The dairy industry has sought the support of political parties and general election candidates for its agri-taxation proposal to reduce extreme income volatility for dairy farmers.
The 5-5-5 scheme will allow a dairy farmer, participating in income averaging, to defer a modest amount of income during a “good” year into a recognised fund, in order to draw down this income later, during periods of low milk prices.
The ICOS 5-5-5 scheme aims to improve the current income averaging system, which can have negative consequences for farmers when profits are falling.
ICOS president Martin Keane said: “Action is urgently needed from the next Government and we need to think outside the box in order to put in place a suite of measures to help dairy farmers to manage volatility.”
Mr Keane said: “The range and frequency of income volatility affecting dairy farmers is unprecedented in recent years.
"Action is urgently needed from the next Government and we need to think outside the box in order to put in place a suite of measures to help dairy farmers to manage volatility.”
How will the ICOS 5-5-5 income stability tool work?
The proposal by ICOS includes three simple components:
The 5-5-5 scheme should be open to farmers participating in the five-year income averaging scheme already in place.
It will permit a farmer to voluntarily defer up to 5% of their milk receipts in any one year.
And the scheme will allow the deferred funds to be drawn down at any time within a maximum of five years, and subject to income tax at the time of draw down.
Why is this measure needed for dairy farmers?
Dairy farm income fluctuates from year to year, due to circumstances outside the control of the farmer.
External forces such as weather, geopolitical matters, currency, feed and oil prices, disease, and macroeconomic factors can conspire to cause income volatility.
Since the removal in the 2004-06 period of comprehensive EU market support measures, we are in possibly the fourth significant market downturn.
Extremely weak markets occurred in 2006, 2009, 2012, and 2015/16.
What is the benefit for the farmer of your proposal?
The ICOS 5-5-5 income stability tool provides a significant levelling effect, especially during years of low milk price.
For example, a new farmer, married with three children, produces 400,000 litres of milk annually, with income averaging starting in year five of a nine-year period.
The milk price ranges from 25c to 40c per litre over a nine-year period.
The impact of the ICOS proposal is clearly evident in years three and eight, with a low milk price of 25c/l.
The volatility under the current income averaging system ranges from €8,170 to €56,170.
The volatility under the ICOS proposal ranges only from €23,170 to €48,170.
Is this a voluntary scheme?
Yes, the proposed scheme by ICOS would be optional for the farmer.
Can a farmer draw down his income at any stage?
Yes, the money can be drawn down at any time within five years, and subject to income tax at the time of draw down, but in any case must be drawn down within five years.
What happens to the deferred income?
ICOS is proposing that the money be retained in the farmer’s name in a recognised, interest-bearing fund, which would be managed by their co-op, as a loan-stock type instrument.
This fund would be secure and available to the farmer when needed.
* More next week on the ICOS proposal to reduce extreme income volatility for dairy farmers
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