussels 14 06 2001 working package 4 economics first year s example

Our primary vulnerability indicator:Surplus of Family Farm Income over income claims of family workers, per milk quantity produced and sold (expressed in € / 100 kg milk).This surplus is used for:Net investment (farm growth)More consumptionLiquidity risk preventionOur criterion: If the FFI - Income claims > 0:the long term losses do not exceed the initial decrease of receipts, and the farms have a chance to recover form the initial impact<< 0:the farms will be handicapped materially. The amount of the price drop was taken from the actual mid-2001 discussion about the New Agenda: 0,0525 € per kg milk. A compensation of 66 % is assumed. The resulting price drop: 0,0175 € per kg milk.

VulnerabilityBy Peter Hinrichs & Petra Jaegersberg


End user meeting brussels 14 06 2001 working package 4 economics first year s example

3 289

4 627

27 174

457

4 681

23 958

6 130

10 814

252

12 734

2 912

1 508

2 709

3 738

15 895

Milk

Prod

1000t

0,00

-30,00

30,00

60,00

B

DK

Net subsidies

D

GR

Compensation

E

F

Final price decline

IRL

Family workers' income claim (after tax)

per 100 kg milk sold

I

L

NL

Total wages paid

per 100 kg milk sold

A

PT

SF

Total net payments for

other external factors,

per 100 kg milk sold

S

UK

Available Surplus (€ /100 kg milk) in Europe‘s milk producing farms (by member country)

Peter Hinrichs & Petra Jaegersberg: Vulnerability


End user meeting brussels 14 06 2001 working package 4 economics first year s example

Farm

Type

Milk Prod.

1000 t

-30

0

30

60

411

69 667

412

21 072

431

6 954

432

130

44

896

6

502

711

2 805

712

2 805

721

1 668

723

116

81

14 664

82

514

Net Subsidies

Family workers' income claim (after tax) / 100 kgM sold

Compensation

Total wages paid per 100 kg milk sold

Final price decline

Total net payments for other external factors, per 100 kg milk sold

Available Surplus (€/100 kg milk) in Europe‘s milk producing farms by FADN farm type

Peter Hinrichs & Petra Jaegersberg: Vulnerability


End user meeting brussels 14 06 2001 working package 4 economics first year s example

-30,00

0,00

30,00

Common systems (P1) 9 901

Lowland systems (G2) 17 670

Upland systems (G3) 3 481

Intensive grass (G1) 29 841

Conventional (CG1 (M1/2)) 22 018

Low-input (CG2 (M1/2)) 4 707

Small mixed (CG3 (M1/2)) 5 628

Industrial (L1) 6 650

Commercial (L2) 10 420

Small-scale (L3) 665

Low-input grassland 9 635

Extens. Grass (XX) 269

(IRE only)

Family workers' income claim (after tax) / 100 kgM sold

Net Subsidies

Total wages paid per 100 kg milk sold

Compensation

Total net payments for other external factors, per 100 kg milk sold

Final price decline

Available surplus (€/100 kg milk) in Europe‘s milk producing farms by production system

Peter Hinrichs & Petra Jaegersberg: Vulnerability


End user meeting brussels 14 06 2001 working package 4 economics first year s example

Conc.

Perm.

Feed €

Past.

Herd

Milk

Milk

Wage

kt

Milk

/100

ha / k t M

Region

Type

ProdSys

size

0

30

yield

price

Rate

kg Milk

6916

30,0

9,4

120

6

145

186

D-Sachsen, 81, Convent.

F-BasseNorm, 411, IntGrass

42

5324

34,2

7,3

98

5

969

I-Lombardia, 411, Industrial

696

126

7557

45,2

7,9

0

9

865

32

5531

48,4

7,4

0

12

I-EmiRom, 411, Commerc.

Netherlands, 411, IntGrass

3080

64

7478

33,1

10,5

57

5

Ireland, 411, Lowland

3300

41

4699

31,0

5,3

161

5

UK-WestEngl, 411, IntGrass

1086

94

6501

32,4

8,6

47

6

GR-Mak-Thrak, 81, Commerc.

15

3965

32,2

1,9

0

12

76

E-Galicia, 411, IntGrass

1333

18

4667

28,1

2,8

17

6

PT-NorCent, 411, Commerc.

528

5854

29,4

1,6

2

11

24

Austria, 411, LI-Grass

778

14

4874

34,7

4,9

210

5

451

30

7987

34,8

13,5

145

11

S-Skog&Mell, 411, LI-Grass

Family workers' income claim (after tax) / 100 kgM sold

Net Subsidies

Total wages paid per 100 kg milk sold

Compensation

Total net payments for other external factors, per 100 kg milk sold

Final price decline

Available Surplus(€/100 kg milk) in selected groups of European dairy farms (by EU farm type & production system)

Peter Hinrichs & Petra Jaegersberg: Vulnerability


End user meeting brussels 14 06 2001 working package 4 economics first year s example

100.000

80.000

60.000

40.000

20.000

€ 0

2007

2000

2001

2002

2003

2004

2005

2006

MP - 0%

MP -5,6%

MP -17 %

MP-17%, high loans

Family Farm Income of a 100 cow farm in Eastern Germany, with different milk price projections and the influence of high loans

Peter Hinrichs & Petra Jaegersberg: Vulnerability


End user meeting brussels 14 06 2001 working package 4 economics first year s example

Family Farm Income of a 165 cow farm in Wales/UK with the effect of exchange rate & milk price

Peter Hinrichs & Petra Jaegersberg: Vulnerability


End user meeting brussels 14 06 2001 working package 4 economics first year s example

Summary1) The most vulnerable farms are those ones that are already handicapped without a price drop.2) There are great national differences: Italy, Ireland, Spain, Greece, Austria and versus Sweden, Finland and Germany (without subsidies), Denmark and Portugal.3) Within the countries, the regional variance is less spectacular, although in the Mediterranian countries, it is much greater than in Northern Europe. 4) A special case is the UK where the strong British Pound distorted the price / cost relation remarkably.

VulnerabilityBy Peter Hinrichs & Petra Jaegersberg


End user meeting brussels 14 06 2001 working package 4 economics first year s example

Summary (cont.)5) A comparison of the EU farm types shows that there is no specialization bonus in most of the countries. In the contrary, the mixed (livestock) farms looked more successful in the year 1997/98 than the specialized dairy farms, due mainly to higher subsidies for crops and non-dairy livestock.6) Grouping by production system revealed advantages of:- dairy farms withoutpermanent grassland (commerc./industr.)- large herds (scale effects, labour productivity, investment costs)7) Additionally, there are significant effects of the Milk Prices, the Wages, the Land Rents, and Interest on borrowed capital.

VulnerabilityBy Peter Hinrichs & Petra Jaegersberg


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