Income Volatility on Dairy Farms in Ireland

Abstract

Income volatility on Irish dairy farms is an established and growing phenomenon. In this paper, we use panel data from the Teagasc National Farm Survey to analyse the recent evolution of farm income volatility on Irish dairy farms with a view to identifying appropriate risk management tools for the Irish context. We place a particular emphasis on the frequency of large declines in farm income as defined under European regulations. We outline the association between direct payments and farm income volatility. We describe the availability of fixed milk price contracts, which are one of the few available farm income risk management tools for dairy farmers in Ireland. We provide a comparative analysis regarding the performance of farms, which adopt these contracts and the farms which do not adopt such contracts. Our findings show that the recent increase in income volatility is evident across the dairy farm income distribution and that there is an association between direct payments and farm income volatility. Our analysis shows that the availability of fixed milk price contracts varies between milk processors. The statistical analysis shows that the adoption of these contracts is positively associated to the profitability and size of the farm. In addition, the analysis suggests that the impact of fixed milk price contract adoption on farm income is relatively small with a number of potential explanations requiring further research. We conclude that Irish dairy farmers require a toolbox of risk management tools, as multiple risk management tools are required in the management of income variability.