Post on 14-Dec-2015
The Future Environment and Opportunities for Irish Agriculture
Alan MatthewsTrinity College DublinAgricultural Consultants Association of IrelandCarrick-on-Shannon11 March 2005
Background trends
Let’s first set the context– What has been happening in Irish agriculture over
the past decade?
Composition of operating surplus in agriculture
Premia and arable aid
Market returns
Rural development payments
0
500
1000
1500
2000
2500
Premia and arable aid
€ m
illi
on
Decoupling
WTO reduced protection
Rural development
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
57% 60% 65%
43% 40% 35%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Cereals Beef Sheepmeat
Output DPs
Estimates of supply response to decoupling
Relatively few studies FAPRI-Ireland completed study in January 2003
using partial equilibrium model Later studies incorporated WTO effects as well as ‘pure’
decoupling
Results from general equilibrium models show much higher supply responses to 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)
FAPRI Teagasc
INEA Italy Trinity IMAGE
Beef -9 -25/-35 -20
Total cows
-14
Sheep -12 -21
Cereals -18/-25 -40
Wheat -1
Barley -4
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 off-
farm 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
2002 Data, Baseline* and Luxembourg Agreement Reform Scenario** Projections
Farm Group 2002 2015*Baseline
2015** Reform
% Change
Viable Farms 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
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)
€2,224
Estimated world market price
€1,200
Current EU import tariff €1,922
New tariff (-60% cut) €769
EU minimum import price €1,969
Impact on EU price -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
New tariff (-60% reduction) 758 758
New EU minimum import price
1,928 2,333
Impact on EU price -10% none
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)
€421
Estimated world market price €210
Current EU import tariff €419
New tariff (-60% cut) €168
EU minimum import price €378
Impact on EU price -10%
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
– Criticised by Court of Auditors Agri-environment scheme
– 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
Premia and arable aid
Market returns
Rural development payments
0
500
1000
1500
2000
2500
Premia and arable aid
€ m
illi
on
Direct payments
WTO reduced protection
Rural development?
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