The Future Environment and
Opportunities for Irish Agriculture
Alan Matthews
Trinity College Dublin
Agricultural Consultants
Association of Ireland
Carrick-on-Shannon
11 March 2005
Background trends

Let’s first set the context
–
What has been happening in Irish agriculture over
the past decade?
Output falling, income flat (taking
account of implementation of MTR)
Rising share of direct payments
Composition of operating surplus in
agriculture
2500
€ million
2000
Rural development
payments
Rural
development
1500
WTO reduced
protection
Market returns
1000
500
0
Premia and arable
aid
Premia and arable aid
Decoupling
Three modal shifts facing Irish farming



The move from production-related support to
the Single Farm Payment
The move from competing in a protected
market to competing against the rest of the
world
The move to a new relationship with society
and the rest of the food chain
Output effect of decoupling – greatly
underestimated?

Sharp decreases in the gross margin from
beef, sheep and cereals enterprises
–
–
Next slide shows the share of DPs in revenue
Shares in gross margins even higher


60% for cattle rearing and cattle other
65-75% for cereals (47% on farms > 100ha)
–
–
Data from 1998 NFS (Breen and Hennessy 2003)
If farmers no longer have to produce to be eligible
for payments, what will happen?
Share of production-related payments
in value of output
100%
90%
80%
43%
40%
35%
57%
60%
65%
Cereals
Beef
Sheepmeat
70%
60%
50%
40%
30%
20%
10%
0%
Output
DPs
Estimates of supply response to
decoupling


Relatively few studies
FAPRI-Ireland completed study in January 2003
using partial equilibrium model


Results from general equilibrium models show much
higher supply responses to decoupling
–
–

Later studies incorporated WTO effects as well as ‘pure’
decoupling
INEA Italy
Trinity IMAGE model (tentative results)
Likely to observe much greater reductions in output
than commonly predicted
Output effects of decoupling in Ireland
(% change)
Beef
Total
cows
Sheep
FAPRI
Teagasc
-9
INEA Italy
-25/-35
Trinity
IMAGE
-20
-14
-12
Cereals
-21
-18/-25
Wheat
-1
Barley
-4
-40
Changing Irish farm numbers

Current farm numbers from the National Farm Survey (NFS)
categorised by economic and demographic viability, full and
part-time status, and size (Frawley & Commins 1996)
–
–
–
–
–
–
Viable: Farm has the capacity to remunerate family labour at
average agricultural wage & provide a 5% return on non-land
assets
Non-viable: Farm income is insufficient to remunerate farm labour
and earn return on non-land assets of at least 5%
Large Size: Farm labour supplied is greater than 0.75 labour units
Full-time status: Neither the farmer or farmer’s spouse has an offfarm job
Good demography: Farmer is 55 years of age or less, or an
identified heir is less than 45 years of age
Poor demography: Farmer is over 55 years of age, no identified
heir of less than 45 years of age
Composition of farm numbers
Source: AgriVision 2015 Report
2002 Data, Baseline* and Luxembourg
Agreement Reform Scenario** Projections
Farm Group
2015*
2015**
Baseline
Reform
38,700
30,000
40,000
↑33%
Viable Large FT
16,325
8,500
7,000
↓18%
Viable Small FT
3,600
1,500
1,500
n.c.
Viable PT
18,774
20,000
31,500
↑58%
Non-viable PT
37,000
37,000
45,000
↑22%
Transitional
60,400
38,000
20,000
↓47%
Good Demography
22,880
8,000
5,500
↓ 31%
Poor Demography
17,566
17,000
8,500
↓ 50%
Micro
20,000
8,000
6,000
↓ 25%
All
136,000
105,000
105,000
Viable Farms
2002
% Change
Scenario Projection Summary

Increase in Part-time farming
–
Only 8,500 viable farms with no off-farm income

Due to increased off-farm labour market participation

Increased female labour market participation
–
But larger number (around 25,300) viable farms
where farmer is working full-time on farm
–
Decline in transitional farm category
–
Off-farm income sources allow non-viable farms
to remain as viable farm households
Future of direct payments


Fixed in nominal terms to 2013 (so gradual
decline in real value)…
…but even nominal reductions required
under the ‘financial discipline’ mechanism if
Pillar 1 funding is inadequate




2007-2013 Financial Perspective still to be agreed
Pressure to focus on Lisbon Agenda objectives
If ‘1% club’ succeed, Pillar 1 funding likely to be reduced
Will accession costs for Bulgaria and Romania be
funded additionally?
WTO and the liberalising agenda

Framework Agreement August 2004
–
–
–
–
–
Agreed to eliminate export subsidies and other
forms of export supports by some end date
Substantial reduction in trade-distorting domestic
support on a harmonising formula
Substantial reductions in tariffs based on a tiered
formula
Sensitive products can be designated, but must
provide greater TRQ access
Special safeguard remains under negotiation
Effects of eliminating export subsidies

In absence of export subsidies
–
–

EU market prices must fall to world market level for export
commodities (dairy products)..
.. Or to world market plus tariff protection for commodities
with 100% or less EU self-sufficiency (beef, sugar if very
tight quota regime remains in place)
Key transition issue will be the time pattern for
eliminating export subsidies
–
Timeframe, downpayment?
Effect of more liberal market access


Only possible to make some illustrative
calculations in absence of firm negotiating
proposals
Results are very sensitive to estimates of the
size of the tariff cut, future level of world
prices in US$, future exchange rate between
US$ and €, whether EU market is in surplus
or not, and expected increase in tariff rate
quota access
Effect on tariff cut on beef price
EU support price (basic
intervention price)
Estimated world market
price
Current EU import tariff
New tariff (-60% cut)
EU minimum import price
Impact on EU price
€2,224
€1,200
€1,922
€769
€1,969
-11%
Effect of tariff cuts on butter prices,
€/tonne
Unfavourable world
market
Favourable
world market
EU support price (2008)
2,140
2,140
Estimated world market
price
1,170
1,575
Current EU import tariff
1,896
1,898
758
758
New EU minimum import
price
1,928
2,333
Impact on EU price
-10%
none
New tariff (-60% reduction)
Effect of tariff cuts on SMP prices,
€/tonne
Unfavourable world
market
Favourable
world market
EU support price (2008)
1,697
1,697
Estimated world market
price
1,650
1,800
Current EU import tariff
1,118
1,118
New tariff (-60% reduction)
447
447
Impact on EU price
none
none
Effect of tariff cuts on white sugar
price
EU support price (based on
Commission reform proposal)
Estimated world market price
€421
Current EU import tariff
€419
New tariff (-60% cut)
€168
EU minimum import price
€378
Impact on EU price
-10%
€210
Rural development funding – a new
relationship with society?

Commission’s proposal for Pillar 2 funding
2007-2013 foresees large overall increase
–

From 10% on average 2000-06 to 25% in 2013
Divided into three axes, with minimum spend
per axis
–
–
–
Improving competitiveness of farming and forestry
Environment and land management
Diversification and rural development
Rural development measures – what
role for public goods?


Modernisation and structural adjustment measures
Disadvantaged areas scheme
–

Agri-environment scheme
–
–
–

Criticised by Court of Auditors
Must show added value to cross-compliance
Public must see they are getting value for money as
national share of funding will be larger in future
Net benefit to farmers much lower than direct payments
Greater share of funding to non-agricultural sectors
in future
The future challenges for Irish
agriculture
2500
€ million
2000
Rural development
payments
Rural
development
1500
WTO reduced
protection
Market returns
1000
500
0
Premia and arable
aid
Premia and arable aid
Direct
payments
?
AgriVision 2105 Themes for Action

The continued role of public policy in agriculture and food

Developing a competitive Irish agriculture Industry
–
Public policy should facilitate the market based development of the
sector
–
Public policy that facilitates the consolidation of farm structures
–
Improving links between agriculture and food industries
[Recommendations 1-9]

Building the knowledge base of Irish agriculture
–
Recommends the improved provision of resources for research and
education that enhances the productivity and competitiveness of Irish
agriculture
[Recommendations 10-14]
AgriVision 2105 Themes for Action

Building a knowledge based Irish food industry
–
–
Public support for food research and development (R&D), education, and
marketing should be continued and improved, with Future NDP giving
priority to Food R&D
Encouraging increased food research collaboration between the food
industry, research institutes, and the Universities
[Recommendations 15-20]

Developing a competitive Irish food industry
–
–
–
Develop links with agriculture that allow both industries to get ahead of
the competitiveness curve in responding to consumer demands
Re-examine the current milk quota reallocation policy so as to ensure the
development of a competitive milk production and processing industries
Promotion at an EU level of Country of Origin labelling
[Recommendations 21-31]
AgriVision 2105 Themes for Action

Managing the regulatory environment
–
So as to provide necessary safeguards without prejudicing the
competitiveness of the industry
–
So as to encourage food industry rationalisation that enhances the
competitiveness of the Irish food markets and the Irish food industry
[Recommendations 32-36]

The all-Ireland dimension
–
The agriculture industries, North and South, face similar competitive
challenges
–
Co-operation in policy and between firms that enhances the
competitiveness of the industries should be encouraged
[Recommendations 37-38]
AgriVision 2105 Themes for Action

Supporting the public good output of Irish agriculture
–
–
–
Recognition of the multifunctional role of agriculture and the need for
public support for the provision of public good outputs from agriculture
Recommends that, in so far as possible, the Brosnan report on the
final implementation of the Nitrates Directive in Ireland be followed
Supports the continuation and extension of REPS
[Recommendations 39-42]

Strengthening rural development
–
–
–
Agriculture no longer the only vehicle for rural development
Successful rural development will depend on broader Irish economic
policy
Encouraging the work of Comhairle na Tuaithe in resolving issues
involved in the recreational use of the countryside
[Recommendations 43-50]
Conclusions

Following CAP reform and given likely further global trade
liberalisation public policy must facilitate the development of
market orientated agriculture and food industries.

Continued and improved public support for R&D and education
that enhances the knowledge basis of Ireland’s Irish agriculture
and food industries will be essential in improving their
competitiveness

Agriculture’s role in the provision of non-food outputs such as a
healthy rural environment will become more important and
deserving of recognition