Socio-Economic sustainability:
High Labour input, limited
returns?
Alan Matthews
Trinity College Dublin
Presentation to the BurrenLIFE Conference
“Farming for Conservation – Supporting the Future”
Feb 24-27, 2008
Ennistymon, Co Clare
Key messages
• The limited commercial viability of
marginal but high nature value farming
systems
• Limitations of current support schemes for
vulnerable farming systems
• New directions – developing markets for
environmental services
Context for the argument
• Marginal farming areas also tend to be
areas of high nature value and varied
biodiversity
• Marginal farming areas are under
pressure, threatening land abandonment
and loss of environmental benefits
• How to secure these environmental
benefits at the extensive margin?
Commercial viability of cattle farms in
Objective 1 Region, 2006
15,000
2,117
10,000
2,480
13,421
5,000
Euro
6,642
8,808
-4,320
-5,000
-10,000
-17,740
-15,000
-20,000
Livestock &
Crops output
Source: NFS 2006
Costs
Market
return
Grants
Family Farm
&Subsidies
income
Commercial viability of cattle farms in
Objective 1 Region, 2006
15,000
2,117
10,000
2,480
13,421
5,000
Euro
6,642
8,808
-4,320
-5,000
-10,000
-17,740
-15,000
-20,000
Livestock &
Crops output
Source: NFS 2006
Costs
Market
return
Grants
Family Farm
&Subsidies
income
Outlook for market returns
• Favourable global food market outlook,
especially for starch/oil crops linked to energy
market…
• … has unintended consequence of raising costs
of providing environmental services from
management of land
• Grass-based livestock production will benefit in
relative terms..
• .. but very vulnerable to reduction in EU
protection levels following WTO Doha Round
• On balance, farm system viability will not be
achieved on basis of market returns alone
Commercial viability of cattle farms in
Objective 1 Region, 2006
15,000
2,117
10,000
2,480
13,421
5,000
Euro
6,642
8,808
-4,320
Single
Farm
Payment
-5,000
-10,000
-17,740
-15,000
-20,000
Livestock &
Crops output
Source: NFS 2006
Costs
Market
return
Grants
Family Farm
&Subsidies
income
Future for Single Farm Payment
• Guaranteed through 2013...
… though possible modulation, budget discipline
reductions
• Future much less certain in light of ongoing EU
budget review
– Growing competition for EU budget resources
– Lack of clarity over objectives
(compensation, income support, payment for meeting
standards?)
– Mandatory move to uniform flat-rate payment after
2013?
– National co-financing of SFP after 2013?
Commercial viability of cattle farms in
Objective 1 Region, 2006
15,000
2,117
10,000
2,480
13,421
5,000
Euro
6,642
8,808
-4,320
-5,000
-10,000
REPS
payments
-17,740
-15,000
-20,000
Livestock &
Crops output
Source: NFS 2006
Costs
Market
return
Grants
Family Farm
&Subsidies
income
Future for REPS payments
• REPS has evolved from scheme mainly paying farmers
not to damage environment through intensification to one
with greater emphasis on encouraging positive
management practices to promote biodiversity
• Introduction of SMRs and GAEC has raised the bar for
what is required of REPS participants
• Voluntary scheme – not all farmers enrol
– Average 2006 payment to REPS 3 farmers €6,274 vs €2,480 per
Objective 1 farm
– 17% increase in payments in REPS 4 – average payment per
REPS4 farmer increases to €7,220
Future for REPS payments
• REPS payments designed to cover income foregone,
additional costs of commitments given, plus incentive
element
• NATURA 2000 payments designed to compensate for
restrictions on ‘normal’ farming activity, although
conservation of high nature value areas can be
supported
• NPWS Farm Plan Scheme compensates losses for
changed farm practices but can also fund management
measures to benefit nature in target areas
• Agri-environment schemes not well suited to maintaining
farm production which is inherently unprofitable
Commercial viability of cattle farms in
Objective 1 Region, 2006
15,000
2,117
10,000
2,480
13,421
5,000
Euro
6,642
8,808
-4,320
Disadvantaged
Area Payments
-5,000
-17,740
-10,000
-15,000
-20,000
Livestock &
Crops output
Source: NFS 2006
Costs
Market
return
Grants
Family Farm
&Subsidies
income
Future for LFA compensatory payments
• Successful scheme with high uptake – 73% of
land area and 77% of farms
• Specifically designed to ensure continued use of
agricultural land in areas with natural handicaps
– payments represent a straight income transfer
• Currently under review at EU level following
criticisms of its lack of targeting
• Debate is mainly about ‘mapping’ (i.e.
geographical targeting) but future payments
could also be linked to management practices
Scheme payments, 2006
SFP
€1,160m
REPS
€329m
DACAS
€258m
Total
€1,747m
Paying for environmental services from
farming
• The ‘public goods’ rationale for government
support
– But lack of market means government must estimate
both level of demand and the price to offer farmers for
supply
• How to assess demand?
– Public opinion vs expert opinion
– How extensive are the environmental services the
public wants to buy?
Lessons from schemes to date
• Much higher participation rates among less-intensive
farmers where minimum changes to management
practices are required
• Schemes still strongly input-oriented and prescriptive
rather than performance-linked (but monitoring
environmental outputs has many problems)
• Payments link to ‘income foregone’ assumes there is a
viable farm business to carry out the agri-environmental
work
• While ‘income foregone’ could imply covering losses of
non-remunerative farming activity, there is no longer an
upper bound on the payment required
Paying for environmental services from
farming
• Deciding how much to pay to ensure scheme is
attractive without overpaying is a major problem given
the variation in farm costs
– Asymmetry in information available to the government and to the
landholder about costs of providing environmental services
– Fixed payment schemes plus voluntary participation implies that
only farmers who can undertake changes at less than average
cost will enrol (adverse selection)
• Admit farmers on a competitive basis
– Tendering schemes have been trialled in a number of countries
• Environmental cooperatives
– Benefits where groups can plan at the level of landscapes rather
than individual farms
Alternative approaches to funding
environmental services
• Potential for market valorisation of
environmental services
– Use of geographical indications, conservation
covenants
• Local funding of environmental services
Conclusions
• With CAP reform, now more concern
about the maintenance of environmental
services from farming at the extensive
margin
• Significant transfers being made to Irish
agriculture, but are they properly targeted?
Are they sustainable in their present form?
• Much work remains to be done on the
design of agri-environment contracts