31 Jul, 2020

Improved returns expected for poultry farmers in 2020

Ifac Poultry Specialist, Ciaran McCabe, speaks of how there is Improved returns expected for poultry farmers in 2020, stating that egg production is down by as much as 15%, however, demand for eggs has increased by 30%. Ciaran also gives a detailed case study on Poultry Expansion, showing the high cost of entry and the issue around trying to pay high tax along with servicing capital repayments.

Increased demand for poultry products due to the ongoing impact of African Swine Fever (ASF) in Asia, Avian Flu, and the Covid-19 pandemic should help poultry farmers achieve better returns this year. ASF will have a significant impact on protein availability in local markets given the drop in pork production since the disease hit China in late 2018. With chicken expected to fill the gap, this should help the global poultry industry recover from previous oversupply issues.1

Egg shortages caused by Avian Flu and higher demand due to the impact of the Covid-19 pandemic are also creating opportunities. However, with broiler processors already operating at close to capacity, growth will depend on processors increasing capital investment in their plants to expand their weekly kill.

Overall, the poultry sector has acted promptly to the threat of Avian Flu by voluntarily culling affected flocks to minimise the spread of the disease. At individual farm level, the impact on broiler enterprises is limited where strict biosecurity measures are adhered to on each site as all birds are confined indoors. However, where free range egg units are affected by Avian Flu, the impact can be considerable. Once birds are culled it can take up to 6 months, if not more, to restock, resulting in reduced income on affected farms. The current shortage of Point of Lay birds exacerbates the difficulty.

Egg production is down by as much as 15% however demand for eggs has increased by 30%.

Business Structure

Many ifac clients initially set up poultry enterprises to generate additional income. From small beginnings of around 20,000 birds per house, the average house today has grown to almost 50,000 birds, with many farmers having more than one house.

On well-managed farms, profits increase as the number of birds increases. However, increased capital investment often means capital repayments need to be serviced from surplus cash which can put pressure on cashflow at a time when higher profits are leading to higher tax bills. Incorporation can be a good way to overcome this problem as it allows more profit to be retained in the business to service capital repayments.

Key questions when thinking about incorporation include:

• Do you plan to expand your business?

• What level of tax did you pay in last three years?

• Have you invested in your farm? If so, are your capital allowances decreasing?

• Are you paying family wages which will decline in coming years?

• What are your living expenses?

• Have you thought about succession?

• Are you paying into a pension?

• Does your business require further investment?

Every farm situation is different, and incorporation does not suit all businesses. Before deciding to change your business structure, it is advisable to ask your accountant for information and advice on the pros and cons of all relevant business structures.

Additionally, to read our full Irish Farm Report 2020 click here