Further CAP price reductions ‘unacceptable’
THE decoupling of EU direct payments to farmers is the single biggest change in agricultural policy since Ireland joined the EEC in 1973, according to Con Lucey, the respected chief economist of the Irish Farmers Association.
He said it was a new situation and it was difficult to predict the reaction of farmers. Clearly, they will have more choices both with regard to the products they produce and the level of production.
“Farmers will be able to make decisions based on the economics of production, and no longer driven by the particular regulatory requirements of the existing coupled payments system, such as premium quotas, census dates and extensification requirements,” he said. Mr Lucey says the new decoupled environment will require the IFA to refocus on particular objectives.
“Firstly, the level of the product price will have a new importance.
“The linking of price to quality is important, so that there is a clear signal from the market to farmers.
“The market of the future is going to be the EU market, because it is already decided in the WTO that export refunds will be phased out during the next trade round,” he said.
Mr Lucey said there was a major challenge for the IFA’s main commodity committees to negotiate with the processors price and marketing agreements, which will be vital for the future of both farmers and processors.
For example, farmers finishing cattle over the winter will need a level of advance guarantee on spring beef prices. Grain growers planting winter wheat will need a level of price guarantee for the harvest.
In the dairy sector, the 2003 CAP reform decisions involve a cut of over 22% in EU price supports between 2004 and 2007.
The challenge for the IFA and the dairy industry is to ensure that producer prices do not reflect this reduction, based on a combination of relatively strong commodity prices, an increasing share of high value products in the mix, and savings in assembly, processing and marketing costs.
Secondly, in the case of farm inputs and services, Mr Lucey said the prices charged must be reassessed in the context of decoupling. In the current coupled payment situation, input and service suppliers had a captive market.
In the new situation, the IFA has a key role to play in ensuring lower production costs, for example by promoting greater use of generic agri-chemical products, and by increasing the market power of farmers through purchasing groups and info technology.
Thirdly, it is anticipated that different categories of farmers will respond in different ways to decoupling. Some farmers with limited scale may decide that off-farm employment provides the best return.
Some elderly farmers may opt for retirement or semi-retirement. Most commercial farmers are likely to continue in commercial farming, but will require increased scale, some capital investment, greater efficiency, and lifelong learning to remain competitive. Apart from the changeover to the single payment, there are some other major items on IFA’s agenda for 2005. These include the review of the agricultural rural development schemes in Brussels and the detailed WTO negotiations.
Mr Lucey said the review of the agricultural rural development schemes (disadvantaged areas scheme, REPS, forestry, early retirement, and on-farm investment) will be taking place in the first half of 2005. This review is within the wider framework of the negotiations on a new EU budget for the years 2007 to 2013, which may be quite difficult. There are some very negative proposals on the table from the commission, particularly with the criteria to be used in the future to have areas classified as disadvantaged, and also as regards support for forestry.
A related problem is that none of the country is likely to qualify as ‘Objective 1’ after 2006.
The implication is that after 2006 a greater proportion of the cost of these schemes will have to be borne by the Exchequer, and a lower proportion by the EU budget.
The IFA’s bottom line is that the EU has reformed the CAP twice in recent years in preparation for WTO - Agenda 2000 and Luxembourg 2003 - and whatever cuts on import tariffs are agreed, they must not result in further cuts to CAP prices and supports.
