An indication of the pressures on Ireland’s competitiveness is provided by the Harmonised Competitiveness Index, the December figure for which has recently been released on the Central Bank website. While the real HCI had been falling gradually since the early part of the last year (a rise in the indicator implies a disimprovement in competitiveness, while a fall in the indicator indicates an improvement), the December figure jumped upwards by 4.0% over the previous month, largely due to the appreciation of the euro particularly against sterling. The Dec 2008 value of 126 puts us back where we were at the beginning of last year.
While the macroeconomic crisis is all-consuming, there are other important economic policy issues on the agenda. Let me add to Richard Tol’s earlier post on the implications of the EU‘s Climate Change and Energy package formally adopted in December 2008. This sets demanding targets for reductions in Irish greenhouse gas emissions by 2020, and particularly for the non-ETS sector of which Irish agriculture is a major part. How agriculture, and the non-ETS sector generally, is to meet these targets remains largely uncharted. The targets, and the policies implemented to meet them, will have major economic implications over the next decade. Like Richard, I agree that achieving the non-ETS targets for Ireland set out in the Effort Sharing Directive agreed in December 2008 now looks to be considerably less costly than earlier thought.
Alan Ahearne in his post on the recent National Competitiveness Council report draws attention to the high electricity costs in Ireland relative to our trading partners documented in the report. Malore in his/her comment on Alan’s post suggested some reasons for this. These and other reasons are further explored in the Sustainable Energy Ireland 2008 report Understanding Electricity and Gas Prices in Ireland.
The CSO recently published its advance estimate for output, input and income in agriculture. Despite world prices for food hitting record highs in the early part of this year, the CSO estimates that GVA at basic prices fell by 17 per cent and that the operating surplus generated in the sector fell by 13 per cent in 2008.
The main reason is that, although agricultural output prices have risen by 20 per cent since the beginning of 2007, input prices driven by higher energy prices have risen even faster. As a result, Irish farmers have experienced a sharp deterioration in their terms of trade from its recent peak in September 2007. Output prices relative to input prices fell by 20 per cent between September 2007 and October 2008.
Gross value added at basic prices in primary agriculture is estimated to amount to €1,579.6 million in 2008. When interest on borrowing, wages to farm workers, land rental payments and capital depreciation are netted out, the amount left to remunerate farmers for their own labour, land and capital input is the princely sum of … -€186 million! (if you want to do the calculation yourselves, the raw data is provided in the CSO release).
Fortunately, farmers don’t depend on the market for their income (even the supported EU market in which , thanks to the Common Agricultural Policy, they can sell beef and dairy products for up to 75 per cent higher than third country competitors). Thanks to direct payments (which amounted to €1,995 million last year and will top the €2 billion mark this year because of the introduction of a new Suckler Cow Welfare Scheme), farm incomes will remain in positive territory. While some of these payments reflect the role of farming in producing valued public goods, their distribution across farmers is hardly equitable and their future in the light of the 2013 EU budget debate is hardly secure.