Farm Finance: How will the Nature Restoration Law affect farmer profitability?
It’s ironic that in a week when the EU went to some efforts to suggest that the regulatory burden on farmers would be reduced, the Nature Restoration Regulations were signed into law, writes rural accountant Kieran Coughlan.
The European Commission passed what is commonly referred to as Nature Restoration Regulations into law as of Tuesday, February 27.
The regulations include a requirement that EU countries must restore at least 30% of habitats in poor condition by 2030, 60% by 2040, and 90% by 2050, habitats include forests, grasslands, wetlands, rivers, lakes and coral beds.
Whilst individual EU countries will have discretion in the mode by which the habitats are restored, the overarching requirement is that the habitats must be restored, and methodologies will be applied in measuring habitat improvement, such as the grassland butterfly index; the share of agricultural land with high-diversity landscape features; the stock of organic carbon in cropland mineral soil and a farmland bird index.
Whilst the regulations refer to the options as being voluntary at a farm level, the reality is that if the division of the EU farm payments will see a skewing of payments more toward nature restoration and less by way of income support, farmers will have no choice but to opt into these schemes.
The reality on the ground is that absent EU payments, most cattle-finishing enterprises and sheep enterprises would be loss-making or barely profitable.
Figures from Teagasc confirm the net margin from cattle finishing for 2021 and 2022 were minus €6 per hectare and €60/ha, respectively, for the two years.
Sheep farming faired a little better at €284 and €131/ha, respectively, for the two years and €9 and minus €80/ha for single suckling enterprises.
The reality is these fairly dismal margins are repeated over many years. Redirecting EU support payments toward nature restoration incentives will see this cohort of farmers who are already dependent on EU payments signing up for such schemes in an effort to shore up their incomes.
However, if farming for nature impedes the underlying productivity of the land, then additional farm payments they receive will be more than absorbed by the loss of productivity. Farmers could find themselves in a bind, damned if they do opt into nature schemes and damned if they don’t.
It’s ironic that in a week when the EU went to some efforts to suggest that the regulatory burden on farmers would be reduced, the Nature Restoration Regulations were signed into law.
It is inevitable that schemes that follow suit will result in additional red tape. Farmers will need to choose whether to opt in or out, will possibly need to undertake bio-diversity courses, will need to abide by restrictions on activities such as fertiliser spreading, or cutting silage or hay before predefined dates and will probably need to employ agricultural advisors to prepare bio-diversity plans if previous schemes are anything to go by.
It's easy to say that farmers can choose not to apply for such schemes, but where farm margins absent of EU payments are non-existent, there is very little choice about it; farmers are effectively stuck in a poverty trap.
The feeling amongst farmers is that the EU has turned its back on food production security, and farmers themselves fear that the EU is walking itself into an existential crisis.
If the last few years have taught us anything, it is that the EU cannot depend on foreign countries as supply lines. Examples such as export bans on fertiliser and grain or rice have taken place by many countries as the world convulsed following the invasion of Ukraine by Russia.
Similarly, more significant weather events as a result of climate change are likely to cause increased threats to production.
A blockage in the Suez Canal or conflict in the Middle East can throw an unexpected wobbly. Farmers are not anti-biodiversity; in fact, rather the contrary, given the current cheap food policy and lack of profitability for farmers, the question is, will there be space on farms for farmers, or will there just be space for nature?
