An Bord Snip: Agriculture, forestry and fishing

The reaction to An Bord Snip Nua’s proposed spending cuts in the agriculture, forestry and fishing (AFF) area has been predictably intense. The overall savings proposed are €305 million, out of total voted expenditure of €1,985 million (or €1,655 if EU receipts under the Rural Development Programme which count against this expenditure are excluded), amounting to a reduction of 15.4% on voted expenditure (18.4% on the national contribution to  this voted expenditure). Taking all of public expenditure, An Bord Snip Nua identified potential savings of €5.3 billion or 9.3% of relevant expenditure. It therefore seems as if the AFF area will be asked to take a disproportionate share of the overall cuts. However, while I have some quibbles with the details, it is hard to disagree with the overall thrust of the proposals, and indeed I think some expenditure schemes were lucky to survive. I look at the details of the proposals with respect to agriculture in this post.

The proposals

The key proposals are set out below

  • Terminate Suckler Cow Welfare scheme, saving €44m
  • 30% cut in Disadvantaged Area Compensatory Allowance saving €66m.
  • Close REPS4 and no roll over from REPS2 and REPS3 to REPS4, saving €80m.
  • Reduce Teagasc research funding by €14m as part of the centralisation and reduction of all public research spending on a pro-rata basis. Reduce Teagasc advisory, education and training functions and close some locations.
  • Increase disease levies to self funding level (€5m) and reduce reactor compensation to 75% of market value and consider mandatory insurance for balance
  • Review Coillte’s future, possibly privatise
  • Elimination and rationalisation of the state agencies An Bord Bia and Bord Iascaigh Mhara (BIM)
  • 1,140 job cuts across Department of Agriculture and Teagasc (18% of current 6,264)

We should remember that these proposals are in addition to reductions introduced in the Supplementary Budget earlier this year

  • REPS  – The budget for REPS was reduced by €25m from €355m to €330m. Payment rates under REPS 4 were reduced by 17%. The level of REPS 3 payments to farmers to be reviewed based on the number that apply for the REPS 4 Scheme.
  • Fallen Animal Scheme – the Fallen Animal Scheme was abolished, involving a saving of €14 million.
  • Forestry – The Forestry premium was cut by 8%, or up to €7.5 million. This applies to existing and new applicants premium.
  • Suckler Cow Welfare Scheme  – the payment rate for the Suckler Cow Welfare Scheme in 2009 but paid in 2010 was halved to €40/head.

Disadvantaged Areas payments

This is a scheme of payments introduced to ‘compensate’ farmers who are located in more marginal farming areas for their higher costs of production. However, the scheme is not targeted on delivering tangible outputs. When the scheme was first introduced in Ireland in 1975, 4.0 million acres or 57.8% of land area was classified as disadvantaged; by 1996 this had increased to 5.2 million acres or 74.8% of land area. In addition, the area classified as Most Severely Handicapped (which gives eligibility for higher payment rates) had increased from 66% to 79% of the total. There is, in principle, a case for a targeted scheme to maintain farming where it is necessary for the maintenance of high-value nature areas, but it is clear that the Irish scheme is little more than income support, making it an easy target for An Bord Snip.

REPS scheme

The difficulty for REPS is that it never managed to decide whether it was an income support scheme or an environmental scheme. There is no doubt that it provides a huge income support particularly to drystock farmers – 75% of REPS farmers are in drystock, and last year REPS payments provided on average half of the income from cattle farming on these farms. However, the justification for EU agri-environmental programmes (which is the EU framework legislation for REPS) is to encourage farmers to go beyond the basic environmental requirements they must follow to be eligible for the Single Payment Scheme and to produce positive public environmental externalities in terms of increased bio-diversity and landscape amenity. Because the scheme did not sufficiently focus on this environmental value added, it was an easy target for An Bord Snip Nua.

Last week, the Minister pre-empted this recommendation by announcing that REPS 4 has now closed to new entrants, but also announcing the introduction of a much smaller scheme in which farmers now in REPS 3 could enroll from next year. This new scheme is costed at €45m a year. If it is targeted solely on biodiversity, the Irish taxpayer could get as much environmental value from it as the scheme it replaces. However, from the point of view of the public finances, it reduces the estimated savings of €80m from ceasing all new enrolment in agri-environment schemes as recommended by the McCarthy report.

Update: I have now digested the Minister’s press release announcing this new scheme. Funding for the new agri-environment scheme will come from modulated Single Farm Payment monies resulting from the CAP Health Check, in other words, this is a recycling of EU funds and not additional expenditure. However, in order to draw down these funds, some additional national expenditure is required because, as a Rural Development Programme scheme, national co-funding is required. The Minister has indicated that he will seek to reduce payments under the Less Favoured Areas scheme in 2010 to find the €25 million annually for this purpose. Whether this reduction in LFA payments will be additional to the 30% cut recommended by An Bord Snip Nua will become clear in the 2010 budget.

The Suckler Cow Welfare Scheme

This scheme was introduced last year allegedly as an animal welfare scheme (in order to get past EU state aid rules) but in practice it operates as an income supplement for suckler cow farmers, the most unsustainable sector of Irish farming.  The recently-published Teagasc National Farm Survey 2008 showed just now dependent beef enterprises are on direct payments to survive. Average market-based returns for cattle rearing systems stood at €13,937, while production costs were €20,400. This meant that the average suckler cow herdowner subsidised his/her farm operations from direct payments by almost €6,500 last year. For some background on this scheme, read here.

Animal health schemes

Here the main changes proposed are designed to introduce cost recovery and to introduce a greater degree of farmer co-responsibility for the funding of these schemes.  Animal disease outbreaks are not always the fault of individual farmers and can be the source of much heartbreak on farms. Howeve, they are an insurable event, and the report’s recommendation that the state should in future pay only 75% of the market value of slaughtered animals is designed to encourge herd ownders to seek commercial insurance for the remainder.

Teagasc

Increasingly the Teagasc advisory service works with commercial  farmers in competition with private advisors, and it makes sense to look for reductions in this part of its activities. However, I would regret it if the government went ahead with the recommendation to reduce Teagasc research funding. Here, there is good evidence that productivity-enhancing agricultural research does yield good economic returns. The challenges facing Irish agriculture are so enormous that, if necessary, some further diversion of state funding  from farm income support to productivity research is highly desirable. Simply applying the reduction coefficient for general research spending in the state pro rata to Teagasc would not be an efficient measure, in my view.

Other potential cuts

If research spending were to be maintained, it is incumbent to ask where additional savings could be found in other areas. We must remember that these proposed cutbacks would come in the wake of the most expensive infrastructural investment scheme in Irish agricultural history, the Farm Waste Management Scheme, which will cost the Irish taxpayer over €1 billion when the final payments are made.  This scheme kick-started a veritable investment orgy on farms.  The Teagasc National Farm Survey revealed that an incredible €4.5bn has been invested by Irish farmers over the past two years (for comparison, note that the operating surplus in all agriculture last year was €2.3 billion). Although average farm family income fell from €19,687 in 2007 to €16,993 last year, farmers still invested close to €20,000 each on their holdings in 2008, making a total of over €2bn. This was the highest annual level of investment ever recorded on Irish farms, and the vast bulk of this money was spent under the Farm Waste Management Scheme. We will still be paying for this over the next two years.

There are a range of other measures which add little to either agricultural competitiveness or public goods output and which could be reduced to help maintain Teagasc research spending. In my view, examples include the Early Retirement Scheme and the Young Farmers’ Installation Aid.  A difficulty in tackling these schemes is that they are co-funded under the national Rural Development Programme. It is not so such the 50% contribution to these schemes which we get from the EU which causes the problem (even half-subsidised, the Irish taxpayer does not get good value for money). Rather it is that, under the EU Rural Development Regulation, we are obliged to spend 10% of the overall programme on so-called Axis 1 measures (which includes these schemes) as well as Axis 3 measures (where again, one might question if we would maintain some of the expenditure schemes included in the national Rural Development Programme if they were entirely under our own control). Nonetheless, some of the funding for these schemes comes from supplementary national funding which should be stopped.

It is important to recognise the difficulties these cutbacks in direct payments (particularly REPS, the Suckler Cow Scheme and the LFA payments) will cause for farmers and farm incomes, already adversely affected by the downturn in agricultural markets. This is because (as revealed in the Teagasc National Farm Survey for 2008 published last week) for tillage and drystock farmers, the entire family farm income now comes from state payments. Last year, for the first time ever, total direct payments exceeded family farm income by 2.7%.  The average direct payment to farms in 2008 was €17,467, compared to €16, 993 in income derived from farming (including these payments). It is this dependence on direct payments rather than market returns which will make these reductions so painful to farmers.

18 thoughts on “An Bord Snip: Agriculture, forestry and fishing”

  1. Given the distortionary nature of these schemes, could we hope for a long term macro benefit, all be it a rather unbalanced one, from them being withdrawn or scaled back?

  2. @George
    This is an important question, so here is a long answer!

    The medium-term macro challenge for agriculture can be spelled out in a few figures. Last year, 2008, total income from farming (in formal terms, net value added at factor cost in agriculture) amounted to €2.7 billion (it has fluctuated between €2.6 and €3.0 billion over the past five years). This is the return generated by the capital, land and labour used to produce crops and livestock in the farming sector.

    In 2008, €0.8 billion came from the ‘market’ while the remaining €1.9 billion was transferred either by the EU or Irish taxpayer.

    However, Irish farming sells into a highly protected market for its main commodities beef and dairy. A Doha Round trade agreement (still more a possibility than a probability in the next two years, in my view), with no change in farm practices, would knock anything between €100 and €400 million off the ‘market’ value added, according to a Teagasc FAPRI-Ireland analysis last September. The report itself admitted these were rather optimistic figures given that they assumed the continuation of a baseline with buoyant farm prices.

    A recovery and further increase in food prices, such as we experienced in 2007-08, would of course increase ‘market’ value added. While another price spike of that magnitude is unlikely in the near future (based on historical experience), the international forecasting agencies do expect global food prices to strengthen in the medium-term. Irish farmers benefited from very strong dairy prices in 2007 and early 2008, for example. However, current projections suggest little change in EU producer prices for beef and dairy products over 2008 levels over the next decade.

    In addition, cuts in the Single Farm Payment in the context of the next EU medium-term financial framework after 2013 will reduce the transfer due to direct payments, by an amount yet to be determined. But initial bargaining positions suggest that the share of agricultural spending in the EU budget will be further reduced.

    So, even without taking into account any production response to the cut in direct payments, it is not unrealistic to project that total income from Irish farming could decline by one-third or more over the next ten years in nominal terms. If farmers find they can no longer subsidise their loss-making enterprises from the smaller direct payments, then the decline could be much greater.

    The challenge, then, for Irish agriculture is to maintain production levels and total income from farming on a sustainable basis. In other words, how can we maintain total income from farming at around €2.5 – 3.0 billion, but change its composition so that two-thirds comes from market activity and the remaining one-third from direct payments, even in the face of these policy challenges?

    There are three responses, in my view, but it would be interesting to hear other views in this thread. The first is a dramatic shift to less intensive production systems, to move away from an infatuation with production per hectare to profit per hectare. The second is land mobility; although on average all family farm income is now contributed by direct payments, there are significant differences in cost structures and management skills between farmers. We need to encourage high-cost farmers to release land to those who can farm it more efficiently. And third, we need the research to underpin the production systems of the future, hence my plea above to maintain the research capacity of Teagasc.

    And yes, reducing income supports tied to land, which have encouraged ridiculous land prices and rents, is the first step in this painful process of adjustment.

  3. Thanks for the excellent initial post.

    I note the comment that the reduction in direct payments will be very painful. It appears that the measures will put many farms out of business altogether, but then you have farmers with dual incomes, farmers with large farms, and farmers in niche areas. Do we know what effect this will have on rural economic health and sustainablility of rural communities? In particular, do we know how many low income farmers there are who are wholly dependent on the direct payments and have no other source of income?

    How great an effect will the elimination of low income farmers have on consumer demand in rural areas given that one can expect them to spend all their direct payments as well as paying feed suppliers and farm equipment suppliers with market supplied revenue?

    It would be very interesting and pertinent to know how many farmers on dual incomes will be hit by other job cuts in the public sector. I suspect that a strongly disproportionate number of farmers are employed in public sector employment. Can anyone shed any light on this gut instinct of mine?

  4. @Zhou,
    Teagasc and FAS/SLRMU did some work on off-farm working which doesn’t fully answer your question, but at least throws some light on it. Reading off a chart, it looks like off farm employment broke down approximately as follows by sector in 2004.
    Agriculture 21%
    Construction 21%
    Manufacturing 10%
    Services 38%
    Other 10%

    I presume that public sector employment would mainly either be in “services” or “other”. If it is mainly within services, it sits alongside many other sectors, notably retail and hospitality, which might fit well with a farming enterprise.

    The message I take from this is that farmers are probably not especially dependent on the public sector for off-farm employment, but they are especially dependent on sectors much worse affected by the recession, notably construction. Agriculture itself is going through a tough time. QNHS data shows a drop of 13,000 (11.2%) in employment in agriculture between Q4 2008 and Q1 2009, although I’m not convinced we can take the size of the drop at face value.

  5. It seems my instinct was wrong.

    With that said, Agriculture, Services and Other could all conceivably include some public sector workers. However, it is unlikely that it is as high as I thought.

    The Construction figure is a bit of a shocker.

  6. @con and zhou
    I suspect if you looked at household income for farm families you would find a substanial proportion comes from public sector workers. I would also expect the construction figure to be higher in 2006.

  7. @Pat,
    I’d estimate, based on what happened to employment in construction nationally, that the share of off-farm working accounted for by construction peaked somewhere around 26%.

  8. @zhou,
    The construction figure is not much of a shocker to anybody in rural Ireland. At the height of the construction boom, many farmers, particularly drystock, took up work on building sites building houses estates in villages and towns all over rural Ireland. I often wondered what would happen when the boom came to an end. What would these guys do to supplement the farm income? The root of some of the anger lies in the loss of these jobs and the almost simultaneous cuts to the schemes.

    Of course, the agricultural subsidies regime is unfair. For one thing, it takes no account of other income, e.g. vets receiving payments running to tens of thousands.

    Anyway, farmers are angry and will vote against Lisbon 2. They may not be large in numbers, but they do vote.

  9. @Isaac

    I note what you say about construction. Do you think there are many farmers getting a second income from public service employment?

    Do you think the Bord Snip report should have been kept secret if the Government wanted to get Lisbon II passed?

  10. A bit off topic here (it’s in the Ag, Fish and Food section but a more general recommendation) but I am curious about the para that says on p 3 of vol. 2:

    “The group agrees with the principle of the sale of surplus assets. The excuse that property/land prices are now too low to sell has little validity as in the foreseeable future property prices are unlikely to return to anywhere near the inflated levels of recent years.”

    How does that tie in with NAMA ??

  11. What is it about primary industries that command such political largesse?

    Slash – €2 billion saved through the end of subsidising small businesses in the area of fish harvesting.

    Would we be having a heated debate about the absolute need to retain €2 billion in direct payments and indirect support to corners shops across the country?

  12. @ Alan Matthews

    ‘There are three responses, in my view, but it would be interesting to hear other views in this thread. The first is a dramatic shift to less intensive production systems, to move away from an infatuation with production per hectare to profit per hectare. The second is land mobility; although on average all family farm income is now contributed by direct payments, there are significant differences in cost structures and management skills between farmers. We need to encourage high-cost farmers to release land to those who can farm it more efficiently’

    In proposing these possible policy reponses, is it your view that Irish agriculture should move towards greater productive efficiency i.e. greater industrialisation. Given that many of the payments which are in line for cuts are given to remote farms, often disadvantage, does this not go aganist the principle of multifunctionality, which policy makers are trying to encourage.

    On a side issue, is it at all possible for Single farm payments to be equalised per hectare across the country(down to the lowest rate) and the surplus spent on financing the continuation of the schemes which are proposed in the McCarty report for cutting.

    Perhaps too, could modualation or article 68 money could be used in a way complicable with the above schemes without the need for co-financing by the exchequer.

  13. The closure of reps 4 is nothing but a cunning way of sacking staff in the DAFRD and Teagasc. Staff numbers must reduce, close the scheme and Voila! hundreds gone with most in Teagasc.

    The reps scheme has environmental benefits. For example farmers have to maintain/plant new hedgerows, fertilser spreading is limited, livestock have to be kept back from waterways, farm buildings have to be painted and maintained etc….

    The real problem arises for the small farmer especially in the West of Ireland who is very dependent on his reps payment. These people will have to turn to farm assist.

    On the intensification issue why can we not farm this Country like the Dutch? It amazes me every time i visit there how professional they are. They maximise every square inch of ground and make good profits. Nothing goes to waste

  14. @Damien

    >>>In proposing these possible policy reponses, is it your view that Irish agriculture should move towards greater productive efficiency i.e. greater industrialisation. Given that many of the payments which are in line for cuts are given to remote farms, often disadvantage, does this not go aganist the principle of multifunctionality, which policy makers are trying to encourage. >>>

    Do I think we should move to larger farms and fewer farmers? Yes, this process has been ongoing for decades but needs to be accelerated. Does this mean greater industrialisation? While I am not sure how you define this, the answer is no. Irish farming would still be based on a family farm structure. Would this go against the principle of multifunctionality? Not necessarily. Multifunctionality is the recognition that some farming may produce external benefits that are valued by society. I accept that this can be the case, and in my post I argued that up to one-third of family farm income could consist of direct payments for this purpose. But these should be targeted payments where farmers contract to provide a specified environmental output. For example, I was glad to see that some of the modulated Single Farm Payment money will be recycled to farmers in the Burren, where the traditional type of livestock farming is essential to maintaining the Burren as we know it. The great weakness of existing payment schemes is that, for the most part, they produce no tangible multifunctional outputs.

    >>>On a side issue, is it at all possible for Single farm payments to be equalised per hectare across the country(down to the lowest rate) and the surplus spent on financing the continuation of the schemes which are proposed in the McCarty report for cutting. Perhaps too, could modualation or article 68 money could be used in a way complicable with the above schemes without the need for co-financing by the exchequer.>>>

    I am not sure why you would want to see the continuation of the schemes proposed for cutting in the McCarthy report, but in practice, yes, the government has the possibility to use a so-called ‘national envelope’ for this purpose under Article 68 as you surmise. This means that the government could reduce all Single Farm Payments by up to 10% and use this funding (without a requirement for co-financing) for a range of specified activities. However, the government has also made clear it has no intention of invoking this power, presumably because it would simply recycle payments between different members of the farming community and would meet with a storm of protest from those who would lose out.

    Similarly, any obligation to level payments per hectare across farms would be strongly opposed by those farmers who would lose part of their payments (the voice of those farmers who would gain will not be heard so loudly), and the government will only proceed with this when forced to do so under an EU regulation, likely to happen in the next CAP reform after 2013.

  15. @Zhou,
    not sure if many of the part-time farmers are employed in the public sector. Perhaps a small number in teaching, An post etc.

    As to whether the McCarthy report should have been kept secret, this was politically impossible as you know. I don’t know if Lisbon 2 will be defeated, just that farmers will vote against.

  16. Apologies, I appreciate the main slant of the discussions relate to agriculture however my comments concern the proposal “Elimination and rationalisation of the state agencies An Bord Bia and Bord Iascaigh Mhara (BIM)” particularly Bord Iascaigh Mhara.

    Volume 1 of the report recommends:

    Section 2.3. (1); Transfer functions of Bord Iascaigh Mhara into D/AF&F;
    Section 2.3. (19); Consolidate all indigenous enterprise support and sector marketing functions in Enterprise Ireland (EI) and rationalise the organisations losing functions as appropriate. This encompasses County Enterprise Boards,…….Bord Iascaigh Mhara, ”

    Volume 2 (Detailed Papers) recommends:

    Detailed paper No. 1 Table 1.4; “Transfer export promotion function for indigenous industry to Enterprise Ireland, including those of An Bord Bia and BIM. Transfer BIM’s functions and consider transferring An Bord Bia’s functions to D/AF&F and close BIM ice plants”

    Section A1 paragraph 3; “BIM’s remaining functions should be carried out in D/AF&F in a dedicated section rather than maintaining a separate organisation with accompanying overheads and BIM should be formally abolished”

    In terms of absorbing BIM functions into DAFF, this is an excellent idea as industry confidence in BIM is at an all time low. However there are obvious communication problems between the fisheries section of DAFF and the wider agri-food programmes. Fish and shellfish are types of food however to date, very few examples of collaborative projects/programmes involving agri-food infrastructure being used for seafood R&D have been evident. The Ag side of the house still research Ag (beef, chicken, pork, dairy, fruit, veg, ready meals etc) and the fisheries side (via BIM) foucus exclusively on fish and seafood – despite obvious opportunities for integration/collaboration.

    BIM/Dept of fisheries are nearing completion of the new €28 million facility in West Cork which will include a stand alone seafood development centre. If DAFF as opposed to the fisheries section/ BIM had carried out a thorough review of existing infrastructure and industry needs, it would have been abundantly clear that facilities, equipment and more importantly expertise already existed at various DAFF sites throughout Ireland without the need to build a stand alone facility treating seafood seperately to wider food.

    For a fraction of the cost, collaborative programmes could have been developed aimed at encouraging research and third level agencies to carry out R&D for the seafood industry – instead of ploughing money into bricks and morter in a stand-alone facility. In fact, building a seafood-only facility is going against trends evident in the EU where seafood has been intergrated into wider-food-research several years ago. The recent transfer of marketing remit from BIM to Bord Bia was another positive step in th right direction as now seafood will be treated like most other food products with tried and tested business models and resources being applied to the seafood category.

    In my opinion, absorbing BIM into DAFF is a very positive step however the agri-food people in DAFF should ensure that they open up existing infrastructure to the seafood industry rather than simply instruct the fisheries section of DAFF to service the industry from the new facility in Clonakilty. All of the technologies used for beef, pork, dairy, etc have direct application to seafood products and the most logical and cost effective way to service the seafood industry would be to use existing DAFF facilities throughout Ireland to assist industry and to integrate seafood R&D into the agendas such as Teagasc to access the wealth of expertise and resources which already exist.

    In terms of Ag vesrsu fisheries being seperate entities, remember – fishing and agriculture go hand in hand in most of our coastal communities and job losses in either results in hardship for families in that area. We have invested Billions in the Agri-food side of the house in pervious years and it is time to open up these facilities for the seafood sector to ensure sustainable business models and maintain jobs.

  17. Irish economy has three broad sectors:

    1. Exports
    Exports play an important role in Ireland’s economic growth. A series of significant discoveries of base metal deposits have been made, including the giant ore deposit at Tara Mine. Zinc-lead ores are also currently mined from two other underground operations in Lisheen and Galmoy.

    2. Primary sector
    The primary sector constitutes about 5% of Irish GDP, and 8% of Irish employment. Ireland’s main economic resource is its large fertile pastures, particularly the midland and southern regions. In 2004, Ireland exported approximately €7.15 billion worth of agri-food and drink (about 8.4% of Ireland’s exports), mainly as cattle, beef, and dairy products, and mainly to the United Kingdom.

    3. Welfare benefits

    As of December 2007, Ireland’s net unemployment benefits for long-term unemployed people across four family types (single people, lone parents, single-income couples with and without children) was the third highest of the OECD countries (jointly with Iceland) after Denmark and Switzerland. Jobseeker’s Allowance or Jobseeker’s Benefit for a single person in Ireland is €188 per week, as of March 2011.

Comments are closed.