IFA Outlook Positive on Producer Prices but Rising Input Costs a Threat

IFA Chief Economist Rowena Dwyer has said producer prices in 2011 should remain positive, with international demand continuing to aid the recovery evident last year. However, the gains may be offset by increased input costs.

“The weakening of the Euro against the Dollar, combined with increased global demand for inputs due to rising product prices, restrictions in the supply of fertiliser from key exporting countries, and increased domestic taxes on energy inputs, are expected to contribute to an increase in overall farm inputs costs during the coming year.”

In her outlook for 2011, the IFA Chief Economist said, “A market development which looks likely to continue in 2011 is the move towards providing guarantees on producer prices through market instruments, including contracts, forward selling etc. This is an attempt to minimise the volatility in farm incomes that has been prevalent in the sector over the last five years. However, similar instruments are not currently available for minimising input cost volatility.”

Ms Dwyer said, “It is expected that sterling will continue to strengthen in 2011, due to stronger growth in the UK economy, and the possibility of an interest rate increase in the UK, resulting from higher than expected inflation. This will be positive for Irish agri-food exports and for agri-food products competing on the domestic market with imports from the UK.”

On the banking sector, she said the proposed restructuring agreed by Ireland as a condition for accessing the EU-IMF fund, is likely to result in a significant reduction in size and activity of the Irish indigenous banks. However, it is likely that there will be renewed focus on lending to the domestic SME sector, including the farm business sector, which undertook almost 25% of all new small business lending in 2010.

“Overall, access to funding will remain restricted and expensive for the Irish banks, resulting in further expected increases in the costs of credit for all borrowers,” Rowena Dwyer commented.