The CSO released its preliminary estimate of agricultural output and income for 2008 two days ago. The figures underline yet again the highly vulnerable position of Irish farming to possible changes in the EU’s Common Agricultural Policy (CAP) payments after 2013 when the new EU financial perspective is negotiated. Family farm income before direct payments was slightly negative in 2008, indicating that Irish farmers received no market remuneration for their contribution to agricultural production last year.
To understand the extent of this vulnerability and the justification for this conclusion, we need a short introduction to the economic accounts for agriculture. The net value added in agriculture at basic prices (these are the prices farmers actually receive for their output, adjusted by any product-specific subsidies or taxes) in 2008 was €830 million. This value added is divided four ways:
- Some goes to hired labour in agriculture, €450m
- Some goes as interest on borrowed capital, €398m
- Some goes as rent for rented land, €144m
- And the remainder is available for farm families to remunerate their labour, the use of their own land and the return on their own capital invested in farming.
Doing the sum, family farm income at basic prices in 2008 was minus €162 million. Even if we ignore land rental as the transfer of income within the farming community, family farm income last year was slightly negative. These means that the work of most of the estimated 155,000 people working in agriculture (measured in annual work units) as well as the use of 4.3 million hectares of agricultural land and billions of euro of farmer-owned capital stock (the stock of agricultural machinery alone was valued at over €2 billion, see Keeney 2007) added precisely nothing at basic prices to Irish GNP last year.
And we should remember that, for the major commodity outputs of Irish agriculture of beef and milk, these basic prices are artificially inflated by import protection against third country exporters of between 40 and 80 per cent.
So the only income which farm families had from their farm enterprises last year came from direct payments. These totalled €1.9 billion, paid for mainly by the EU CAP but also with contributions from the national exchequer. In addition, there were substantial capital grants paid to farmers particularly under the Farm Waste Management Scheme which is now likely to cost a total of €900 million over the period 2006-2008. This cost was so far above the budgeted estimate that the Minister has announced that payments will have to be phased in over the period to 2011, leading the farm organisations to demand that the government should in addition bear the cost of the interest payments to which farmers are exposed as a result of the late payment.
Some of these subsidies, such as environmental payments under the REPS scheme, have a justified rationale in public welfare terms, even if the schemes are not always well designed to deliver those benefits. On the other hand, if environmental services are being paid for, then the pollution costs of agriculture should also be factored in (particularly water pollution even if this has been significantly reduced in recent years, but also the greenhouse gas emissions from livestock farming). In the case of some other direct payments, there may be a rationale for maintaining farming activity in some marginal farming regions for landscape protection and biodiversity reasons. But there is little clear rationale or justification for continuing the bulk of direct payments to Irish farmers, which were introduced to compensate for price reductions which, in some cases, took place 15 years ago!
As at least some reduction in these payments must be expected following the negotiations on a new EU budget for the period after 2013, these latest CSO figures show just how dangerously Irish agriculture will be left exposed in the years ahead.